Since US President Donald Trump began his second presidential term nearly two years ago and announced sweeping tariffs on Canadian goods, businesses on both sides of the border have had to repeatedly scramble to adjust to rapid developments in a volatile trade war. When attempts to reach a deal between Trump and Prime Minister Mark Carney in August broke down, leading to a new round of tariffs from both countries, it threw yet another wrench into the future of Canada’s already-struggling businesses – particularly those that export to the US.
For some insolvency lawyers, however, tariffs only partly account for the challenges Canadian businesses are facing right now. Denis Ferland, a Montreal-based partner at Davies Ward Phillips & Vineberg who specializes in bankruptcy and insolvency, argues that tariffs only compound a bigger consequence of the trade war: ongoing uncertainty.
The fallout of this uncertainty has been “major” for businesses, Ferland says.
“If you’re about to invest in your business and you don’t know what’s forthcoming, you will delay your investment. If you’re to make an acquisition, you will delay it simply because you don’t know what’s the next step,” the litigator says. “The uncertainty causes businesses to slow investment, slow or delay transactions, and that in itself is bad because you need to replace that [with] new transactions, new sales.
“That is easier said than done,” Ferland adds.
Natasha MacParland, a partner at Dentons and national co-leader and Toronto leader of the firm’s restructuring, insolvency, and bankruptcy group, meanwhile, points to geopolitical volatility as another major factor exerting “distress and pressure on companies” – particularly because it has driven up diesel prices.
These prices have ramifications across the entire supply chain, MacParland argues, adding that this is especially true for businesses in a country as large as Canada, where intermodal transportation is key. “At one point in September [diesel] was like $2.74 a litre, which is pretty significant,” MacParland says.
“If you’ve got a tariff on top of increased diesel [prices], maybe you’re not going to sell to the US, right? That becomes a fairly serious conversation that business has to have,” she adds. “For logistics companies, what loads they take and what routes they use… become informed by diesel prices.”
Canadian businesses have responded to these pressures in various ways. MacParland observes that many companies have managed to survive by passing rising costs to their customers. “I think that the ability of a business to adjust pricing and pass the cost along through to a customer is an important differentiator for which businesses will suffer distress and which ones will not,” she says.
Ferland, meanwhile, notes recent news stories about Canadian companies moving – or considering moving – production down to the US. In September, for example, the Montreal Gazette highlighted companies in Quebec, Manitoba, and Ontario that have either moved or already moved production south of the border to keep their companies afloat; the founder of one Quebec company said that 70 percent of its clients are American.
Such moves will, unfortunately, create more jobs in the US instead of keeping them in Canada, Ferland says.
In the future, he anticipates that many Canadian businesses will either try to buy businesses in the US or in other jurisdictions with fewer trade restrictions. These transactions “may or may not be beneficial to the Canadian economy,” he says. “If you move your business somewhere else, it’s another loss for the country.”
Ferland also predicts industry consolidation in certain sectors, resulting in less competition. “Rather than having five players in Canada, the strongest one will survive, and the three others will either be bought or disappear,” he says. “If you want to be pessimistic, the two that will survive may be Canadian-owned, but they can also be owned by foreigners.”
Something neither Ferland nor MacParland expect to see, however, is an immediate increase in insolvency filings. Ferland draws parallels with the COVID-19 pandemic, when many companies were struggling financially, and insolvency practitioners initially anticipated a sharp uptick in insolvencies. But contrary to the historical pattern of insolvency filings increasing during economic downturns, Bankruptcy and Insolvency Act filings actually fell during the pandemic, partly due to the availability of relief from pandemic-era government programs.
Ferland argues that the pandemic's impact hit many of these companies much later. “Businesses managed to survive during that period, but couldn’t face the indebtedness thereafter or the changes in the market,” he says. Many BIA filings in 2025 and 2026, “in my mind, are the result of the COVID period.”
MacParland predicts the ramifications of the trade war will be similarly delayed. “The reality is that the full impact of the tariffs is just going to take time,” she says. “I don’t know that today’s insolvency activity or even next quarter’s insolvency activity will tell us where this is ultimately going to lead.
“I think we're probably going to see… in 12 months or 18 months which companies have been able to mitigate the impact and which ones have not,” she adds.
Still, MacParland is cautiously optimistic about how Canadian businesses are responding to the trade war. While the pandemic introduced an “immediate economic rupture” that is not perfectly comparable to the uncertainty and long-term, structural changes created by the trade war, businesses have clearly taken lessons from the former on how to adjust to an uncertain future quickly.
“In particular, what I’ve seen a lot of well-run Canadian businesses do is talk to their bankers so that they and their bankers are aligned and everybody understands what the playbook is, and that people are … aware that there’s potentially an issue and they’re working with their bankers and their stakeholders,” MacParland says.
As was the case during the pandemic, the federal and provincial governments are also offering relief through programs, including the Large Enterprise Tariff Loan, which was launched in direct response to the trade war, as well as those first established during the pandemic. MacParland argues that during the pandemic, some companies received support even though they “would not have survived even absent the pandemic,” and later filed for insolvency. However, many relief programs are now doing more due diligence to ensure they focus resources on solvent entities that are likely to continue doing business.
Ferland agrees that “a number of lessons from COVID will be useful for what we’re going through.” However, it remains to be seen how badly the trade war will impact Canada’s economy.
“We’ll see how things evolve,” he says. “But as our prime minister said in Davos last winter, it will never go back to what it was before.”