If you’re a small business owner on either side of the U.S.-Canadian border, you’re likely deeply aware of the fundamental shift in the relationship between the two countries, which trade about $880 billion in goods and services a year.
When trade talks fell apart in late August, the U.S. slapped 50% tariffs on a wide range of Canadian products. Canada hit back with tariffs of 15% to 50% on hundreds of American goods. And just weeks ago, the U.S. banned nearly $1 billion worth of Canadian imports, including dairy, vehicles, and many alcoholic beverages.
According to the Associated Press, so far the tariffs involve about 5.5% of the neighboring nations’ bilateral trade in goods. Small business owners, reliant on cross-border sales, told AP that the tariffs and “ill will created by the conflict have an outsize effect on them, especially when higher energy costs stemming from the Iran war are eroding their balance sheets.”
The result: higher costs for business owners in both nations who import parts, inventory, or ingredients, and a rougher road for all businesses selling across the border. The 2026 Tariff & Trade Policy Report from NFIB was issued several months ago and reveals that American small businesses say predictability and cost stability are their top priorities, and how they’re already being impacted by the tariff war:
- 56% of respondents say tariffs negatively impact operations
- Of those negatively impacted, 78% of owners reported higher prices for supplies or inventories, 58% reported lower profits, and 43% reported supply chain disruptions
Canadian small businesses are feeling the strain as well. Merchant Growth’s 2026 Canadian Small Business Report shows:
- 65%of Canadian small business owners surveyed say S.-Canada trade tensions affected their businesses
- Among those affected,52% said their businesses were performing worse than at the same point last year
- 38% reported spending more on goods and supplies
Roger Pierce, a Canadian small business expert, podcast host, and author of The Unsure Entrepreneur, points to research from the Canadian Federation of Independent Business showing that three in four small businesses surveyed say the tariff fight has already strained relationships with U.S. partners or clients.
Pierce notes that the tariff wars are straining Canadian small business owners doing business in America since they’ve “had to keep up with shifting tariffs and border rules” since 2025.
And he adds, “Canadian small businesses love selling to our U.S. friends and neighbors. But the dilemma now is whether to absorb these extra costs, raise prices, or reconsider whether a sale still makes financial sense.”
So, what should American small business owners do now? I asked Mark Valentino, President of Business Banking at Citizens, and Ben Johnston, COO of Kapitus, a small business lender and marketplace, what they’re seeing and how businesses should respond.
How Small Businesses Can Respond to Tariff Uncertainty
Rieva Lesonsky: What are you seeing among small business customers as the U.S.-Canada trade dispute escalates? Are tariffs already affecting borrowing, cash flow, inventory, pricing, or expansion decisions?
Mark Valentino: The effects show up in business decisions long before they show up in headline financial results. Owners are spending more time reviewing supplier relationships, inventory strategies, pricing plans, and working capital needs because they do not know how costs may change from one quarter to the next.
What stands out is that tariffs are becoming part of a broader conversation about financial flexibility. In Citizens’ latest Business Pulse research, managing tariffs was cited as a challenge by roughly one-third of businesses with more than $5 million in revenue. Rising costs remain the larger concern, but tariffs are adding another layer of pressure that owners have to account for.
The businesses responding most effectively are staying close to their numbers and making adjustments early to stay on top of their cash flow.
Ben Johnston: Small businesses are already grappling with elevated inflation rates, slowing job creation, and a spike in oil and gas prices due to the war in Iran. A volatile tariff strategy, including the $28 billion trade war with Canada, is adding to that pressure. Tariffs are impacting small businesses in a few ways, particularly the supply chain.:
Supply chains have been unstable ever since COVID, when demand changes, production challenges, and labor shortages sowed chaos throughout the world. Since then, global conflicts, including in Ukraine and the Strait of Hormuz, have combined to wreak havoc on international shipping.
Ongoing tariff volatility is putting added pressure on small businesses that source goods overseas. Over the course of the year, small businesses have learned how to navigate these tariffs, altering supply chains and onshoring as much production as possible in an effort to avoid the tariff’s most painful effects.
Lesonsky: For a small business facing higher costs because of tariffs, how should an owner decide whether to absorb those costs, raise prices, reduce inventory, seek financing, or make other changes?
Valentino: Every business has a different customer base, cost structure, and competitive position. The first step is understanding exactly how much exposure exists. Many owners know costs are rising, but they have not quantified where the pressure is coming from or how much it is affecting margins.
From there, the goal is preserving options. Some businesses may have room to adjust pricing. Others may focus on inventory management, supplier diversification, expense reductions, or short-term financing to bridge the gap. The right answer depends on the business.
Cash flow should be at the center of the conversation. Owners who have a clear view of incoming and outgoing cash can make deliberate decisions. Owners who lose visibility into cash flow often end up reacting under pressure. Citizens’ research continues to show businesses placing increased focus on cash flow management and financial visibility as economic uncertainty persists.
Johnston: Given President Trump’s commitment to using tariffs as leverage in his negotiations with foreign countries, and his willingness to reach for novel interpretations of existing trade law, it seems unlikely that he will abandon tariffs as an economic strategy. We believe the President remains as committed to his tariff strategy today as he was when he entered office, and that small businesses are unlikely to see a significant drop in tariff rates during the Trump Administration without an act of Congress, defying the President’s wishes.
We expect small businesses will likely delay raising prices as long as possible, but if prices remain elevated, businesses will ultimately need to pass these expenses on to customers.
Successful businesses maintain multiple financial relationships capable of providing working capital to fund growth. Many also finance equipment purchases and maintain revolving lines of credit to manage the volatility of cash flows month to month. It is important for small businesses to maintain both bank and non-bank relationships to ensure access to a full suite of financial products.
Lesonsky: What should businesses with exposure to Canadian trade be doing financially now if they don’t know how long these tariffs will remain in place?
Valentino: Planning around uncertainty is different from trying to predict policy.
Owners should understand their exposure, pressure-test their cash flow under different scenarios, review supplier concentration, and evaluate what financing options are available before a need becomes urgent. Having those conversations early creates flexibility.
Many successful business owners are treating this as a scenario-planning exercise. They are asking what happens if tariffs remain in place for three months, six months, or longer. They are reviewing inventory levels, customer contracts, pricing strategies, and working capital needs so they have a plan ready if conditions change.
The objective is to make sure the business can adapt regardless of the outcome.
Johnston: Small businesses should keep a close eye on changes to tariffs on the specific goods and countries that they import from. If a drop in tariffs occurs, small businesses should have the capital lined up to finance the purchase of critical inventory at discounted prices. However, small businesses should also be prepared to continue managing their companies without significant tariff relief and should explore opportunities to source more goods domestically.
Small businesses should also be aware that some suppliers may receive refunds for tariffs they previously paid. Only the importer of record is eligible for those refunds. If suppliers passed those tariff costs along to small business customers, those customers may want to ask for price concessions on future purchases.
We do not expect those receiving refunds to reduce prices materially once refunds arrive for several reasons. First, refunds are paid in a lump sum. Refund recipients are likely to treat the money as a one-time windfall which can be used to either reinvest in the business or dividend out of the company for personal use. Second, tariffs on most imported products continue under other trade policies, and with consumers now used to paying higher prices for imported goods, we expect these new tariffs to be passed on to borrowers just as the now overturned tariffs were.
Lesonsky: Mark, are tariffs changing the kinds of investments businesses are willing to make?
Valentino: What we are seeing is a greater emphasis on investments that improve efficiency, strengthen productivity, or provide better visibility into business performance.
Business owners still want to grow. The question is where they are directing capital. Investments tied to operational efficiency, technology, and financial management tend to be easier to justify in an uncertain environment because they can help the business respond more quickly when conditions change.
The conversation is becoming less about pursuing growth at any cost and more about making investments that support growth while preserving flexibility.
Lesonsky: So, are owners delaying equipment purchases, expansion, hiring, or other capital expenditures because of uncertainty?
Valentino: Some are taking a more measured approach to larger commitments, particularly when those decisions depend heavily on assumptions about future costs, demand, or supply chains.
However, uncertainty does not automatically mean businesses stop investing. Many owners continue to invest, but they are placing a premium on flexibility. They may phase a project instead of doing it all at once, delay a portion of an expansion plan, or seek financing structures that preserve liquidity.
The businesses moving forward are often not putting growth plans on hold. Instead, they are reworking those plans so they can adapt if conditions change. Businesses can tolerate uncertainty much more effectively when they maintain strong cash flow visibility and give themselves options.
Lesonsky: Ben, are you seeing businesses seek short-term financing specifically to manage tariff-related inventory or cash-flow pressures, and when does borrowing to cover those costs make sense — and when is it dangerous?
Johnston: At Kapitus, we haven’t seen significant borrowing activity specifically related to the impact of tariffs since early 2025, when U.S. importers took out loans to finance large orders placed in anticipation of tariffs going into effect. While it is possible that some importers of Canadian goods recently financed orders ahead of the imposition of tariffs on Canada, we have little evidence to support this in our portfolio.
We have, however, heard from existing customers that the imposition of tariffs and higher energy prices as a result of the war in Iran are impacting margins and creating hardship. This hardship may result in the need for additional borrowing, or in certain cases, for payment relief in order to maintain the health of the business.
We saw hardship issues related to tariffs rise in the second quarter of 2025 when the President first implemented his “Liberation Day” plan, but new expressions of hardship related to tariffs subsided as small businesses repriced their products and adjusted supply chains to restore margins that were compressed by the imposition of tariffs. Today, we hear many more complaints about the impact of high energy prices on small business margins than we do about the impact of tariffs on those margins.
My Takeaway
Even if you don’t do business with Canadian companies, don’t think your small business won’t feel the impact of this tariff skirmish. As David Gens, founder of Merchant Growth, says, “You don’t have to export anything to feel this trade war. It lands on a supplier’s invoice, or with a customer who decides to hold off, and a lot of owners can’t pass that cost along.”
There is no end date in sight. And while big businesses have trade lawyers and deep pockets to ride this out — most small businesses don’t. That makes flexibility especially important.
Know where your business is exposed, keep a close eye on cash flow and margins, explore alternative suppliers, and understand your financing options before you need them. You can’t control what happens next in the U.S.-Canada trade dispute, but you can make sure your business is prepared to respond.
Rieva Lesonsky is the founder of Small Business Currents, a content company focusing on small businesses and entrepreneurship. You can find her on Twitter @Rieva, Bluesky @Rieva.bsky.social, and LinkedIn. Or email her at Rieva@SmallBusinessCurrents.com.
Photo courtesy Brian Forsyth via pexels.
