Navigating Trade Wars: Perspectives from Canada

This is the seventh insight from Clyde & Co’s ongoing series analysing the legal and economic impacts of shifting tariff policies amid rising trade tensions.

Canada is feeling the strain of an escalating global trade war, which has intensified significantly since late 2024. As tariffs rise and supply chains falter, the ripple effects are being felt across critical sectors—including construction, automotive, agriculture, and retail. Amid retaliatory trade measures with both the United States and China, Canadian businesses are navigating unprecedented uncertainty, and consumers are beginning to feel the impact.

In this article, Canada-based Partner Cynthia Aoki and Graduate Pearlie Kanwa explore the intensifying global trade war’s impact on Canada, examining recent tariff escalations with China and the U.S., and their cascading effects on key industries, economic indicators, and cross-border logistics strategies.

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Timeline of Key Trade Actions

The current wave of trade disruptions began on October 22, 2024 when

Canada imposed a 25% surtax on a wide array of Chinese steel and aluminum products.  This surtax was implemented under Section 53 of the Customs Tariff to protect Canada's workers and investments in these sectors from China's unfair trade practices and to prevent trade diversion resulting from recent actions taken by Canadian trading partners.  

Unrelated to Canada’s actions toward China, on March 12, 2025, the United States imposed a 25% tariff on imports of Canadian steel and aluminum under Section 232 of the Trade Expansion Act.  The move reflected Washington’s escalating protectionist trade agenda and added pressure to an already strained bilateral relationship. It also marked a reversal of the exemptions secured under the United States-Mexico-Canada Agreement (“USMCA”), renewing tensions between the two economic allies.  

Canada responded swiftly, announcing its own 25% tariffs on $29.8 billion worth of U.S goods - including a range of consumer goods and materials used in manufacturing. 

In retaliation to Canada’s China Surtax Order (2024), on March 20, 2025, China levied tariffs of up to 100% on key Canadian agricultural exports, including rapeseed oil, yellow peas, pork, and seafood—further straining Canada’s trade position. 

Impact on Varying Industries

The construction sector in Canada has been among the industries hit hardest. Surging prices for key  materials, particularly steel rebar and aluminum cladding, have forced developers to delay, scale-down, or cancel projects altogether. These cost pressures are disrupting activities across both residential and commercial construction projects. 

Canada’s auto industry, highly integrated with U.S. supply chains, is also facing mounting cost pressures. Tariffs on key inputs have impacted production schedules and threaten manufacturer’s profitability.

General Motors for example, recently announced it would scale back operations at its Canadian Oshawa Assembly plant, reducing three shifts to two - affecting approximately 700 employees, due to declining demand and trade-related complications.  These disruptions reflect broader pressures across the automotive sector, heavily relies on complex, cross-border supply chains. As economic advisors note, the integrated nature of North American logistics means that disruptions to Chinese shipments arriving at major U.S. ports—often chosen for their convenience and capacity—can delay the movement of goods into Canada as well.  The fallout is particularly acute in the auto sector, where Canadian manufacturers rely on a consistent flow of imported components routed through U.S. ports to maintain uninterrupted production.

Canadian retailers are beginning to feel the strain as well. Big-box stores and grocers are experiencing delays and higher costs for Chinese-sourced goods, with inventory pressure expected to worsen. Supply chain professionals are warning consumers to prepare for product shortages and rising prices as the effects of the trade slowdown begin to materialize. With container shipments from China significantly reduced, logistics experts anticipate the most visible impact by mid-May 2025. 

Broad Economic Slowdown

Canada’s economy is already reflecting the toll of the ongoing trade tensions. In April 2025, the S&P Global Manufacturing Purchasing Managers’ Index (PMI) fell to 45.3.  As readings below 50 signal a contraction, this suggests that Canadian manufacturers are experiencing reduced orders, lower output, and i uncertainty. 

At the same time, the Business Activity Index for Canada’s services sector registered 41.5—its fifth consecutive month below the 50 threshold —indicating continued weakness across non-manufacturing industries such as logistics, retail, and professional services. 

Considered together, these indices point to widespread signs of softening demand, delivery delays, and cautious business activity amid mounting economic pressures.

Canada as a Trade Detour

As tariffs imposed by the US soar, many companies are rerouting China-origin shipments into Canada to take advantage of bonded warehouse facilities, where goods can be stored without immediate duty payments. 

Flexport, a platform that co-ordinates global logistics, reported a 50% spike in shipments from China to Canada in mid-April. Major players—including Amazon and Walmart’s third-party sellers—are warehousing goods in Canada, in anticipation of a potential U.S. tariff rollback.

However, this strategy carries significant risks. Experts warn that if trade tensions persist, it could strain Canada’s already limited resources and flood the domestic market with discounted goods. Additionally, products originally intended for the U.S. market may not meet Canadian labeling or regulatory requirements, making them unsellable and subject to destruction, while storage fees of up to $250 per container per day can quickly erase any potential cost advantages. 

Strategic responses to the shifting trade environment

In light of the ongoing trade disruptions, businesses with operations in Canada should consider taking proactive steps to navigate the uncertainty, including:

• Diversify supply chains beyond tariff-exposed markets: Identify and engage alternative suppliers in regions less affected by current tariffs, reducing dependency on high-risk areas like the U.S and China.  
• Strengthening Financial Resilience Through Scenario Planning: Use forecasting and scenario modeling to assess how tariffs may impact costs, cash flow, and pricing. Integrate these insights into budgeting and procurement strategies, and coordinate across teams to develop mitigation plans. 
• Leverage Bonded Warehousing and Duty Deferral Programs: Store imported goods in licenses bonded warehouses to postpone the payment of duties and taxes until the goods are sold domestically or exported. Take advantage of permitted activities like labeling or repackaging to manage inventory efficiently and reduce tariff-related cash flow pressures. 
• Establish a Cross-Functional Tariff Response Team: Implement a centralized “nerve center” that bring together finance, supply chain, legal and compliance teams to monitor tariff developments, evaluate risks, and coordinate swift, organization-wide responses. 

Conclusion

With no diplomatic resolution in sight, businesses face ongoing uncertainty. A sudden end to the trade standoff could trigger a surge of shipments into North America, straining ports and pushing up freight costs, echoing the supply chain congestion seen during the pandemic. 

In the meantime, companies are reassessing supplier relationships, diversifying sourcing strategies, and navigating evolving regulatory requirements.  The extent to which these measures can mitigate future disruption remains unclear.

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