TORONTO — Richard Martin is out of cash and out of ideas. The CEO of Plantagenet, Ont.-based Dynamo, a specialty playground manufacturer, paused production last month in anticipation of steep tariffs that would force his U.S. buyers—which account for 70 to 80 per cent of his business—to pay an extra 25 per cent for his products. Unable to pay his staff, he laid off about 90 per cent of them—all but five workers. 

“I don’t know what to do,” said Martin on Tuesday morning, a day after U.S. President Donald Trump launched a hostile trade war with Canada.

Offering U.S. buyers lower prices to offset the tariffs isn’t an option, he said. It would wipe out his profit margins. He can’t sell exclusively in Canada because the market isn’t big enough to make up for lost business in the U.S. And moving operations across the border to avoid tariffs—as Trump has suggested Canadian businesses do—requires money he doesn’t have. 

Small business owners like Martin are responsible for nearly 90 per cent of all exports in Canada. The United States is their biggest market, and their sales account for about 18 per cent of total export value from Canada into the U.S., according to Statistics Canada. 

Many of them operate on thin margins, with little cash in the bank, small order volumes and weak negotiating power. That leaves them scarce room to maneuver when major shocks, like a trade war, throttle their business. 

“If you look at a small business, you have less capacity to absorb or withstand some of the immediate negative impact,” said Simon Gaudreault, chief economist at the Canadian Federation of Independent Business (CFIB). Compared to larger firms, said Gaudreault, “you will start feeling the pain more quickly.” 

When CFIB surveyed small and medium-sized businesses in the first half of February, a third of 2,412 respondents said the cost of their goods and supplies had already increased because of the tariff threat. Twenty-six percent said customer demand had slumped and 18 per cent had contracts cancelled or placed on hold. 

Chantale Noel, who owns Lethbridge, Alta.-based body-piercing shop Hole Lotta Love, said she expects business to slow. Between 50 and 75 per cent of her jewelry and piercing equipment comes from the U.S.—about $200,000 worth of product each year, she estimates. She can’t absorb the full cost of Canada’s 25 per counter-tariffs on top of that, but she said bookings will stop if she passes the cost onto customers. Piercings require disposable income, said Noel, which many Canadians will have even less of in a trade war. 

Dana McCauley, CEO of the Canadian Food Innovation Network, said domestic food manufacturers have started “SKU pruning.” That is, brands may stop selling certain products on either side of the border made with American ingredients—such as granola bars containing California almonds—to avoid paying tariffs, potentially on both sides of the border. “There’s no way you can make money, and there’s no way you can compete with a California company, ” said McCauley. 

A small body-piercing shop or niche food producer doesn’t have the economic heft of an auto manufacturer or oil driller. For that reason, such mom-and-pop shops tend to be left out of negotiations about tariff exemptions or relief. 

Collectively, though, small businesses have an enormous impact on the economy. From 2017 to 2021, companies with fewer than 100 employees contributed 34.4 per cent to private-sector GDP, Statistics Canada data shows. These businesses employed 46.5 per cent of the country’s private labour force in 2023. In other words, Canada’s economy depends on these businesses surviving the tariff war. The early signs suggest many might not.

The ongoing uncertainty around tariffs—how long they’ll last and to what products they apply—only makes the situation more complicated for small business owners. “You can’t blame businesses for not being very prepared,” said Gaudreault, noting that just four per cent of respondents to CFIB’s February survey said they were very equipped to deal with the tariffs.

The ideal solution for most businesses, he said, is to find suppliers and customers outside the U.S. But that’s easier said than done. CFIB found that 26 per cent of importers would take over six months to find non-U.S. suppliers, and another 12 per cent said they weren’t considering new suppliers at all, perhaps, said Gaudreault, because their products rely on goods only available in the U.S. 

For small Canadian exporters, the ability to pivot appears even harder. Over 50 per cent said it would take more than six months to find new markets to replace their U.S. business, and 15 per cent said they weren’t considering new markets. “Our capacity to react to considerably realign our economy in the short term, is limited,” said Gaudreault. 

Some small businesses are bracing for a delayed impact from the tariffs. David Breda, owner of Woodbridge, Ont.-based Leader Plumbing, has reached out to all suppliers and vendors asking what products will be subject to tariffs and how much it will impact their costs. He expects it will take about a month before he has that information. In the meantime, he’s looking for Canada-made alternatives. Breda said he’s willing to pay more for Canadian parts and equipment now, as long as they’re cheaper than U.S. goods after factoring in the cost of tariffs. 

Chris Hedges, an apple farmer around Simcoe, Ont. and chair of Ontario Apple Growers, an industry association, said much of this year’s apple crop has already been shipped to distributors. If the tariffs drag into next fall, however, farmers may have more fruit than they can sell in Canada. “If we go into the September season without the ability to export into the U.S., it’ll be a much bigger problem than it is now,” said Hedges. 

Gaudreault said many small businesses are still recuperating from COVID-19, making it even harder to cope with steep tariffs. Years of high interest rates and inflation that followed the pandemic have made it challenging to save money and invest in their businesses, he said.

Ottawa and some provinces have said they’ll provide relief to businesses hit hard by tariffs. Quebec, for example, is offering low-interest loans with flexible repayment times to help local companies increase their productivity. New Brunswick is offering affected businesses up to $5 million in working capital loans, and plans to provide $40 million to help “export-intensive companies” in the province find new markets. 

Martin, the playground manufacturer, said he’s leery of taking more loans to keep his business afloat. He did exactly that during the pandemic and is still paying off debt and its growing interest. “I’m not doing it this time,” he said. “Unless the money is free, I’m not borrowing anymore. I’m done.” 

Thursday afternoon, Trump paused tariffs on Mexico and Canada until April 2 for goods that comply with the North American free trade agreement. But Martin said his business can’t handle the uncertainty. He can’t properly quote his customers—his products take months to build and he has no way to know what they’ll cost by the time they cross the border. Without new orders, he can’t rehire workers. Even if he could, he doubts they’d return in these conditions. 

Whether the trade war lasts months, years or just days, Gaudreault said the shock it creates will likely alter how Canada’s small businesses operate going forward. What that means will vary from company to company, he said. Some may find permanent new trading partners, while some may rewrite contracts to include clauses that protect them from future tariffs or similar disruptions. Others may set up shop in the U.S. to be closer to American buyers. “All of these scenarios can happen,” he said. “What will determine which ones are most popular is how long they experience uncertainty or the tariffs.”