Canadian companies were scrambling a year ago to understand the implications of what was shaping up to be one of the biggest economic upheavals since the Second World War. They rushed to hire consultants and lawyers and understand the intricacies of global trade and the potentially crushing economic impact of

new United States tariffs. Some, such as steelmakers and auto manufacturers , were the first to be upended. Others, like furniture makers, are just starting to feel the sting. Still others have managed to thrive, taking advantage of the situation to bulk up in Canada and abroad.

Though there was once hope the tariffs could be quickly negotiated away, the levies are being grudgingly accepted as part of a new normal as U.S. President Donald Trump’s administration starts its second year on Tuesday.

“We just can’t hope that he’s going to wake up one day and tweet, ‘Just kidding,’” said Luke Elias, president of Muskoka Cabinet Co. in Ottawa, whose $4.7-billion industry was hit with a 25 per cent tariff by the U.S. in October. “The only hope we have is that our government helps us by acknowledging and doing something about their concerns.”

The fresh tariff — along with a threat to double it — was a crushing blow to cabinet makers since some that export as much as 80 per cent of their product to the U.S. were forced to lay off employees, said Elias, who is also vice-president of the Canadian Kitchen Cabinet Association.

For a wide swathe of Canadian businesses, the chief concern as they head into Trump’s second year is the renegotiation of the

Canada-U.S.-Mexico Agreement (CUSMA) , which has insulated many from tariffs they would have otherwise faced on exports to the U.S.

The legal status of the tariffs has been challenged, but even if the U.S. Supreme Court strikes down the justification used to impose them, many believe Trump will dream up a way to replace them.

“Businesses aren’t panicking, but they aren’t betting big either,” Patrick Gill, vice-president of the business data lab at the Canadian Chamber of Commerce, said.

He said capital spending isn’t collapsing, but it’s cautious and selective, while hiring has softened rather than turned into widespread layoffs, with the most caution at trade-exposed firms, especially manufacturers, but the ongoing uncertainty is weighing on investment and expansion decisions across the board.

“Pessimism about the next 12 months is now at its highest point in several years,” he said. “In that environment, firms are holding back on major expansion and taking a clear wait-and-see approach as they look for more clarity on U.S. trade policy and demand conditions.”

Clifford Sosnow, chair of the international trade and investment group at Fasken Martineau DuMoulin LLP, said the companies his law firm deals with are keenly aware that it isn’t easy to detach from the U.S. as a major trading partner, so they’re focused on ensuring they are as insulated as possible from tariff shocks, such as through the wording on new contracts with buyers and suppliers.

“Our clients don’t want to be caught flat-footed with (the) next tariff costs, issues that weren’t covered in many of their contracts when the tariff uncertainties first appeared,” he said. “There is a recognition that the U.S. is not going away as a prime market. They are trying to de-risk the uncertainty.”

David Paterson, Ontario’s trade representative in Washington, D.C., said he’s been impressed by the adjustments some businesses have been able to make, often without layoffs or other obvious signs of stress.

“Tariffs are having an impact, (but) companies are incredibly smart and resilient at finding ways to either find new markets or figuring out how to maintain production,” he said.

Still, he said it’s difficult to plan and pivot when the Trump administration is continuing to consider whether to place products from semiconductors to pharmaceuticals into tariff territory. And companies such as furniture makers and snowmobile manufacturers that were not affected by the first wave of tariffs on steel and other raw materials have since been pulled into the trade war.

“It’s a very simplistic thing to say that Canada has the exemption for everything except auto, steel and aluminum. But when you start to figure out the derivative impact … that is one of the challenges,” Paterson said. “And it’s not just in Ontario; it’s Manitoba, Saskatchewan (and the) Eastern provinces.”

Canadian cabinet makers were among those blindsided when their wares were hit with tariffs in October. A year ago, their biggest concern was a shortage of skilled labour. Even though Trump’s threat to double the tariff imposed in October didn’t materialize this month, the reprieve did little to ease their uncertainty about how to move forward.

“These are big swings and (it’s) difficult for anyone to plan,” said Sandra Wood, executive director of the Canadian Kitchen Cabinet Association, whose members export around $600-million worth of goods to the U.S. each year.

The association estimates that about 20 per cent of the industry is directly hit by tariffs, but there are concerns about the trickle-down effects on the entire industry. Moreover, she said, the uncertainty isn’t just coming from the tariffs. There are signs the

Canadian housing market is softening, while the trade war is diverting global goods, including furniture and cabinets, to Canada.

“Our industry is impacted by foreign imports entering Canada at below fair market value,” Wood said. “No one saw this coming.”

Danby Products Ltd., which sells microwaves, mini-fridges and portable air conditioners, is expecting flat to slightly soft sales in Canada, but exports to the U.S. will definitely be down as a result of the tariffs, Jim Estill, the Guelph, Ont.-based company’s chief executive, said.

“As a business, we are being cautious, which means there is less capital investment happening and that ripples through everything,” he said.

The appliance business isn’t the only one he’s involved in that is being hurt. He bought Arctic Equipment Manufacturing Corp., which has operations in Ontario and Quebec, in 2024, but a 50 per cent tariff on steel now makes that company’s products less competitive in the U.S.

“We will lose much of our U.S. business,” Estill said, adding that the upcoming talks to determine the future of CUSMA are weighing on many business decisions.

“CUSMA renegotiation adds great uncertainty,” he said. Dennis Darby, chief executive of Canadian Manufacturers and Exporters, said his organization is hearing from businesses that are hesitant to embark on significant new capital investments or expansion without seeing forward momentum by federal and provincial governments to reduce regulatory burdens, address tax competitiveness and eliminate interprovincial trade barriers.

“Short of a breakthrough on (trade negotiations), we think this will continue to be the case in 2026,” he said. “The only certainty is uncertainty.”

Still, it’s not a belt-tightening or contracting situation for all businesses. Some with enough capital on hand are formulating plans to take advantage of the disruption, bulking up and even relocating some operations south of the border, where tariffs won’t be a cost they have to swallow or pass on to buyers.

“Well-capitalized clients are taking advantage of the business deterioration caused by the tariffs … to make acquisitions on much more favourable terms than would have been the case in a pre-tariff environment,” John Levin, a partner at Fasken Martineau DuMoulin, said. “(Other) clients are taking a passive wait-and-see approach, (but) those tend to be clients that are poorly capitalized with somewhat limited operating room to manoeuvre.”

CUSMA question

The worst-case scenario would be the demise of CUSMA, which gives Canada an enviably low average U.S. tariff rate compared to other countries. A built-in mechanism will open CUSMA for review in July, even though the agreement was signed to run through 2042.

Paterson said there are several ways negotiations could unfold, and it might suit the U.S. to find ways to avoid reopening the trade agreement.

“If you open up (CUSMA), you need congressional approval. And the administration, I don’t think, wants that,” he said. “They would very much like to just do this without having to go to Congress, because there’s a lot of uncertainty in Congress.”

Keeping the trade agreement intact and using alternative mechanisms such as “side letters” to resolve disputes over dairy import quotas, technology company treatment and other contentious issues would also suit many Canadian businesses, Paterson said.

“Business doesn’t want us to have to renegotiate every year for the next 16 years. They want certainty,” he said. “And so there is a sprint between now and July 1 for Canada to try to arrive at an understanding, whether it’s in side agreements or in other mechanisms … to be able to come to an agreement.”

An even more pressing concern, in Paterson’s view, is what comes next if the U.S. Supreme Court strikes down the “emergency” rationale for many of the existing tariffs. The levies are likely to be replaced by a new tariff regime that leaves the heavy sectoral tariffs on steel and aluminum in place and potentially draws in an even wider swathe of materials and goods.

“If it is struck down, the White House has said very clearly that they would intend to use other tariffs to replace it with, and they’re different,” said Paterson, who was, according to media reports, on the receiving end of an expletive-laced rant from U.S. Ambassador to Canada Pete Hoekstra at a Canadian American Business Council event in October.

“There’s probably more consultation required before they’re applied, but a big question for Canada is, will the United States continue to see it’s in their own self-interest to maintain exemptions, (CUSMA) exemptions, on any of the new tariffs that might be applied?”

Despite the potential for broader tariffs, businesses would be unwise to plan for a doomsday scenario, according to some trade watchers, because the U.S. administration’s evolving overhaul of trading relationships could lead to some benefits for Canada.

Brazil — like Canada, a big agricultural and minerals exporter — is one target of the U.S.’s ongoing investigations into trading practices it has deemed harmful to American companies and workers.

“To the extent that certain other countries are facing ongoing U.S. tariff investigations, Canada could be relatively advantaged,” Michael McAdoo, a partner and director in the global trade and investment practice at Boston Consulting Group Inc., said.

A worsening trade relationship between the U.S. and Brazil could boost Canadian trade in commodities such as beef and soybeans, William Pellerin, a partner in the international trade group at law firm McMillan LLP, said.

But he said there could also be a downside for other Canadian companies if Brazil looks to the Canadian market as an alternative to the U.S. for other products, such as furniture and hardwood flooring.

“While U.S. tariffs on Brazil may have some upside for some Canadian producers of various agricultural commodities where the Brazilians are being locked out of the U.S. market, there may be, overall, a net harm to Canadian production due to this diversion into Canada of Brazilian product,” he said.

Pellerin said the ongoing trade uncertainty is causing pain for certain Canadian sectors, but it is not universal.

“Clients that are less exposed to tariffs or trade measures, or that rely more on markets outside the United States, appear far more enthusiastic about 2026. We are seeing increased transaction activity,” he said. “While our international trade team continues to hear from clients about the widespread business uncertainty, for most clients, this uncertainty does not appear to be leading to a halt in spending, hiring or investments.”

Stuart Trew, a senior researcher at the Canadian Centre for Policy Alternatives, said he’s watching the U.S. economy for clues about how this year will play out, including mounting signs of slowing manufacturing growth outside of data centre construction.  He’s also keeping an eye on how U.S. companies manage the higher tariffs on imports.

If the economy isn’t stimulated to the extent Trump hopes with his tariff policies, or companies are too heavily burdened, he said it could leave room for an easing of the global trade-related disruption.

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“They’re not investing in new production and some companies … (are) borrowing in order to keep business going as usual for as long as they can in the hopes that this thing will be solved at some point, so all of that is coming to a head,” he said.

However, given the interconnectedness of the two economies, this might not be good news for all Canadian businesses.

“The downside of that is … any kind of downturn in the U.S. economy is going to be bad for Canada as well,” he said. “We’re all going to go down with them.”