US-Canada Trade War Squeezes Small Businesses As Iran War Drives Up Costs

A trade war between the United States and Canada is making it more difficult and expensive for small businesses in the economically entwined countries to operate, according to business owners caught in the crossfire.

Canada imposed reciprocal tariffs on about $20 billion (CA$27.6 billion) worth of US goods last week after President Donald Trump placed import taxes on Canadian goods worth the same amount. In response to Canada’s action, Trump said the US also would ban imports of wine, whiskey, selected motorcycles and the dairy ingredient whey from Canada.

The tariffs so far involve about 5.5 percent of the neighboring nations’ bilateral trade in goods. Analysts say the overall economic impact therefore will be muted. But small business owners who depend on cross-border sales say a tax of up to 50 percent on their products 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 owners of four small businesses, two in the US and two in Canada, spoke with The Associated Press about the ways the trade war is affecting their companies. At Jasper Hill Farm, an artisan cheesemaker in Greensboro, Vermont, co-founder Mateo Kehler said Trump’s opening salvo produced an immediate effect: canceled holiday orders from wholesale customers in Canada, whose border is only about 40 miles away.

Cheese wasn’t among the products made subject to new US tariffs last month. Kehler suspects his hopes for expanding business in Canada are stalling because residents there resent the way the president and members of his Cabinet treat their country, a longtime ally.

“The backlash on the market side is actually what’s affecting us the most,” Kehler said. “It’s the rhetoric that has inspired a boycott.” Trump has needled America’s northern neighbor repeatedly since he returned to the White House. First, it was comments last year about wanting to absorb Canada as the 51st state. After trade negotiations broke down in August, he taunted Prime Minister Mark Carney and signed an executive order to change the name of Lake Ontario to Lake America.

The lost sales and higher prices for materials and equipment that Kehler buys from Canada are tough to swallow when the war with Iran has made fuel for Jasper Hill Farm’s trucks and machinery more expensive too, he said. Some of his suppliers and distributors are adding surcharges to cover their costs, he said.

“It’s like death by a thousand cuts, because between the rising cost of energy and the tariffs, the inflationary pressure on the inputs across almost every aspect of our business — from the farming side all the way through to finished goods — is just being ratcheted up,” Kehler said. Revival Stillworks makes equipment for distilling liquor like vodka, agave and whisky and helps design spaces for producing craft spirits from the company’s base on Vancouver Island, less than 20 miles from Washington state’s San Juan Island.

Until last month, the equipment could enter the US tariff-free under the United States-Mexico-Canada Agreement, a trade pact Trump negotiated during his first presidency. Now, the company’s stills, fermenters and other products incur a 50 percent tax for crossing the border, co-founder Darcy Lane said. The customs charges are considerable because the equipment costs $250,000 to $2 million, Lane said.

“We’ve got millions of dollars worth of orders that are supposed to be happening over the next four to six months, and then all of a sudden this happens again,” he said, recalling how a US customer called off a project last year when Trump threatened to put tariffs on some Canadian products.