Canadian businesses absorbed the bulk of the financial hit from Ottawa’s short-lived counter-tariffs on U.S. imports, according to new research from the Bank of Canada, which says only a fraction of the added costs were ultimately passed on to shoppers.Blacklock's Reporter says the study concludes the 2025 tariff episode provided a rare real-world experiment in how import taxes filter through to retail prices, with researchers finding that firms largely shielded consumers when they believed the measures would not last.“Tariff pass-through is significant but partial,” the bank wrote in its analysis, titled How Canada’s Counter-Tariffs Impacted Consumer Prices. “About one quarter of the counter tariffs imposed by Canada reached consumer prices, adding roughly 0.3 percentage points to consumer price inflation.”Researchers found expectations about policy duration played a major role in pricing decisions. “When firms expect a tariff to be short-lived, they absorb most of the cost. When they expect a tariff to last some time, they pass some of it on to consumer prices,” the report said.The counter-tariffs were imposed on March 4, 2025, when the government of then-prime minister Justin Trudeau introduced 25% duties on a wide range of U.S. imports, including appliances, coffee, cosmetics, beer, building materials, fruits and vegetables, orange juice, tobacco, and wheat products. “I won’t sugar coat it,” Trudeau said at the time. “This is going to be tough.”.The measures were later suspended on September 1 by his successor, Mark Carney, ending a policy window that Bank researchers say was unusually useful for economic analysis.“Accurately measuring when and by how much tariffs impact retail prices is generally not easy, but the 2025 experience provides a distinct period to study pass-through and pricing behaviour,” the report noted.The bank examined checkout pricing data covering roughly 110,000 products before, during, and after the tariff period. It found goods directly affected by the 25% duties rose about 6% more in price than comparable non-tariffed items.“About one quarter of the counter-tariff showed up in retail prices,” the study said. “These relative prices returned to their pre-tariff level about three months after the counter-tariffs were removed.”Once the duties were lifted, prices quickly moved back in line with unaffected goods. “For groceries and appliances the reversal was nearly complete within three months,” researchers wrote, adding that the adjustment was swift once the policy ended.The bank also found little evidence of spillover inflation in unrelated goods. “Interestingly we see no significant price increases relative to the control group among products that were not subject to the Canadian counter-tariffs such as domestic substitute goods,” it said.Overall, the findings suggest retailers absorbed much of the cost shock rather than passing it directly to consumers, particularly when the policy was seen as temporary rather than permanent.
