As trade tensions evolve into a full-fledged economic headwind, the decline in business optimism that began last fall has deepened in Q2. This edition of Business Insights Quarterly reflects April and May data from over 9,000 businesses across Canada — and the impact of tariff uncertainty, countermeasures and trade disruptions is becoming increasingly visible. Confidence is slipping, cost pressures are rising, and exporters, typically more optimistic than their peers, are showing the sharpest drop in outlook.

Business Outlook

Business sentiment fell to its lowest level since Q4 2023 — a period marked by persistently high interest rates. Driving the decline were growing expectations of weaker sales and shrinking profitability over the next three months — a sign that mounting trade uncertainty is weighing heavily on Canadian businesses.

By Region

Ontario has the lowest business sentiment among the provinces and is home to Oshawa, the census metropolitan area (CMA) with the lowest outlook. Meanwhile, Calgary, which had shown relative resilience in previous quarters, saw one of the steepest drops in sentiment this quarter.

Business Obstacles

Inflation retains its top spot on the list of business obstacles expected over the next three months — with a landslide 49%. Costs of inputs took the second spot with 27% of businesses reporting it.

Cost-related business obstacles remain dominant, though demand-related obstacles (fluctuations in demand, attracting customers, and increasing competition) keep the number two spot, ahead of labour.

To mitigate rising costs of inputs and services, almost 20% of businesses expect to increase their prices over the next three months.

Goods and Services Exporters

Trade tensions have dragged exporter sentiment to its lowest level in years, with a steep decline since last quarter.

Impact of U.S. Tariffs on Canadian Imports

Businesses in manufacturing, transportation and warehousing, and agriculture, forestry and fishing are more likely to report medium-to-high impact from U.S. tariffs on Canadian imports.

Impact of Canadian Tariffs on U.S. Imports

Canada’s counter-tariffs seem to be hitting Canadian businesses harder than the U.S. measures they answer. A higher share of Canadian businesses report medium-to-high exposure to Canada’s retaliatory tariffs (37%) than to U.S. tariffs (35%).

Actions Taken to Mitigate Risks Associated with U.S. Tariffs

Goods exporters are more likely to act to mitigate risks associated with U.S. tariffs on Canadian imports than services exporters:

• 28% of goods exporters have diversified their sales outside of the U.S. vs. 19% of services exporters.
• 37% of goods exporters have diversified their suppliers outside of the U.S. vs. 19% of services exporters.
  

While most Canadian businesses are staying the course, exporters are responding to rising tariff risks. Nearly three-quarters (73%) of businesses have taken no action to mitigate U.S. tariff threats. In contrast, most goods exporters — and many services exporters — have already started adjusting sales strategies, diversifying suppliers, delaying investments and building inventory. Risk exposure is driving action.

USMCA

The share of goods exports to the U.S. claiming NAFTA/USMCA tariff preferences surged to 50% in 2025, up from around 37% last year.

Supply Chain Obstacles

Of the goods exporters that are experiencing supply chain obstacles, over 60% believe that they have worsened over the last three months — up from under 30% in Q1.