Tariffs on Canada and the Uncertain Economic Impacts

The tariffs between the United States and Canada will affect Canada’s technology sector. The tech industry is deeply intertwined in cross-border supply chains and collaborations, meaning new tariffs present challenges and opportunities for innovation and growth.

From disrupting semiconductor and electronics supply chains to rising costs for cloud computing, data centers, and AI infrastructure, Canadian tech faces a complex trade environment. Furthermore, these changes could impact research and development partnerships, venture capital investments, and market access, potentially stalling the progress of startups and scale-ups.

This exploration examines how these impacts will reshape Canada’s tech landscape, what actions companies can take to mitigate damages, and how the broader economic uncertainty could encourage a shift towards diversification and resilience in Canadian technology.

Tariff Impacts on Canadian Tech

Focusing specifically on Canadian technology, here’s what could happen as the tariffs continue to roll out.

Electronic Supply Chains

Canadian tech companies are deeply integrated into North American supply networks. According to a survey done in February 2025, 58% of startup respondents voiced concerns about cross-border sourcing and supply chain worries (Source: MaRS and Communitech). Reliance on cross-border supply chains makes the Canadian tech sector vulnerable to tariffs. The new tariffs are increasing costs for electrical components, which could lead to higher prices for end-users (Source: Buildforce).

Given that sourcing from the US is going up, unfortunately, it’s not easy to change suppliers.

Changing suppliers to other developed countries, such as Japan, increases production time and costs. Switching suppliers to emerging markets, such as Taiwan or Malaysia, also increases the risk of sharing trade secrets with competitors (Source: Global News).

Cloud Computing and Digital Services

While less affected than electronic supply chains, cloud computing and digital services face significant secondary impacts from potential tariffs.

Despite being the USA’s largest aluminum supplier, Washington, D.C., most recently placed a 50% tariff on its imports from Canada in June 2025 (Source: Export Development Canada). These tariffs are increasing construction and equipment costs for data centers in both countries (Source: Carbon Credits.com). These rising costs may affect cloud storage prices, limiting future data centre investments.

Canada’s Digital Services Tax (DST) further complicated the issue. The tax, which targeted large digital service providers earning more than $1.1 billion worldwide, was deemed unfair by the US (Source: Financial Post). Implemented in June 2024, Canada’s DST tax was officially revoked in June 2025 (Source: Government of Canada). These developments have increased the volatility of SaaS solutions used across borders from both sides, breeding uncertainty in the strategic adoption of these solutions.

Research and Development Collaboration

As of now, no tariffs exist on cross-border research between the US and Canada, but the ongoing trade war has the potential to significantly impact technology partnerships. These partnerships—through universities, private companies, and research institutions—depend on exchanging materials, knowledge, services, prototypes, equipment, and intellectual property.

New tariffs could increase costs, administrative burdens, and complicate licensing agreements. These hurdles could cause organizations to restructure their operations within their national borders.

The talent dimension is equally important. Innovation ecosystems thrive on researchers and engineers moving freely across borders. Trade disputes often lead to tighter immigration policies, potentially reducing available talent (Source: CCPA).

Canada’s “brain drain” problem is another setback for Canadian tech research and development. While tariffs may not directly cause brain drain, they contribute to the problem. The economic uncertainty and financial hardships created by tariffs reduce job creation and undermine economic stability, which encourages highly skilled Canadians to seek opportunities elsewhere.

This disruption to the business environment makes Canada less attractive to engineers, scientists, and other qualified professionals who rely on stable market conditions for career growth and security (Source: Forbes). Of all STEM fields, software and computer engineering students are the most likely to move to the United States in search of higher salaries, working for bigger tech organizations, and accessing a greater variety of work opportunities (Source: Brock University).

Investment and Startup Ecosystem

The recent tariffs have created significant economic turbulence across North America, with markets registering a 3% decline in early March, followed by a bounce back shortly afterwards (Source: NBC News). This uncertainty has directly affected investment patterns between the US and Canada.

As markets become uncertain of Canada’s and the United States’ economic future with tariffs, venture capital flow between the US and Canadian tech may become increasingly limited. In the first quarter of 2025 alone, US investors participated in 80% of Canada’s venture capital investment (Source: The Logic). Still, some US financiers have already reported feeling uncomfortable about funding Canadian tech startups given the ongoing trade tensions with the United States (Source: Betakit). 

Beyond funding, tariffs could also cause challenges for Canadian tech startups looking to enter the US market. The US economy is roughly 9.59 times larger than Canada’s, meaning more opportunity for business growth in the US (Source: Statista). According to a survey done in February 2025, 41% of Canadian tech startup respondents have seen a direct hit to 2025 revenues. This economic unease means Canadian tech startups and scale-ups may have to seek new markets or stay limited in Canada for funding and business revenues.

Lower Growth: Higher Costs

The challenging economic squeeze of new tariffs will lead many companies to incur additional operational costs. This risks creating a more complex business environment, tightening profit margins and limiting growth reinvestments unless they pass those costs onto customers, which could decrease demand (Source: Doane Grant Thorton).

Canadian tech startups and scale-ups are particularly vulnerable to these pressures because they lack economies of scale, have limited brand recognition, and already operate on tight margins.

Added tariffs will only make it more challenging for tech startups and scale-ups to turn a profit and invest in further growth.

Supply Chain Distribution

Much of American tech production relies on minerals from Canada. In 2023, the United States accounted for 59% of Canada’s mineral exports, including raw minerals such as aluminum, copper, nickel, uranium, and zinc, all essential for electronics, semiconductors, and battery production (Source: Natural Resources Canada).

This interconnected supply chain faces a severe cost multiplication effect. Raw minerals shipped from Canada to US manufacturers face initial tariffs, and finished products returning to Canada could encounter an additional tariff on each cross-border delivery.

Canadian EV battery production is an example of this. During production, the materials and components cross the border multiple times, incurring tariffs on each crossing (Source: MacMillan Supply Chain Group). Given the tariffs, it’s more beneficial for Canadians to create tech hardware within the country to reduce costs.

Additionally, most general imports from outside North America typically enter through the United States before being redistributed to Canada, creating another layer of complexity. Moving forward, many Canadian organizations may have to ask suppliers to ship directly to Canada, but this alone is a problem.

Many Canadian ports, like Vancouver, are already overcapacity, and Canadian port turnarounds are slower than international standards (Sources: Transport Canada and RBC). If we rely more on direct-to-Canada channels, significant investment will be required to keep supply chains efficient.

Data Centre and AI Infrastructure

The tariffs on aluminum and steel will raise general construction and equipment costs for data centres, which could affect cloud storage prices and AI development. Aluminum and steel are essential materials for server racks, cooling systems, and other infrastructure. Because of that, cloud storage prices increase, which could delay the production of new data centres as AI demand increases (Source: Tech Republic).

Market Access Challenges and Global Competitiveness

Unfortunately, Canadian technology exports may face significant competitive challenges in the US market. With higher prices for Canadian tech products, US buyers may shift to domestic or international alternatives, resulting in decreased demand and reduced export volumes.  

Given this reality, Canadian tech companies must implement strategic pivots—either diversifying their international customer base beyond the US market or refocusing efforts on domestic opportunities within Canada.

The necessity for market diversification comes at a challenging time, requiring Canadian firms to develop new distribution channels, adapt to different regulatory environments, and establish brand presence in unfamiliar markets, all while managing the financial pressures of the tariff situation.

What Canadian Startups and Scale-ups Can Do to Mitigate the Damage

Despite the significant uncertainties facing Canada’s tech sector, Canadian tech businesses should remember that support resources are available. Government programs, industry associations, and business networks continue to help through these challenging trade conditions.

While tricky, the current situation also presents an opportunity for Canadian tech firms to reassess strategies, strengthen domestic operations, and potentially develop new markets beyond traditional boundaries.

Here’s what Canadian businesses can do to mitigate the damage.

Monitor Trade Policy Announcements

Staying vigilant about trade policy developments between the US and Canada is crucial. Since February 2025, tariff policies have changed multiple times and may continue to fluctuate. To ensure Canadian businesses operate with the most current information, regularly checking official government sources for updates from the Canada Border Services Agency or the Department of Finance Canada is important (Sources: CBSA and Department of Finance Canada).

These formal channels provide timely updates on counter-tariffs and other tariff modifications that could impact operations. Given the volatile nature of the current trade environment, incorporating policy monitoring is essential for effective planning and risk management.

Consult Canadian Trade Associations

Export Development Canada’s Trade Accelerator Program (TAP) helps Canadian businesses expand their global reach with mentorship and coaching services (Source: Export Development Canada). 

Diversify Supply Chains

Suppose many Canadian businesses buy raw goods or materials from the United States. In that case, it’s time to diversify supply chains and reduce dependency on the United States by sourcing raw materials or components from other countries or within Canada.

Expand Market Access

It’s a commonsense answer, but not as simple to implement. In 2024, the United States made up 76% of Canada’s exports, making it Canada’s biggest trading partner (Source: Statistics Canada).

Many organizations in Canada will have to find new trading partners beyond the United States if they want to expand their business. Canada Tariff Finder is an excellent source for tariff information on products between Canada and other countries (Source: Canada Tariff Finder).

Beyond North America, free trade agreements exist with the European Union under CETA and the Asia-Pacific Nations under CPTPP.

Government Relief Programs

Canadian tech businesses should begin seeking and applying to programs if their profits rely heavily on importing or exporting goods to the United States. The following programs could be of good use.

Department of Finance Canada Tariff Remissions

The Department of Finance Canada released a tariff remission program for Canadian organizations (Source: Department of Finance Canada Tariff Remissions).

Trade Impact Program

Export Development Canada (EDC) has another program that helps exporters find new markets outside the United States. The Trade Impact Program is designed to help Canadian businesses diversify their markets and limit tariff impacts with $5 billion in funding (Source: Export Development Canada).

“Favourably Priced Loans” from Business Development Canada

Business Development Canada (BDC) is providing $500 million in financing to help small and medium-sized businesses mitigate the impact of US tariffs (Source: Business Development Canada). The program will help SMEs pivot their business by quickly finding new buyers and suppliers with backed funding to support the movement.

Addressing the Uncertain Tariffs

The current tariff situation creates uncertainty for Canadian tech companies and the broader economy. However, one thing has become abundantly clear: relying so heavily on the United States as a trading partner no longer offers the same reciprocal benefits as it used to. This challenging period may serve as a crucial wake-up call for Canadian tech companies (and Canada as a whole) to diversify their trade relationships rather than concentrating economic fortunes in a single market.

The principle of not putting “all the eggs in a single basket” has never been more relevant for Canada. Canadian businesses must explore new global partnerships, develop alternative supply chains, and establish footholds in different international markets. While this transition will require significant adaptation, it could strengthen Canada’s economic resilience by creating a more balanced global trade portfolio.

In the immediate future, many Canadian businesses must prioritize cultivating new trade relationships and partnerships beyond our southern neighbour.

CENGN’s Living Lab Initiative

Although not directly helping with tariff impacts, CENGN’s new living lab initiative supports Canadian startups and scale-ups to move their tech solutions from innovation to commercialization by testing and validating them in a real-world, experimental environment.

With program funding of up to $500,000, Canadian startups and scale-ups can use one of eight sector-based living labs across Canada to test, validate, and prepare their solution for the market to drive business growth.

Learn more about the CENGN Living Lab Initiative.

About the Author

Being the Content Marketing Lead at CENGN, Richard researches and shares information on emerging technologies such as 5G, IoT, and Artificial Intelligence.

Through his experience in writing and support for technological growth, he’s always interested in sharing how new technologies are shaping the lives of fellow Canadians.

More by Richard Galazzo