A new Bank of Canada report estimates that prices for goods hit by the counter-tariffs Canada place on the United States rose about 6 percent more than non-tariffed goods in 2025.
In retaliation for U.S. President Donald Trump’s initial tariffs, the Liberal government responded in March 2025 by imposing 25 percent tariffs on a variety of items for six months, such as grocery products, appliances, electronics, furniture, and household items.
Bank of Canada researchers compared the costs of more than 110,000 tariffed goods from seven retailers to products that were not impacted by Canadian counter-tariffs from February to December 2025. The researchers found the prices of tariffed goods rose gradually after March 4, and were 6 percent higher than the control group by mid-June.
Around a quarter of the price increase was passed on to Canadian consumers, which matched “estimates of tariff pass-through to consumer prices in the United States,” the report says. Businesses were willing to absorb most of the cost when they expected tariffs to be short-lived, but would pass price increases on to consumers if they expected tariffs to last a long time.
The results showed that when most Canadian counter-tariffs were removed on Sept. 1, prices for the tariffed goods “fell back quickly” toward those of the control group when most Canadian counter-tariffs were removed on Sept. 1.
“For groceries and appliances, the reversal was nearly complete within three months,” the authors wrote. This added around 0.3 percentage points to inflation in 2025, according to the report.
The researchers said one of the main takeaways from their report was that “retailers’ expectations matter” and mere announcements about tariffs can trigger large price adjustments. They also said the data shows that “removing tariffs can promptly undo their effects on inflation.”
Researchers also found that while consumers may view unexplained price increases as unfair and reduce their purchases of the products, a visible “tariffed” barrier can shift their behaviour toward maintaining purchases.
“This reduces the risk of customer backlash and gives retailers more room to pass through cost increases, which is what appears to have occurred in 2025,” the report said.
The United States currently has tariffs on Canadian steel, aluminum, copper, automotive products, and lumber exports. Most Canadian goods are able to enter the U.S. tariff-free due to exemptions under the Canada-United States-Mexico Agreement (CUSMA). Canada continues to have counter-tariffs on U.S. steel, aluminum, and non-CUSMA compliant automobiles.
Discussions around the future review of CUSMA are underway among the three countries, though Canada and the United States have not formally announced a bilateral negotiation timetable. If renewed, CUSMA would remain in force for another 16 years. Failure to reach a deal could trigger annual reviews and potentially increase pressure for bilateral arrangements among member countries.
