Today’s trade friction began in March 2025, yet in the fall of 2026, we still find some confusion about what tariffs are and how they affect consumers. To address this, we decided now is a good time to define tariffs, explain why they’re used, and how they affect prices and inflation.
First: what are tariffs? The Bank of Canada defines a tariff as “a tax on imports from another country.” They’re traditionally used to make imports more expensive, thereby favouring domestic companies; to correct trade imbalances (real or perceived); and to increase government revenues.
The next big question is always about who pays the tariff. As per the Bank of Canada, “A tariff is paid by the company or individual who imports a good.”
For example: Country X imposes tariffs on products from country Y. This means importers in country X must pay more to bring country Y’s products into country X. Those importers often pass the extra charge on to consumers, which can make products more expensive for citizens of country X. (If country Y should impose its own counter tariffs, its importers will pay to bring in products from country X, and later pass those costs onto country Y’s consumers.)
Tariffs can apply to a wide range of goods and affect prices in different ways. Some apply to direct-to-consumer items (i.e., clothing, produce), while others target components and other inputs that can push up prices for finished products. Higher costs for businesses – and higher prices for consumers – can put upward pressure on inflation. As the Bank of Canada points out:
Often, some of the extra costs from a tariff are passed along to consumers as higher prices, but consumers usually do not bear all the tariff’s costs. Importers and their suppliers often absorb some of the extra tariff costs, which reduces their profit margins. Tariffs mean consumers have less money to spend on other things and businesses have less money to invest, which slows economic growth.
Both the Bank of Canada and Oxford Economics have good resources on tariffs and how they work. Importers should consult a licensed customs broker to discuss tariffs and how (and if) their products are affected.
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