Canadian exporter confidence drops as tariffs disrupt supply chains

Battered by tariffs and unprecedented policy shifts, global trade is experiencing disruptions of historic proportions. For Canadian exporters, uncertainty has been particularly acute, reflecting our dependence on exports to the United States. It’s no surprise, then, that our latest Trade Confidence Index (TCI) fell 3.3 points, settling at 65.7.

The Export Development Canada (EDC) index—based on a biannual survey of more than 1,000 respondents—has been assessing Canadian export and ready-to-export companies’ outlook on trade since 1999.

Key findings from the 2025 TCI survey:

• Trade confidence fell 3.3 points to 65.7
• 63% of exporters expect tariffs to hurt international sales
• 40% report declining U.S. orders
• 72% of goods exporters plan to enter new markets

This latest reading, published Sept. 8, is one of the lowest on record, having dipped below this level on only three occasions: the 2008 Global Financial Crisis, the COVID-19 pandemic and the post-pandemic inflation surge. Expectations of declining future export sales and concerns about a weakening global economic environment were the main drivers of the drop.

U.S. dependence exposes supply chain risks 

Canadian trade is overwhelmingly tied to the U.S. through highly integrated supply chains across a range of sectors. More than 60% of Canadian exports to the U.S. are goods that cross the border multiple times. This interdependence exposes critical vulnerabilities. As a result, 63% of TCI respondents expect tariffs to negatively impact their international sales, and 40% anticipate spillover effects on domestic sales.

Tariffs are also driving up input costs across both international and local supply chains. Nearly 70% of TCI respondents source goods and services from international firms. Of those, 48% report rising international input prices. Among those sourcing domestically, 53% report increased costs—highlighting the broader economic impact of tariffs.

Exporters report declining U.S. orders

Among those already exporting to the U.S., 40% report declining orders over the past six months—a sharp increase from 16% in the year-end 2024 survey. Looking ahead, 36% anticipate further declines in U.S. orders over the next six months.

To manage the impact of tariffs, respondents are employing a range of strategies: Absorbing costs and lowering profit margins (28%), increasing domestic focus and sales (26%) and sourcing locally (23%). A quarter of respondents report diversifying into new export markets. 

Export diversification gains momentum 

In 2024, 70% of Canada’s total goods and services exports were destined to the U.S. There’s a clear opportunity to help exporters diversify their networks and gradually reduce reliance on this one market. A key theme that emerged in this round of the TCI was trade diversification.

More than 70% of exporting respondents plan to enter new regions within the next two years. Top planned export destinations include Europe, the Indo-Pacific and Latin America. Notably, exporters are identifying fewer target markets within these regions, indicating a more focused approach to Canada’s export diversification strategy.

Among goods exporters, 72% plan to enter new markets within the next two years, with Europe emerging as the top non-U.S. destination. However, advanced Asian economies such as South Korea and Japan are notably absent from their plans, indicating a need for more support to help exporters identify high-potential markets.

Free trade agreements underused by Canadian exporters

Canada currently benefits from 15 active free trade agreements (FTAs) with 51 countries, offering duty-free access for a large share of Canadian exports. Yet, TCI results suggest substantial FTA underutilization.

Only 58% of exporting respondents to the U.S. leverage the Canada-United States-Mexico Agreement (CUSMA). Of those who don’t, 60% cite sector or product ineligibility. This highlights the real-time needs of exporters in specific sectors.

Just 34% of respondents that export to the European Union report using the Comprehensive Economic and Trade Agreement (CETA), and only 14% of Asia-Pacific exporters take advantage of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Overall, low FTA usage points to a significant knowledge and compliance gap that must be addressed to help exporters fully capitalize on trade and diversification opportunities. 

Top challenges facing exporters in 2025

Exporters and ready-to-export businesses face a range of challenges. The most frequently cited by respondents include tariffs (30%), global economic conditions (29%) and difficulty identifying and connecting with potential customers (29%). These responses highlight the extent to which trade uncertainty is affecting the operating environment.

Financial pressures are also mounting. Cash flow challenges (36%), rising expenses (35%) and difficulties maintaining profitability (33%) are dampening business conditions. Access to financing remains a concern, with 26% of respondents indicating funding is an ongoing issue. More than one-third expect financing terms to worsen over the next six months—a statistically significant increase from the 22% in the year-end 2024 survey. 

Building resilience through international investment is a key strategy for managing trade risk. In the year-end 2024 TCI survey, 46% of respondents reported existing or planned direct investments over the next two years. In the mid-year 2025 survey, that figure rose to 55%. Sixty percent of those planning to enter new markets say they’ll require funding to support their efforts. Given the ongoing challenges around cash flow and profitability, there’s a clear need to better align working capital and financing solutions with exporters’ growth and diversification goals.

The bottom line: Building resilience through diversification

Canada’s close industrial integration with the U.S. economy means exporters are bearing the brunt of tariffs and trade uncertainty. Building resilience through market diversification, strategic expansion and the full use of FTAs will help mitigate these risks. While trade confidence remains weak, tailored support and market knowledge can empower exporters to diversify their exposure and explore new opportunities.

This week, a very special thanks to Prerna Sharma, senior economist in our Economic & Political Intelligence Centre.

As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them