Resilient Markets: Navigating Investment and Trade Uncertainty in Canada

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): A Further Inquiry

Publication Date (yyyy/mm/dd): 2025/02/28

Andreea Bourgeois, Director of Economics at the Canadian Federation of Independent Business (CFIB), discussed private investment rebounding in Q4 due to declining borrowing rates, easing supply chain delays, and labor shortages. High interest rates had previously discouraged large equipment purchases, and supply chain issues delayed investment. Labor shortages also impacted businesses, especially in skilled roles. Concerns over potential U.S. tariffs have lowered optimism among exporting and importing small businesses, particularly in manufacturing, transportation, and agriculture. Domestic businesses remain stable but still face supply chain vulnerabilities. Small business trade data highlights economic uncertainty. Andreea Bourgeois emphasized shifting economic trends and provided resources for further analysis.

Scott Douglas Jacobsen: What factors contributed to the private investment rebound in the fourth quarter of last year?

Andreea Bourgeois: The most significant factor was the decline in borrowing rates, as interest rates dropped. When we run our economic model, we use survey data that includes a question on short-term investment plans. Investment levels among our members have been very modest.

So, when we process that data through an econometric model, we’re not going to see large investment numbers. Investment had been negative post-pandemic.

• One reason was supply chain issues—even if businesses wanted to invest, delays in delivering equipment made purchases difficult, sometimes taking months.
• The second major factor was high interest rates, which discouraged businesses from financing large equipment purchases.

I’m not talking about small office supplies—a smart stapler, for example, wouldn’t impact investment trends. I mean large-scale machinery—tractors, industrial equipment, and technology infrastructure, which can cost millions of dollars.

With borrowing costs so high, business owners simply had no appetite for major investments. We saw a temporary rise in demand when the economy first reopened, and consumer demand skyrocketed—canoes, paddleboards, and anything that allowed people to get outside sold out everywhere. Even bicycles were in short supply globally.

Jacobsen: I remember hearing about that situation.

Bourgeois: Yes. The shortage was caused by a single missing component—a small part manufactured in China. When it couldn’t be shipped, companies had to either:

1. Find an alternative supplier in Canada,
2. Redesign products to eliminate that part, or
3. Simply wait until supply chains recovered.

This situation caused investment to tick up slightly, but with high prices and interest rates, appetite for investment remained low. Now that borrowing costs are decreasing, we’re seeing investment intentions rise again.

Another factor—though not as significant as interest rates—was labor shortages. Post-pandemic, labor shortages were the number one issue for small businesses. Many couldn’t find workers because:

• Government support programs were still in place,
• Workers were still recovering from illness,
• Businesses had to offer more sick days to accommodate health concerns.

As a result, many business owners had to rethink their operations, especially in labor-intensive industries. Today, labor shortages have eased somewhat, thanks to high immigration levels. However, that does not mean businesses are no longer struggling to find workers.

Instead, we’re now dealing with skilled labor shortages. It’s not that people aren’t available—it’s that the people available don’t always have the right skills. This, in turn, affects investment in technology.

For example, a business owner might buy advanced equipment, but if their employees lack the skills to operate it, the investment goes to waste. So, while borrowing costs and interest rates were the primary factors influencing investment, labor shortages and inflation also played a role.

Jacobsen: There are a lot of overlapping factors running through my mind right now.

We’ve got a minute before this call ends, because I’m using a trial version and I’m cheap.

So here’s my proposal:

• We disconnect at :15 past the hour,
• The same link should still work,
• If we don’t end the call completely, we should be able to rejoin,
• And that will give me time to grab some coffee.

Jacobsen: There are talks of tariffs from the United States under the Trump administration. If a 25% tariff is imposed on Canadian products, what would be the general impact? More specifically, what would be the impact on the Canadian economy in Q1?

Bourgeois: Many high-level economists have estimated and calculated the potential impacts from different angles. Recently, I read an article predicting that the effects would be devastating across all sectors, though some industries would be hit harder than others.

I don’t want to overstep into their territory, but what I can say is that the implications would be vast—for businesses, consumers, and governments. Bottom line: this would affect everyone. However, I do have something unique that most economists don’t—real data on how small businesses would be impacted.

Using the same CFIB survey, we wanted to enrich the dataset and better understand how these tariffs would affect small businesses specifically. Last year, we reviewed our survey methodology—and given how much I care about this survey, it’s like my fifth child, if you will.

We compared our dataset to similar surveys from other countries and asked: “What are we missing?” One key area we identified was gathering more detailed information about the businesses themselves. We already collect data on:

• Business location,
• Number of employees,
• Industry sector,
• Products or services sold.

But we were missing critical trade data. So, we added new questions to determine:

• Do they export?
• Do they import?
• Are they part of the event sector?

This last point is important. For example, during the pandemic, we saw major disruptions in the events sector—but that’s not the same as tourism.

• The event sector is its own industry.
• Tourism is separate.
• Hospitality is even broader, covering both and more.

To capture this data, we introduced an additional, completely voluntary section to our survey in July. We call it the Business Profile Survey. At the end of the regular survey, members have the option to click through and answer a few additional questions. They’re not even questions in the traditional sense—they’re more like demographics.

Bourgeois: When you fill out a survey, at the end, they often ask you demographic questions—your age, income category, or other details. These questions help the researchers contextualize responses. We have implemented a similar approach for our CFIB members.

One of the new questions we added to our Business Profile Survey focuses on international trade activity. Starting in July of last year, we gave members the option to identify their trade activity by clicking on a response:

• They export,
• They import,
• They do both, or
• They do neither (entirely Canada-focused businesses).

By cross-analyzing these responses with optimism levels, we created an Optimism Index for these subcategories. If you check our website—and I can share a link with you after this call—you’ll see that optimism levels for exporting businesses have dropped at an alarming rate since November.

Now, for someone looking at the data without context, they might simply say, “Oh, there’s a sharp decline in November.” But if you factor in policy developments, you’ll notice that November was also the first time that U.S. tariff discussions began escalating. I wouldn’t necessarily call it a tariff threat, but it was the first major policy shift that impacted business confidence.

Jacobsen: That makes sense.

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Bourgeois: It’s also important to remember that no index remains perfectly stable. If an index is completely flat all the time, it means it’s not a reliable indicator. Nothing is truly static—not even body temperature.

• Your weight fluctuates slightly every day.
• Some days, business owners are optimistic; on others, they’re not.
• A large unexpected expense can shake confidence, while a strong sales day can boost it.

So, while fluctuations are normal, what stands out here is that we’ve recorded a significant 8-point drop in optimism among exporting businesses since November. Looking at sectoral data, the businesses most affected by export concerns belong to:

• Manufacturing,
• Professional services,
• Transportation,
• Wholesale,
• Agriculture.

This isn’t surprising—these industries are highly dependent on international trade. However, what makes this dataset unique is that it is small business-focused. Unlike traditional trade reports, it does not include large corporations.

For example, Canada’s number one export to the U.S. is energy products—oil, gas, and natural gas. That data is dominated by major corporations, not CFIB members. Small businesses typically export niche products—things like machinery components, screws, maple syrup, or specialty goods related to larger industries.

If you are exporting crude oil, you’re not a CFIB member—that’s a large-scale corporate operation. So, our data captures the direct impact of trade shifts on smaller, independent businesses. Interestingly, we also saw a drop in optimism among importers.

Even businesses that only buy from foreign markets are feeling the impact of potential retaliatory tariffs from Canada—particularly on U.S. imports. This fear is causing uncertainty, which affects business decision-making.

Now, looking at domestic-only businesses, their optimism levels have remained relatively stable—not perfectly flat, but with no major downturns. These businesses typically have:

• Local supply chains,
• Local customer bases,
• Minimal exposure to international disruptions.

Take a small bakery, for example. You probably have a favorite local bakery, where everything feels entirely local. However, even that small bakery is likely dependent on at least one imported product—whether it’s a specialty ingredient, packaging material, or equipment component.

For example, when the war in Ukraine began, we were running the same survey. Did the survey immediately capture the economic impact of the war? Not right away. However, what it did capture were hundreds of comments from business owners.

One I remember vividly was from a small hotdog stand owner. He wrote: “I can’t get my mustard. My mustard supplier is in Ukraine.” That’s how global events trickle down—even for businesses that don’t directly engage in international trade. And now, we’re starting to see similar concerns emerge again, as uncertainty around tariffs and supply chains increases.

So, you see something we don’t, and there was also another specific case—a type of flour used by bakeries. I can’t recall the exact kind, but it’s a specialized variety that requires a specific climate. So, as much as you love your local bakery, the likelihood is that at least one ingredient they rely on comes from outside the country.

And that’s what will have the biggest impact on all of us. 

Jacobsen: Do you have any charts or final comments?

Bourgeois: Unfortunately, it’s an exciting yet troubling time to observe Canadian economics. The economic landscape is shifting, and we might see an even more dramatic turn next week (first week of February). But I say that with a sense of concern, not excitement. I wish we weren’t seeing these changes. I’ve witnessed economic shifts firsthand, coming from a communist country—Romania. Here are some relevant links for further reading:

https://www.cfib-fcei.ca/en/research-economic-analysis/business-barometer

https://www.cfib-fcei.ca/en/research-economic-analysis/main-street-quarterly

Jacobsen: Thank you for the opportunity, Andreea, it was nice to meet you.