Trade Wars: How Tariffs Hit Prices Differently in Canada

Canadians facing retaliatory tariffs imposed on US goods are unlikely to experience the same price pain as Americans.

As the US-Canada trade war heats up again, an analysis of Canadian tariffs imposed in March 2025 and mostly lifted six months later suggests that retaliatory tariffs had only a limited impact on consumers. Research by Harvard Business School Professor Alberto Cavallo and his coauthors found that prices of tariffed products increased by 6% relative to comparable unaffected products, which is roughly a quarter of the 25% levy, but the effect disappeared after tariffs were lifted. In contrast, prices on domestic alternatives stayed steady, making them temporarily more competitive.

Cavallo, the Thomas S. Murphy Professor of Business Administration, and economists from Canada’s central bank analyzed prices between October 2024 and February 2026. The data—maintained by PriceStats, a private company founded by Cavallo—included daily public prices for 112,000 products sold by seven major Canadian retailers. They used artificial intelligence methods to match products to their country of origin.

The research team found that the tariffs had a limited impact on the Canadian Consumer Price Index, which rose by 0.3 percentage points. That’s less than half the 0.7 percentage-point increase Cavallo identified in a study of US prices affected by tariffs. Although about one quarter of the levies were passed through to prices in both countries, Canada’s tariffs covered fewer products and didn’t substantially affect substitutes or goods not subject to the levies.

Cavallo and economic researchers Olena Kostyshyna, Oleksiy Kryvtsov, and Matías Vieyra from the Bank of Canada share their findings in “The Price Impact of Canadian Retaliatory Tariffs,” slated for publication in the Journal of Monetary Economics and pre-published online in July.

“This result contrasts with findings from other studies of import tariffs that document significant spillovers,” the authors write. “Our result suggests that such spillovers are not universal and may depend on tariff policy scope, timing, and retailer behavior.”

The paper highlights that retailers’ decisions can influence how much of the tariffs ends up on the price tag, depending on their pricing strategies and inventories. Some retailers rely more on US imports than others or have less inventory to cushion the shock. At the same time, they factor in their expectations about the duration of tariffs and decide whether to explicitly inform their customers if a product is affected by a tariff.

The research team cautions that retailers might have displayed the “tariff” label on products that were already particularly affected by the levies, or on goods they were planning to raise prices on, so the pattern does not mean the banner led to a price increase.

The visibility of tariffs matters because retailers concerned about customer backlash might use the banner to explain a price increase as government policy, which might soften the blow and accelerate price adjustments. On the other hand, when transparency is lower, retailers might decide to absorb more of the levies.

“Temporary tariffs can have meaningful retail-price effects, but those effects may be muted when the policy is expected to be short-lived, when retailers have scope to adjust margins or inventories, or when tariff exposure is not salient to consumers,” the authors write. “Conversely, broader, more persistent, or more visible tariff regimes may generate larger and faster pass-through to consumer prices.”

The researchers plan to extend their analysis to examine the latest round of tariffs between the US and Canada. They expect to publish the results through Tariff Tracker II, a real-time project from the newly launched Innovations in Economic Measurement Lab at Harvard Business School. Cavallo explains that the lab combines artificial intelligence and large-scale data to develop economic measures that update as conditions change. The new tracker will follow how the 2026 tariffs move through prices and supply chains.