Canadian consumer goods startups say the government’s response to a growing trade war with its southern neighbour could hurt them even more than US tariffs, as their supply chains rely on US materials and production capacity that doesn’t exist in Canada.
“Retaliatory tariffs would just punish us twice.”
Matt Bertulli
Pela Case & Lomi
Matt Bertulli, the CEO of two Canadian manufacturing companies—Pela Case, which makes biodegradable phone cases, and Lomi, which makes composting appliances—told BetaKit that US tariffs and a Canadian reciprocation would be “almost catastrophic” if they couldn’t “find a way around them.”
“Retaliatory tariffs would just punish us twice,” Bertulli said. “Now we’d be paying more for our raw materials from the US too.”
Pela Case imports the raw materials it uses for phone cases from the US.
Bertulli said that 60 percent of sales for both products are in the US, nearly all of which is direct-to-consumer (D2C).
Bertulli said that it manufactures the majority of Pela Case’s products in British Columbia, despite having “no tax advantage” to do so. He claimed that his competitors outsource production to China.
The threat of Trump’s tariffs has been paused until at least March 4 following Canada’s negotiations with the US president over border security. The move follows repeated claims of Canada’s failure to stop the flow of fentanyl and illegal crossings into the US.
RELATED: Deputy Chief Trade Commissioner on tariffs: Canada “not out of the woods yet”
The looming trade war has triggered a widespread push to buy domestic products and boycott US goods, amid a rare wave of Canadian outrage. Canada’s largest tech company, Shopify, introduced buy-local features allowing users to filter for products that are sold from Canada on its Shop app in response to the tariff threat.
The Council of Canadian Innovators (CCI), a lobby group for tech scale-ups, echoed the need for economic nationalism on Monday.
“Governments are committing to buy Canadian, to reduce interprovincial trade barriers, and to support the growth of our homegrown businesses. At CCI we have been calling for exactly this kind of approach for years,” CCI President Benjamin Bergen said in a statement.
The looming threat is already impacting Canadian startups and small businesses that rely on US imports and serve American customers.
Montréal-based SRTX, the maker of Sheertex tights, decided to lay off 40 percent of its workforce yesterday under threat of tariffs and amid an active fundraising effort. Trump’s proposal to eliminate the “de minimis” exemption, which allows people to bring up to $800 worth of goods into the US each day duty-free, would add a 41-percent tax on top of SRTX’s D2C shipments.
Bertulli said his companies are in a similar boat and would be impacted by the removal of that exemption, driving prices higher for US consumers.
US dependent
For Kyle Feigenbaum, CEO and co-founder of gourmet natural dog food startup Healthybud, removing the “de minimis” exemption would have less of an impact on its Canadian sales.
Feigenbaum says that a significant portion of its business could be stalled by Canada’s decision to impose retaliatory tariffs.
Healthybud makes dog treats with “superfood” ingredients, such as mushrooms and the evergreen shrub ashwagandha, which it claims carry health benefits for pets. The majority of its products, particularly the functional dog treats, are made in Canada—but a large portion of its exports go to the US.
The company also manufactures raw dog food using a special freeze-drying process. Feigenbaum explained that the “freeze-drying space in Canada is tiny” and that Healthybud has been unable to find a Canadian freeze-drying company willing to take them on due to limited capacity.
Healthybud’s dog food is freeze-dried in Wisconsin, which the company says is its next best option. “Because we favour the quality of the product over where it’s made, we had to go to the US,” Feigenbaum told BetaKit.
RELATED: SRTX temporarily lays off 40 percent of staff ahead of US tariff “worst-case scenario”
Feigenbaum said that 25 percent tariffs on US imports would not be sustainable for this part of his business. Healthybud wouldn’t be able to import products from the US and sell them in Canada profitably, and capacity issues would prevent the company from producing domestically.
Kyle Feigenbaum
“Because we favour the quality of the product over where it’s made, we had to go to the US.”
Healthybud
“Although it’s beautiful to see Canada come together, and the support for business from Canadian consumers was felt, that’s not a long-term solution,” Feigenbaum said. “We are dependent on the US as a business.”
The CEO added that Healthybud is exploring an array of options over the next few weeks, including producing a similar dog food in Canada, rethinking its pricing strategy, and diversifying its export markets—but as an early-stage company, these are easier said than done.
The Deputy Chief Trade Commissioner with Global Affairs Canada told tech CEOs yesterday that Canada is not “out of the woods” on the tariff threat yet, and that Canadian companies should be exploring diversification strategies to be less reliant on the US as an import source and an export market.
Feigenbaum said he would have liked to see an “openness to negotiation” from the Canadian government, as well as speedier information availability for small businesses.
“I think speed is extremely important, especially when entrepreneurs like myself are dealing with new information that potentially impacts our business within hours,” Feigenbaum said.
Bertulli called Canada’s retaliatory response “stupid” and said that Canada needs to reckon with being smaller than its southern neighbours.
“We should be focused on taking down interprovincial trade barriers and getting our resources to global markets instead of getting into a trade war with the US,” Bertulli said.
Shopify CEO Tobi Lütke echoed this sentiment, posting on X on Sunday that he was “disappointed” by the US tariff threat and Canada’s proposed retaliation.
Feature image courtesy Healthybud.