The Impact of Tariffs on Business Valuation: Part 1 – Lay of the Land

Welcome to Part 1 of our 3-part series on tariffs. Throughout this mini-series we will cover the following three areas:

1. Economic and industry-wide effects of tariffs;
2. Direct valuation implications; and
3. Actionable takeaways, including potential valuation methodology adjustments, and strategies for business advisors.

Given the rapidly changing environment, we note that the content of this blog was current as of March 6, 2025.

Part 1

After finally returning to a sense of normalcy following the COVID-19 pandemic, Canada now faces new economic uncertainty. On February 1, 2025, U.S. President Donald Trump signed an executive order imposing a 25% tariff on Canadian imports. Although initially delayed for 30 days, the tariffs have now taken effect—except for energy products, and potash, which face lower tariffs of 10%.

In early March, days after the imposition of tariffs, products subject to the Canada-United States-Mexico Agreement (“CUSMA”) were granted a further 30-day reprieve. This exemption primarily benefits automakers, whose business models have relied for decades on the reality of free trade across the continent.

As Canada responds with countermeasures, the economic landscape remains uncertain. This blog will explore what tariffs are and provide a timeline of key events leading up to today. Canadians have once again found themselves living in interesting times; however, this time it’s due to economic mechanisms with origins as far back as ancient Rome.

What are Tariffs

Tariffs are taxes or duties imposed by a government on imported or exported goods. The purpose of tariffs is often to protect domestic industries by making imported goods more expensive, thus encouraging people to buy locally produced goods. Tariffs can also be used as a tool for negotiations in trade agreements or to generate revenue for the government.

Tariffs can vary based on the type of goods, the country of origin, and international trade agreements. The two main types of tariffs include:

• Import Tariffs: These are levies on goods coming into a country. They make foreign products more expensive and less competitive compared to domestic products.
• Export Tariffs: These are applied to goods being exported from a country. They are less common but can be used to control the amount of a particular product leaving a country.

This timeline is crucial for understanding how business value is assessed at a specific point in time. Given the rapid and significant changes in economic conditions, business valuators must consider what was known or knowable about the tariffs’ impact on a particular industry or business at a given date.

Next Steps

While it is unlikely that Canadian business owners anticipated being caught in an economic tit-for-tat at the start of 2025, the reality is that uncertainty now defines Canada’s economic outlook. The professionals at Davis Martindale are here to help you make sense of these rapidly evolving developments. Stay tuned for Part 2, where we will explore the broader economic and industry-wide effects of these tariffs.

Tariff-related risks will undoubtedly have an impact on business valuations, M&A, tax structuring, and financial reporting. If you would like a further discussion on any of the topics covered in our miniseries, please do not hesitate to contact our team.

[1] A timeline of Canada-U.S. tariffs on steel and aluminum – CTV News

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