Canadian firms defer spending as tariff threat looms, weighing on broader economy

For James White, who heads a company that gets most of its business from the U.S., the trade spat has forced decisions to protect his company that ultimately weigh on the broader economy.

White is chief executive of Wellmaster Pipe and Supply, a maker of custom pipe couplings and products for greenhouse and garden-nursery owners. Based in Tillonsburg, Ontario, Wellmaster relies on the U.S. for 60% of its roughly $20 million in annual sales.

White said that the company, with 44 employees, has been focused on preserving cash ahead of the potential tariff-implementation deadlines–first Jan. 20, then Feb. 4 and now March 4. He has ceased spending on product development and deferred about $1 million in capital meant to improve production at its 60,000-square-foot factory, located roughly between Detroit and Toronto.

“Maybe we keep a little more cash in the company to insure against disruption, rather than spending that on training, capital equipment, new product development," said White, adding that he and his management team are now focused on expanding their domestic customer base. The deferred spending comes at “the expense of not just our company, but the customers we serve."

Such steps are hitting the Canadian economy too, according to the Bank of Canada and other economists. A Bank of Canada survey in December indicated firms like Wellmaster are downgrading their sales outlooks, and scrapping investment and hiring plans amid Trump’s policies. “The longer this uncertainty persists, the more it will weigh on economic activity," Bank of Canada Gov. Tiff Macklem said last week.

The Trump-fueled uncertainty is the latest hit for a soft Canadian economy that economists say avoided a recession in recent years because immigration-fueled population growth masked underlying weakness in business investment and consumer spending.

Exports to the U.S. are the lifeblood of the Canadian economy, accounting for about one-fifth of the country’s gross domestic product, in large part due to an initial free-trade treaty between Ottawa and Washington in the late 1980s that later expanded to include Mexico.

Political and trade analysts say Trump’s aggressive use of tariffs put Canada’s duty-free access to the U.S. at risk and could compel companies to move operations southbound. Besides the initial 25% tariff threat–which Trump said is needed to compel Canada and Mexico to fortify border security and deter fentanyl trafficking–the U.S. president has proposed a 25% on steel and aluminum. Canada is America’s top supplier of those metals. Trump has also threatened tariffs on Canadian-made automobiles, arguing those vehicles should be assembled in the U.S.

The Economic Policy Uncertainty Index, developed in 2016 by economists Scott Baker, Nick Bloom and Steven Davis, attempts to gauge levels of trepidation in an economy by tracking news archives. Based on the index, uncertainty in Canada has surged since October, or just before Trump’s election victory, and has surpassed the peak hit during the Covid-19 pandemic. According to the same index, uncertainty has grown globally, but at a slower pace relative to Canada. Uncertainty levels in the U.S. have remained largely steady since Trump’s win.

Economists at the Bank of Nova Scotia this week downgraded their 2025 growth forecast for Canada, to 1.8% from their previous 2.1% call, citing extreme uncertainty. Scotiabank said it now expects the Bank of Canada to cut interest rates one more time than initially forecast.

When Trump began to make tariff threats shortly after his election win, Wellmaster’s White said he couldn’t persuade his customers the threat was real.

“They didn’t think that it was going to come down," said White. “They didn’t want to change their buying behavior."

He said the biggest task ahead for his company and his U.S. customers is navigating through this unpredictable time.

“I think there are some things that we can do in the medium and long term," he said. “It would sure be great if we didn’t have to deal with something that has nothing to do with investment, productivity and job creation."

Write to Paul Vieira at Paul.Vieira@wsj.com