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Trump’s Canadian tariffs are having a chilling effect on Vermont’s small business owners

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Ryan Christiansen, president and head distiller at Caledonia Spirits, giving a tour in Montpelier, VT.

Courtesy: Ryan Christianse | Caledonia Spirits

President Donald Trump’s tariff rhetoric against Canada has only started to heat up, but Vermont’s small businesses are already feeling some pain.

A shipment of spirits, ordered by the Société des alcools du Québec – an entity that’s responsible for the trade of alcoholic beverages in the province – has been sitting on a shipping dock at Montpelier-based Barr Hill by Caledonia Spirits for about a month.

The SAQ called off the order shortly after Trump announced the tariffs against Canada in February, according to Ryan Christiansen, president and head distiller at Caledonia Spirits.

“Customers are ready to buy, and we are in the peak of slow season – it’s an annual cycle for us, and we were looking forward to shipping the order. Now, it’s sitting on the dock,” he said. “To have this hit our business in the slow month of February? We missed our financial plan in February because of this.”

Exports at Caledonia Spirits in Montpelier, VT.

Courtesy: Ryan Christiansen | Caledonia Spirits

Vermont has a special relationship with Canada, as the Green Mountain State exports $680 million in goods to the U.S.’s northern neighbor annually, according to data compiled by Connect2Canada. Vermont imports more than $2.6 billion in goods from Canada each year, with electricity and fuel oil among the top imported goods.

Because of the state’s close business ties to Canada and their shared borders, small businesses in Vermont began seeing some fallout as early as February – when Trump first announced a round of 25% tariffs on goods from Mexico and Canada, triggering 25% retaliatory levies from then-Canadian Prime Minister Justin Trudeau. At the time, Ontario also said it would pull American alcohol products from its shelves.

Ultimately, Trump granted a reprieve on Canadian and Mexican goods covered by the North American trade agreement USMCA until April 2. However, many products are still subject to the duties.

“We worked really hard to maintain this relationship with the Canadian government,” Christiansen said. “How do I get them to buy as much as the Canadian customer wanted to buy? Even if the tariffs go away, I think it’s overly optimistic that this order gets resubmitted.”

Tourism worries

It didn’t take long for Steve Wright, president and general manager of Jay Peak Resort, which is about 10 miles from the Canadian border, to begin seeing the impact of the rhetoric around tariffs.

He noted that spending from Canadian tourists showed signs of softening particularly in two key weeks: Quebec break week, which ran from March 3 to March 8, and Ontario break week, which kicked off on March 10.

Though Canadian visitors generally account for about half of the resort’s market, they make up virtually all of it during that two-week stretch, Wright said.

People ski at Jay Peak in Jay, VT.

Courtesy: Patrick Coyle, Darla Mercado | CNBC

“The Quebec break week sold really well, and we had great conditions, but what was missing was the day market,” he said. “We did not get the day traffic we usually see from Montreal, that part of the market softened up.”

Tariff rhetoric has only been the latest pressure point for Jay Peak. The resort’s manager also pointed to the reduction in hours of operation for the nearby North Troy, VT border crossing. It went from 24 hours a day to 8 a.m. to 8 p.m. in January.

To accommodate its Canadian clientele over the past two decades, Jay Peak has been offering at-par options for these tourists on non-margin products. “Say a lift ticket is $100, you can give us C$100,” Wright said. “That has insulated the business a little bit.”

“They have an affinity for Jay Peak; they have been coming here for a generation, but there is a point where they will decide to stay home despite their love of the place,” he added.

In Montpelier, which is a roughly two-to-three-hour drive from Montreal, worries about tourist traffic are already bubbling among small businesses. This corner of the state tends to see weekend visitors from up north, particularly in the temperate summer and fall seasons.

Bill Butler, a co-owner of Artisans Hand Craft Gallery, has been in talks with fellow entrepreneurs in downtown Montpelier to propose promotional deals for Canadian visitors to keep the foot traffic coming.

“My idea is to have something like ‘Canada Days,'” he said. “We’d have a deal for Canadians who want to come down, have a little tour of the city and go from place to place, and get a free beer or coffee.”

“I would rather take the position of being proactive and not just thinking about absorbing the problem,” Butler said. “We have a great relationship with Canada, and we see a lot of Canadians in the gallery.”

The price of imported goods

For Sam Guy, owner of Guy’s Farm & Yard in Morrisville, tariffs are raising concerns over higher prices for certain products.

Wood shavings, wood pellets and peat moss sold at the local chain store all come from Canada, while animal feed – though made by an American company – includes ingredients that come from Canada, he said.

A 25% tariff tacked onto imported products would inevitably have to be passed on to shoppers.

“We can’t eat this,” Guy said. “We’re going to pass on the tariff. We’re not going to add a margin or anything like that, but a lot of these are low margin products.”

Economics

Where the Trump administration has science on its side  

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BACK IN JANUARY Donald Trump signed executive order 14187, entitled “Protecting Children from Chemical and Surgical Mutilation”. He instructed federally run insurance programmes to exclude coverage of treatment related to gender transition for minors. The order aimed to stop institutions that receive federal grants from providing such treatments as well. Mr Trump also commissioned the Department of Health and Human Services (HHS) to publish, within 90 days, a review of literature on best practices regarding “identity-based confusion” among children. The ban on federal funding was later blocked by a judge, but the review was published on May 1st.

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China risks deeper deflation by diverting exports to domestic market

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SHENZHEN, CHINA – APRIL 12: A woman checks her smartphone while walking past a busy intersection in front of a Sam’s Club membership store and a McDonald’s restaurant on April 12, 2025 in Shenzhen, China.

Cheng Xin | Getty Images News

As sky-high tariffs kill U.S. orders for Chinese goods, the country has been striving to help exporters divert sales to the domestic market — a move that threatens to drive the world’s second-largest economy into deeper deflation.

Local Chinese governments and major businesses have voiced support to help tariff-hit exporters redirect their products to the domestic market for sale. JD.com, Tencent and Douyin, TikTok’s sister app in China, are among the e-commerce giants promoting sales of these goods to Chinese consumers.

Sheng Qiuping, vice commerce minister, in a statement last month described China’s vast domestic market as a crucial buffer for exporters in weathering external shocks, urging local authorities to coordinate efforts in stabilizing exports and boosting consumption.

“The side effect is a ferocious price war among Chinese firms,” said Yingke Zhou, senior China economist at Barclays Bank.

JD.com, for instance, has pledged 200 billion yuan ($28 billion) to help exporters and has set up a dedicated section on its platform for goods originally intended for U.S. buyers, with discounts of up to 55%.

An influx of discounted goods intended for the U.S. market would also erode companies’ profitability, which in turn would weigh on employment, Zhou said. Uncertain job prospects and worries over income stability have already been contributing to weak consumer demand.

After hovering just above zero in 2023 and 2024, the consumer price index slipped into negative territory, declining for two straight months in February and March. The producer price index fell for a 29th consecutive month in March, down 2.5% from a year earlier, to clock its steepest decline in four months.

As the trade war knocks down export orders, deflation in China’s wholesale prices will likely deepen to 2.8% in April, from 2.5% in March, according to a team of economists at Morgan Stanley. “We believe the tariff impact will be the most acute this quarter, as many exporters have halted their production and shipments to the U.S.”

For the full year, Shan Hui, chief China economist at Goldman Sachs, expects China’s CPI to fall to 0%, from a 0.2% year-on-year growth in 2024, and PPI to decline by 1.6% from a 2.2% drop last year.

China's threshold for pain is a lot higher than ours, says former Acting Deputy U.S. Trade Rep.

“Prices will need to fall for domestic and other foreign buyers to help absorb the excess supply left behind by U.S. importers,” Shan said, adding that manufacturing capacity may not adjust quickly to “sudden tariff increases,” likely worsening the overcapacity issues in some industries. 

Goldman projects China’s real gross domestic product to grow just 4.0% this year, even as Chinese authorities have set the growth target for 2025 at “around 5%.”

Survival game

U.S. President Donald Trump ratcheted up tariffs on imported Chinese goods to 145% this year, the highest level in a century, prompting Beijing to retaliate with additional levies of 125%. Tariffs at such prohibitive levels have severely hit trade between the two countries.

The concerted efforts from Beijing to help exporters offload goods impacted by U.S. tariffs may not be anything more than a stopgap measure, said Shen Meng, director at Beijing-based boutique investment bank Chanson & Co.

The loss of access to the U.S. market has deepened strains on Chinese exporters, piling onto weak domestic demand, intensifying price wars, razor-thin margins, payment delays and high return rates.

“For exporters that were able to charge higher prices from American consumers, selling in China’s domestic market is merely a way to clear unsold inventory and ease short-term cash-flow pressure,” Shen said: “There is little room for profits.”

The squeezed margins may force some exporting companies to close shop, while others might opt to operate at a loss, just to keep factories from sitting idle, Shen said.

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As more firms shut down or scale back operations, the fallout will spill into the labor market. Goldman Sachs’ Shan estimates that 16 million jobs, over 2% of China’s labor force, are involved in the production of U.S.-bound goods.

The Trump administration last week ended the “de minimis” exemptions that had allowed Chinese e-commerce firms like Shein and Temu to ship low-value parcels into the U.S. without paying tariffs.

“The removal of the de minimis rule and declining cashflow are pushing many small and medium-sized enterprises toward insolvency,” said Wang Dan, China director at political risk consultancy firm Eurasia Group, warning that job losses are mounting in export-reliant regions.

She estimates the urban unemployment rate to reach an average 5.7% this year, above the official 5.5% target, Wang said.

Beijing holds stimulus firepower

Surging exports in the past few years have helped China offset the drag from a property slump that has hit investment and consumer spending, strained government finances and the banking sector.

The property-sector ills, coupled with the prohibitive U.S. tariffs, mean “the economy is set to face two major drags simultaneously,” Ting Lu, chief China economist at Nomura, said in a recent note, warning that the risk is a “worse-than-expected demand shock.”

It is in both the U.S. and China's interest to come to a compromise, says JPMorgan

Despite the mounting calls for more robust stimulus, many economists believe Beijing will likely wait to see concrete signs of economic deterioration before it exercises fiscal firepower.

“Authorities do not view deflation as a crisis, instead, [they are] framing low prices as a buffer to support household savings during a period of economic transition,” Eurasia Group’s Wang said.

When asked about the potential impact of increased competition within China’s market, Peking University professor Justin Yifu Lin said Beijing can use fiscal, monetary and other targeted policies to boost purchasing power.

“The challenge the U.S. faces is larger than China’s,” he told reporters on April 21 in Mandarin, translated by CNBC. Lin is dean of the Institute of New Structural Economics.

He expects the current tariff situation would be resolved soon, but did not share a specific timeframe. While China retains production capabilities, Lin said it would take at least a year or two for the U.S. to reshore manufacturing, meaning American consumers would be hit by higher prices in the interim.

— CNBC’s Evelyn Cheng contributed to this story.

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Checks and Balance newsletter: Why do people join the Trump administration?

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Checks and Balance newsletter: Why do people join the Trump administration?

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