Small Businesses Struggle With Complex Tariff Regime After Exemption Ends
At the beginning of this year, Canadian entrepreneur Jess Sternberg made a decision no business owner ever wants to face: she said goodbye to nearly half of her customer base, because she stopped shipping her products to the United States.
Ms. Sternberg’s made-in-Canada fashion brand Free Label, like many small e-commerce retailers, built its business by selling directly to consumers online. And it found growth in the massive U.S. market through the “de minimis” exemption – a rule that used to allow packages valued under US$800 to cross the border duty-free, and without burdensome paperwork.
Since the Trump administration eliminated that exemption at the end of August last year, small Canadian businesses have been scrambling to understand complex trade rules they never had to worry about before.
That has affected billions of dollars’ worth of exports: small businesses accounted for $17.5-billion in trade to the United States in 2024, according to federal government data. And many of them relied on the de minimis rule: in an April, 2025, survey of 3,315 people by the Canadian Federation of Independent Business, 39 per cent of small- and medium-sized businesses said they expected to be affected by the coming removal of that exemption.
It has been nearly six months of upheaval for those companies as they consider how to hold on to customers in the U.S. – a crucial market that, for many, is an important source of future growth.
“We decided that we just couldn’t go through it any more,” Ms. Sternberg said. “It was just too much.”
For a time, Vancouver-based Free Label shipped bulk orders to a U.S. warehouse, and then on to American customers. But the arrangement, which allowed the company to take advantage of preferential tariff rates under the U.S.–Mexico-Canada Agreement (USMCA), came with added pressures – not just significantly higher costs for shipping, broker fees, receiving and storage, but complex paperwork that ate up valuable resources.
“We’re a very small team doing all these hoop jumps, and it was so stressful,” Ms. Sternberg said.
It is a story that Jon Joel has heard before. The manager of trade and growth programs with the Toronto Region Board of Trade has been running seminars for small businesses who previously used the de minimis exemption, and are trying to grapple with the change.
“They came from an era where they never really had to build that muscle,” Mr. Joel said. For businesses looking for exemptions because they are USMCA-compliant, he added, it is not as simple as checking a box on a form: there is much more complicated paperwork involved, including building an audit trail for their supply chains and securing documentation from suppliers to prove compliance.
That has increased both the cost of doing business, and the time entrepreneurs are spending to manage cross-border operations.
“They didn’t have relationships with brokers, compliance specialists, freight forwarders, logistics hubs,” Mr. Joel said. “The rules changed very suddenly.”
For Bramble Lee Pryde, founder of Calgary-based jewellery brand Subject Object, the math doesn’t add up. She already faces high costs to source her materials from Canada as much as possible, and to make her jewellery by hand – not to mention the rising costs of gold and silver. She cannot afford to work with a broker as well.
“The average small business is falling through the cracks in terms of how they can ship consistently into the States,” she said.
But attempting to make it work on her own has had its costs: even after filling out paperwork to explain that her jewellery is made here, and so USMCA-compliant, she has had shipments hit with tariffs. Because she did not feel right passing on surprise fees to customers, she has borne those costs. In those cases, “I’m no longer paying myself, basically.”
She made the decision to no longer ship to the U.S., and is now considering how to find growth in the European market, while continuing to maintain her Canadian customer base.
It’s not just small e-commerce companies feeling the effects of de minimis disappearing. Manufacturers are also taking a hit. Sherri Carlson, whose Toronto-based business CRW Design handles clothing production for made-in-Canada brands, went from a team of 17 full-time staff to 13 following the changes. Over the last year, the company has lost almost 30 per cent of its sales.
“I’ve lost three fairly big customers that have decided to close their doors,” she said. One customer went from ordering roughly 2,000 garments every couple of months to sporadic orders of just around 100 items.
“I’ve spent hours, and days, trying to help my customers, and do research” to find ways to avoid tariffs, Ms. Carlson said.
Part of the complication for apparel brands in particular, is what is known as the “yarn-forward rule,” meaning that even if clothes are made here, those products still may not be USMCA-compliant if the yarn that went into the fabric comes from a country outside the trade pact.
There are ways around that, explained Lisa McEwan, co-owner of Toronto-based Hemisphere Freight & Brokerage Services Inc. She has helped clients determine whether they qualify to use certain customs codes, for which the yarn rule doesn’t apply, on their products. But that involves understanding the fine details of rules that are difficult to parse, she said, and getting into the “nitty gritty” to show exactly what goes into the final product.
“You can’t navigate any of this by yourself any more. That’s a problem,” Ms. McEwan said. Amid all the confusion, Ms. McEwan saw her business spike by 35 per cent last year, but the growth hasn’t been easy. She has had to monitor her own team for burnout, she said.
Some companies have found solutions. After being hit with thousands of dollars of duties on orders that were in transit after de minimis was removed, Toronto-based sustainable clothing brand Encircled Inc. stopped shipping to the U.S. entirely. But eventually, the company began shipping orders in bulk to a U.S. warehouse, using a quota system under USMCA that allows for duty-free treatment for select exporters.
“That’s been our stopgap, and has allowed us to rebuild our base. But it’s been incredibly costly, because managing two inventories when you’re a small brand is also a huge challenge,” said Encircled founder and CEO Kristi Soomer, adding that last year was one of the most difficult in her 13 years in business.
The savings on tariffs help to offset the costs of using a broker, but Encircled has had to increase prices for U.S. customers. And it has had to cut back on how many items it can produce at a time, in order to preserve cash flow.
Olivia Glauberzon, founder and CEO of maternity wear brand After9 Inc., found another workaround. She had been looking into classifying her top-selling items – an orthopedic bra, and leggings with a special waistband that provides lumbar and midsection support – as medical devices, to help customers recover their costs through health insurance. When the de minimis exemption was axed, she looked into the rules and found the same classification could help her avoid tariffs.
“We need to play in the U.S. market,” Ms. Glauberzon said. “Because our clothes are very high-quality – they use medical-grade materials that are very expensive to sew – at that product cost, I cannot afford to turn off the U.S.”
But even small-business owners who have found solutions are wary, knowing that, just as they wrap their heads around the rules, everything could change again. The future of USMCA is in doubt: the three countries face a July 1 deadline to determine whether to renew the agreement for another 16 years, or to begin annual reviews of the deal. The signatories can also withdraw with six months’ notice, and U.S. President Donald Trump has repeatedly mused about pulling out of the deal altogether.
For some, the uncertainty is too much.
“At this point, even if something had changed with [USMCA], I don’t feel confident long-term that that would be a solution, because things are so chaotic and changing so quickly over there,” Free Label’s Ms. Sternberg said. “There’s no trust.”
This article was first reported by The Globe and Mail
