How US Tariffs are Shaping the Canadian Technology Landscape

Separating short-term noise from long-term implications

The technology world doesn't just evolve—it gets violently reshaped by forces most leaders never see coming. Right now, a seismic disruption is happening through US tariffs that's sending shockwaves through Canada's tech ecosystem. While markets fluctuate and analysts' debate, it's imperative we recognize the difference between temporary noise and fundamental shifts.

This isn't just another trade spat—it's a radical redistribution of the playing field that will separate visionary Canadian tech leaders from those who'll be telling stories about what could have been. The question isn't whether to wait it out or shift course—it's whether you're brave enough to see the landscape for what it truly is.

Key Stats

Canada and US have traditionally enjoyed a strong trading relationship, our economies are intertwined in many ways. To understand the amount of trade below are statistics on trading Canadian government.

• Daily US-Canada goods & services trade US$2.5 billion (two-way)

• US trade surplus with Canada (manufacturing) = US$33 billion

• Canada’s rank as #1 US export market (larger than China, Japan, UK, France combined)

• 46 US states where Canada is a top-3 export market, 36 states rank Canada #1

We heavily rely on US tech services for all kinds of enterprise needs from cloud services to cybersecurity vendors. A seismic shift in the relationship between US and Canada means we need to understand the implications to businesses, our economy, long-term effects should this escalate, and de-risk our position - which as we've seen is leading to new partnerships with other countries.

Implications of Tariffs

The US has shifted towards a protectionist economy, and we aren't seeing a coherent trading policy. The uncertainty surrounding these tariffs is detrimental to business, and the rapid introduction of these tariffs poses significant risks. From a tech perspective, US tech companies dominate the global market, and I want to review what that means for Canadian businesses whether you produce software systems/services or are consuming services from US tech giants.

For businesses producing software services -

1. Increased operating expenses - Modern businesses heavily rely on cloud computing, which has democratized innovation by making it cheaper and quicker to produce new solutions. However, with the increase in data center costs due to tariffs, the software bill of materials will inevitably rise.

2. Shift in focus towards data centers in US - Even if you're in the Canadian region for cloud services, the investments made by cloud providers, predominantly US-based, will shift due to the tariffs. It's estimated investments into data centers in the U.S. is expected to surpass $1 trillion in the next five years. I suspect these data centers will run service workloads such as AI services and share the cost to services globally not just people using the data centers. There's also the risk they focus fewer services in Canadian and other global regions.

3. Planning for the next 2 years - Tariff costs will take time to trickle down, unlikely in the short term. Also, as the goal post for the tariffs continues to shift it's harder to plan. Now would be a good time to lock in reserve pricing for cloud services for the next few years if you can, shift the budget towards long term investments.

For hardware manufacturers -

Tariffs may even apply to Canadian produced hardware - Hardware tech supply chains are complex, components come from across the globe. For hardware manufacturers, it means selling to the US may still have tariff implications. For instance, if a Toronto-based electronics company imports circuit boards or telecom parts from China to integrate into a product sold in the U.S., those parts may incur U.S. tariffs unless the final product qualifies as “Made in Canada” under USMCA rules.

For businesses with IT as a cost center -

1. Plan for added procurement costs for data centers - There will be impacts for IT infrastructure procurement for Canadian data centers. In the past, Canada has mirrored some tariffs from the US, there's no indication of that this time around. Supply chains will retract and as they sell less, manufacturing new components will become pricier as economies of scale won't apply. The knock-on effect of this is it will cost more to support the same IT capabilities as the previous year.

2. Resourcing constraints - As data center investment continues in the US, it will also strain access to technical resources with knowledge as many will get pulled into that market.

3. Planning for the next 2 years - For cloud resources, I would plan to get reserve pricing where possible, it provides the business a stable cost anywhere between a 1-3 year window.

Traditionally this would translate to delayed investments, expansions, and increased production costs in an uncertain environment. It's likely to lead to a slowdown of new tech-dependent services and limit resources for innovation. I would argue there's opportunities for Canadian leaders to reposition and come out stronger. Before going into that, let's also discuss other risks with data in the US market.

Additional risks of the US market

A significant concern I often see many forget is the issue of data sovereignty. Using SaaS products like Google Workspace or M365, where data resides in the US, means that the US Cloud Act allows their government access to this data. Determine if you have protected data that should not be transferred to the US. An example would be if you're doing business with EU as a Canadian entity, you need to have transfer mechanisms to move data outside of EU due to GDPR, the US Cloud Act may conflict with your requirements.

Additionally, US AI companies are also levying the US government that copyright laws should not apply to them. Some of these businesses are blatantly scraping the internet without any permission. As these become more prominent, there's risk to Canadian entities as any data provided to these tools can be used for future training. Combined with US Cloud Act these are major risks for Canadian public entities.

Local provincial requirements need to be considered as well. British Columbia’s Freedom of Information and Protection of Privacy Act (FIPPA), applies both to personal information and data under control for public bodies. It requires that

• ensure that “personal information is only stored in and accessed from inside Canada”

• “protect personal information by making reasonable security arrangements against such risks as unauthorized access, collection, use, disclosure or disposal”

This is becoming a bigger concern with the popularity of SaaS products particularly in the LLM space. As part of your vendor onboarding requirements, it's important to assess where data resides, the security of it, and sovereignty requirements.

Broadly, Canadian government requirements focus on data sovereignty, residency, and security based on a rating of protected B category are allowed within cloud vendors.

Opportunities Amidst Challenges

Despite these challenges, there are opportunities for Canadian businesses to excel. Companies focused on logistics or data analytics services will likely see increased demand as businesses struggle to understand the impacts of these tariffs. Canada has a strong presence in these areas, and these products could thrive under these new circumstances.

Additionally, we've got other trade agreements where new avenues will open as those businesses look to procure services outside of the US. I'm referring to the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and CETA (Canada-EU Trade Agreement). I believe it's an opportunity for Canadians to re-evaluate our focus and double down on strategic innovation.

Our largest AI product is Cohere, and while the Canadian government just invested over $200 million there's room to build an eco-system for key investments. We have an opportunity to apply strategic tariffs to build our home-grown AI ecosystem - this would mean Canadian data remains local and helps us compete globally. France and China have been investing in these spaces and we should learn from them. A Harvard case study titled "The Structure of Tariffs and Long-Term Growth" highlights how strategic tariffs can be beneficial to build industry, we should use this model.

There's a significant opportunity to invest in local data centers. Canada has some of the lowest costing and cleanest energy on the planet, making it an ideal location for such investments. Building an ecosystem behind data centers, similar to the approaches taken by the EU and China, could be beneficial. I will cover this in detail in a future article.

Canadian organizations should use tariffs as a wakeup call to boost self-sufficiency in critical areas. For businesses providing tech software, it's crucial to understand that cloud compute costs will rise, and SaaS products based in the US tech giants will pass on these costs. Strategic investments in computer equipment and hardware will become more expensive.

Supply chain-based companies, particularly in manufacturing, retail, energy, and mining, will be hit hardest. Investing in logistics and data analytics to understand the cost impacts and manage cloud costs effectively will be essential. Diversification is another key opportunity. On-premises and hybrid environments have been increasing, and reevaluating which workloads need to be in the cloud versus on-premises can help manage costs.

As leaders, we have an opportunity to redefine the future and how we might come out stronger. Now is the time to innovate, diversify, and invest strategically to mitigate these impacts and thrive in the new landscape.