CHARLEBOIS: Counter-tariffs are coming — and so is more shrinkflation

Consumers will blame the food industry — not Canada’s trade policies

Published Sep 06, 2026  •  Last updated 3 minutes ago  •  4 minute read

Prime Minister Mark Carney speaks during a press conference addressing the trade situation with United States in Ottawa on Saturday, Aug. 22, 2026. Photo by Hyungcheol Park /Postmedia Network

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Canada’s latest counter-tariffs take effect Sept. 8, and Canadians should understand where the economic pressure will first be felt. Unlike last year, the initial shock will not necessarily appear on grocery shelves. This time, it will begin farther up the food chain, with importers, processors and manufacturers.

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Ottawa will impose tariffs of 15, 25 and 50% on more than 700 categories of American goods, covering approximately $27.6 billion in imports. The measures are intended to match recent American tariffs dollar for dollar. Politically, the strategy may sound forceful. Economically, however, there is no such thing as a cost-free tariff.

Several food-related ingredients will be affected. Milk powders, concentrated milk, whey, casein and other milk proteins will face tariffs of 50%. Many cheeses will face a 25% tariff, while honey, molasses, certain baking mixes and frozen doughs will be subject to tariffs of 50%.

Then there is packaging. Plastic food bags and film, corrugated boxes, paper bags, glass bottles and jars, and aluminum foil are also targeted, often at 50%. These materials may not be food, but they are essential to producing, protecting, transporting and selling it.

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That distinction matters.

A Canadian-made protein bar may not be tariffed as a finished product, but its whey protein, honey, plastic wrapper and shipping box could all become more expensive. The same logic applies to baked goods, prepared meals, sauces, confectionery, protein drinks, dairy formulations and private-label products.

Canada’s grocery inflation: 2026 counter-tariff outlook.

Understanding maple leaf

A maple leaf on the package does not mean the entire supply chain is Canadian.

The Canadian importer pays the tariff at the border. That additional cost then enters the supply chain. Food processors must decide whether to absorb it, negotiate with suppliers, find another source, reformulate the product or ask retailers to accept a wholesale price increase.

None of these options is simple.

Changing suppliers can require new contracts, transportation arrangements, product testing and regulatory approvals. Domestic alternatives may exist, but not always in the quantities or specifications manufacturers need. Buying from Europe, Asia or Latin America can involve higher freight costs and longer delivery times.

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Retailers will also resist price increases, especially while consumers remain highly price-sensitive. Large processors may have enough volume and bargaining power to negotiate. Smaller manufacturers will be far more exposed. They generally carry less inventory, have fewer suppliers and operate with little room to absorb an unexpected increase.

For many companies, the first sign of tariff inflation will therefore not be a higher shelf price. It will be a smaller margin.

That is how this episode differs from last year’s counter-tariffs, which were more directly connected to recognizable consumer goods. Research from the Bank of Canada found that prices of tariffed products rose gradually after the March 2025 measures, eventually reaching about six per cent above comparable untariffed goods. That represented roughly one-quarter pass-through of the 25% tariff. The rest was absorbed elsewhere in the supply chain. Prices then declined after the tariffs were removed.

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This year’s pass-through will likely be more diffuse and take longer to detect. Existing inventories will initially protect some manufacturers. Supply contracts will delay adjustments. Some companies will substitute inputs, while others will simply accept lower profits for a time.

But inventories eventually turn over, contracts expire and margins reach their limits.

Our scenario suggests that the new measures could add as much as 0.3 percentage points to grocery inflation at their peak, likely around April or May 2027, if the tariffs remain in place. That would be below the estimated 0.5-percentage-point peak effect associated with last year’s broader counter-tariffs.

A scenario, not a forecast

This is a scenario, not a forecast. Substitution, tariff remissions, weak consumer demand and margin absorption could reduce the impact. A negotiated settlement could also remove the tariffs before the full effect reaches consumers.

And a 50% tariff on an ingredient certainly does not mean a 50% increase at checkout. The tariff applies to one component of the product’s total cost. Labour, transportation, energy, marketing and retail margins are also part of the final price.

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The real concern is accumulation. A manufacturer may face higher costs for a dairy protein, a sweetener, plastic film and a cardboard box at the same time. Each increase may seem manageable on its own. Together, they can undermine the profitability of an entire product line.

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Not every effect will be captured by the Consumer Price Index. Companies may shrink packages, reduce promotions, discontinue products, delay investments or move production. Consumers could see fewer choices and fewer discounts rather than an immediate surge in posted prices.

Ottawa may call these counter-tariffs targeted and proportionate. But tariffs on ingredients and packaging are not surgically contained. They spread across multiple products and businesses, often invisibly.

U.S. tariffs punish Canadian exporters. Canadian counter-tariffs charge Canadian importers. Our food processors are being squeezed from both directions.

Last time, Canadians could see much of the pressure at the checkout. This time, it will begin inside factories, warehouses and procurement offices. It may take longer to reach consumers, but Canadians should not be fooled.

They will ultimately pay part of the bill.

– Sylvain Charlebois is director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast.

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