Study: 52% of Tariff-Impacted Small Businesses Are Performing Worse, While Most Haven’t Felt the Buy Canadian Boost

Merchant Growth's 2026 Canadian Small Business Report found that 65% of Canadian small-business owners say U.S.-Canada trade tensions have affected their operations. More than a year into tariffs and cross-border disruptions, the report indicates that many businesses have not experienced meaningful relief from government support measures or the Buy Canadian movement.

Analysis

The relevant market signal is not broad Canadian equity downside but a widening gap between domestically oriented, scale retailers and fragmented merchants with limited purchasing power. Tariff-driven input volatility is likely to be passed through unevenly: Canadian Tire (CTC.A), Loblaw (L) and Alimentation Couche-Tard (ATD) have procurement scale, private-label flexibility and better ability to protect gross margin, while independent retailers and restaurants face both margin compression and demand elasticity. This creates a secondary credit risk for lenders and payments/commerce platforms whose small-business customer cohorts may show rising delinquencies, lower payment volumes or weaker merchant-acquisition economics.

Shopify (SHOP) and Lightspeed (LSPD) are differentiated exposures. SHOP's larger merchant base and higher-value enterprise mix should make its GMV less sensitive than micro-merchant peers, but cross-border conversion costs and inventory disruptions can reduce merchant advertising spend and attach rates over the next 1-3 quarters. LSPD has more direct exposure to independent retail and hospitality operating leverage; the key downside is not necessarily GMV contraction, but higher churn, slower net-new locations and pressure on payments penetration. This survey is company-sponsored and not independently sufficient to revise earnings, so the near-term implication is an earnings-call watch item rather than a stand-alone directional catalyst.

Consensus may overstate the benefit of "Buy Canadian" branding for public consumer names. Local substitution only supports earnings where domestic supply is available at acceptable price points; otherwise it raises procurement costs and narrows consumer choice. Over 6-18 months, persistent border friction favors firms investing in Canadian distribution capacity, private label and domestic supplier networks, while penalizing asset-light merchants dependent on imported long-tail inventory.

Key Decisions for Investors

• Maintain a 1-3 month relative-value bias: long CTC.A or L versus short LSPD, sized modestly. The thesis is procurement scale and margin defense versus SME merchant stress; exit if LSPD reports stable/improving location growth, churn and payments attach while CTC.A or L guide to material gross-margin pressure.
• Do not initiate a directional SHOP short solely on this signal. Set an alert for a sequential deceleration in cross-border GMV, merchant-solutions revenue or take rate at the next earnings release; a confirmed deterioration would support a 3-6 month SHOP/LSPD relative long rather than an outright sector short.
• Monitor Canadian bank SME credit disclosures, particularly BNS, BMO and CM, over the next two reporting cycles. A rise in small-business provisions or commercial delinquency would validate the second-order stress channel and favor reducing exposure to Canada-focused financials; absent that evidence, survey-based concern is insufficient for a credit trade.
• For long-only Canadian consumer exposure over 6-18 months, favor scaled domestic operators with private-label and local distribution optionality—CTC.A, L and ATD—over small-cap discretionary retail. Reassess if trade policy de-escalates or consumer-price inflation reaccelerates enough to offset their scale advantage through demand destruction.