Tariffs Have Limited Bite: Research Reveals Price Impact Much Lower Than Expected

Research from the Bank of Canada suggests that import tariffs have a limited impact on consumer prices. In a staff working paper published last Friday, researchers found that a 25% retaliatory tariff on U.S. imports imposed in 2025 raised the aggregate price index by 66 basis points.

This is significantly lower than the 1.25% increase that would be expected if the levies were fully passed through to consumers. The study attributes this limited impact to two key factors: consumer substitution and markup compression.

According to the paper, buyers shift away from tariffed products to other suppliers, reducing the price effect by 0.47 percentage points. Additionally, sellers adjust their markups to absorb some of the added cost, representing a 0.26 percentage point impact.