Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Canada’s Fintech & Trade at Risk Amid U.S. Tariff Threat
Global Trade | Jan 29, 2025
Image: Navigating Global Financial System Fragmentation (WEF)
How U.S Tariffs Could Restructure the Global Trading System and Impact Canada
The tariffs are coming. The tariffs are coming.
Less than a week has passed since President Trump's inauguration and the global economy is already becoming more volatile, and Canada is caught in in the middle since the U.S. has threatened to slap a 25% tariff on Canadian goods starting February 1, signalling historic changes and trade disputes and disruption, if not an all out trade war. It's another David vs Goliath battle.
This article draws from two reports that make it clear that these tariffs will restructure the global trading system, affect supply chains, the flow of capital, regulatory frameworks and cause markets and investors to react, as they prepare for the eventual outcome. The first is a report by Hudson Bay Capital called 'The Users Guide to Restructuring the Global Trading System' (41 page PDF, Nov 2024) and the World Economic Forum's 'Navigating Global Financial System Fragmentation' (46 page PDF, Jan 2025)
Why Is the U.S. Imposing Tariffs?
The short answer is for a variety for a variety of reasons, most are economic and/or political factors. One key motivation is America's massive national debt which has passed $34 trillion. Tariffs are a tool to increase government revenue while discouraging reliance on foreign imports. If imported goods become more expensive, American consumers and businesses will trend towards domestically produced goods, supporting local manufacturing and production.
We all know Trump wrote the book 'The art of the deal' (way back in 1987). Well tariffs can and likely will be used as a negotiation tactic when renegotiating CUSMA's trade agreement which reportedly should be taking place as we speak. They are protectionist measures that can reduce trade deficits like the approx USD $55 billion goods deficit that the U.S. had with Canada last year (see trade gap in past 10 years), and be seen as an economic strategy to realign global supply chains.
See: Davos 2025 Themes and Takeaways for Fintech
Tariffs can also be used to protect critical sectors like energy, technology or defence that might be seen as a risk to national security. They are different than sanctions which are more precise and can restrict access to financial systems. The U.S. has used both tools before, tariffs to alter trade policies and sanctions to pressure geopolitical rivals. However both approaches reflect the trend of major economies prioritizing economic independence over globalization causing adverse ripple effects for countries with smaller economies that rely on stable trade relationships like Canada.
Canada’s Vulnerability in Trade Bloc Formation
The WEF warns that 'financial fragmentation' is increasing with large economies forming distinct trading and financial blocs (alliances) that could significantly change global investment patterns and reduce global GDP by up to USD $5.7 trillion and increase inflation globally.
As the U.S. implements more protectionist policies to bring supply chains under national control (while reducing dependency on foreign markets like China, Mexico or Canada), Canada risks being caught between economic blocs. The WEF report warns that 'neutral economies' may face reduced market access if they fail to integrate or align policies with dominant trade groups. For Canada, the stakes are very high with the majority of our exports going to the U.S. (and mostly oil an gas). Losing preferential access to either the U.S. market or emerging trade blocs would be damaging.
So begs the question, which trading blocs are potential options to consider beyond the U.S.?
- There's the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), strengthening ties within an Asia-Pacific bloc to increase trade with economies like Japan, Vietnam, and Australia.
- anada could deepen engagement with the European Union through the Canada-European Comprehensive Economic and Trade Agreement (CETA) to offset America's protectionist policies.
- In 2021, the Canada–United Kingdom Trade Continuity Agreement (Canada-UK TCA) came into force on April 1, 2021, to preserve the main benefits of CETA that previously governed Canada-UK trade relations which the UK forfeited due to Brexit. The UK also officially joined CPTPP which is expected to further strengthen trade ties between Canada and the UK within the CPTPP framework.
- Canada could explore new agreements with regions experiencing economic growth such as the Pacific Alliance (Mexico, Peru, Chile, Colombia) and/or the African Continental Free Trade Area (AfCFTA).
- And while politically very complex, Canada could also look at trade agreements with BRICS nations (Brazil, Russia, India, China, South Africa) on a selective basis, especially for particular sectors like energy and agriculture.
See: CETA opens doors to EU markets for three years
That's the theory. In practice, Canada has been exporting raw materials mostly to the U.S. and trading with countries around the globe will be a new challenge and in the past have proven to be difficult. Both reports warn of the risk that tariffs could result in long term structural shifts in global trade and finance leading to fragmented supply chains, inefficiencies, higher costs and slower economic growth. If trading blocs harden without Canada joining, Canadian companies could face more barriers to capital flows and financial market access.
Implications for Canadian Fintech and Investment Markets
If access to U.S. and global capital tightens, investment in Canadian fintech startups will decline. Fintechs will need to look harder and further afield to raise capital and sell into new markets with different rules and compliance costs. As governments turn to financial sovereignty, global payment networks and fintechs that rely on them may face new restrictions.
As tariffs make products more expensive for consumers, inflation risks and currency fluctuations will cause the Canadian dollar to come under pressure. Higher inflation rates and volatility will hurt stock markets with investors turning to safe havens such as gold, bonds or perhaps bitcoin for those hedging against currency risks.
What Should Fintechs, Investors, and Policymakers Do?
Well first off, we need to wait until February 1 to see if tariffs are moving forward and learn what that looks like. For example, will the economic impact be muted if certain goods are exempt from tariffs like Canada's oil and gas?
Then if so, Canadian fintechs should prepare for the worse. This means companies should prioritize domestic market expansion while also diversifying into new trading blocs where relevant and regulatory landscapes are open and digital finance adoption is growing. The local fintech ecosystem should be strengthened with collaboration between fintechs and financial institutions like banks and credit unions to build resilience.
See: Trump’s Tariffs: Impact on Fintech and Canada’s Digital Tax
Investors should assess the exposure and impact of a more fragmented financial system on their portfolio and consider diversifying to hedge against volatility. Investors could also consider focusing on strengthening domestic fintech markets.
Canada’s policymakers must proactively engage in trade negotiations, such as CUSMA with the US/Mexico, to try and safeguard preferential market access. They should strengthen existing agreements and explore new trade agreements. The Canadian government should support domestic innovation and investment programs and work to remove unnecessary frictions/burdens while encouraging fintech adoption, and of course expediting fintech infrastructure such as payments and open banking.
Final Thought
The world's trading blocs and global financial systems are changing and Canada may have no choice but to adapt. Policymakers, businesses and investors need to be proactive in understanding the impact and making the appropriate strategic decisions that mitigate these very real economic risks.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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