Trade tensions prompt Canadian firm to expand operations in the U.S

Fine Cotton Factory Inc., based in Toronto, produces fabrics for clothing, mattresses, and bedding, with approximately half of its sales originating from U.S. customers. The company experienced a decline in these sales after tariffs, reaching up to 50 percent on some products, led American buyers to postpone orders and deplete existing inventories, according to Skip Kann, executive vice-president of sales and marketing.

While orders have begun to recover, the uncertainty surrounding the Canada-U.S. trade relationship has prompted the company to initiate a shift in its production strategy. Fine Cotton Factory is now shipping unfinished fabrics to U.S. contractors for additional processing, aiming to reduce exposure to tariffs on finished goods and laying the groundwork for a larger American presence. “There’s been damage done to the relationship between the U.S. and Canada,” Kann stated. “We are going to put some form of our business in the U.S. as a long-term plan so that this can never happen to our company again.” He anticipates opening a U.S. warehouse and beginning production early next year.

Even a potential removal of tariffs or a new trade agreement may not reverse these expansion plans, Kann added. He expressed concern that customers might retain reservations about supply chains originating in Canada.

Pau Pujolás, associate professor of economics at McMaster University, suggests this erosion of confidence could have broader consequences, potentially influencing manufacturing investment decisions for years to come. “Just the fear is enough to generate those suboptimal decisions,” Pujolás explained. He emphasized that the possibility of future trade disruptions, even under a new U.S. administration, could deter investment.

Tariffs on Canadian goods were first implemented in March 2025, initially prompting some manufacturers to delay expansion plans. However, as the trade dispute persists, companies are increasingly compelled to make investment decisions. Ari Van Assche, a professor of international business at HEC Montréal, noted that another Canadian manufacturer is now considering a U.S. plant due to the impact of tariffs, although labor shortages pose a challenge.

While overall Canadian manufacturing investment in the U.S. has not significantly increased, Van Assche warned that this could change. “It might well be that other companies, even if they’re not facing this, are saying, ‘Look, we cannot hold off for too long anymore.’” Statistics Canada data from the end of 2025 indicated a slight decrease in Canadian direct investment in the United States.