Essential Insights on U.S. Tariffs for Founders

With the introduction of U.S. tariffs, business leaders in Canada face what some economists describe as potentially "the largest trade shock in nearly 100 years." Specifically, Canadian goods are subjected to a 25% tariff, unless they are energy products or critical minerals, which face a 10% tariff. Given that Canada exports around $1.9 billion worth of goods to the U.S. each day, representing over 20% of its GDP, the repercussions of this trade war could be substantial, impacting sectors like automotive, construction, manufacturing, critical minerals, and agriculture, along with ancillary businesses within these supply chains.

While the outlook appears grim, tech founders are encouraged to adopt a more optimistic view, perceiving this crisis as an opportunity to innovate and explore new trading partnerships. In light of the unpredictable economic landscape, a strategic approach that focuses on planning rather than reacting hastily is paramount. This entails assessing the implications of the proposed tariffs on businesses, understanding the investment climate, and developing contingency plans.

For businesses, the immediate concern is how tariffs could increase their product prices in the U.S., thereby reducing competitiveness. Coupled with the potential for retaliatory tariffs from Canada, the cost of production may rise, impacting profit margins. Business leaders are advised to assess their financial outlook using tools like the Business Development Bank of Canada’s cash flow calculator, especially since the current economic climate is volatile.

To navigate this uncertainty, Shannon Lee Simmons, a financial planner, suggests focusing on short-term time frames, such as the next three to four weeks, rather than trying to predict the longer-term future. Business leaders should identify challenges that could arise during this period and devise plans to mitigate potential negative effects for both customers and their businesses. This includes communicating with existing clients to explore creative solutions, such as adjusting payment terms to manage tariff costs.

Companies exporting to the U.S. need to determine the applicability of tariffs to their products. They can do so using resources like the Canada Tariff Finder and the Harmonized System (HS) classification codes. While importers typically bear the tariff costs, it may depend on contract terms, necessitating a careful review of agreements. In situations where products face tariff-related issues at the border, businesses are encouraged to consult Export Development Canada for guidance.

Despite the looming tariffs, experts advise against panic. Historical economic disruptions, such as the 2008 financial crisis and COVID-19, can provide insights into strategic responses. A prudent approach could involve postponing significant financial commitments until more clarity is available about the tariffs’ implementation.

Investors are generally wary of uncertainty, which can affect their perception of Canada as an investment destination. The potential tariff regime might undermine the advantages that Canada offers, including lower labor costs and access to the U.S. market.

To support Canadian businesses in this challenging environment, industry advocates suggest reorganizing internal trade practices and modernizing procurement policies. By enhancing domestic markets, Canada can better retain its innovators and entrepreneurs, as well as improve their chances for commercialization. Without robust local markets, Canadian companies risk losing ground to competitors from countries with more favorable business environments.