Canadian exporters look to avoid Trump trade risk, front-run tariffs
Canadian exporters are looking to hedge the risk of a trade war with the United States, with some companies preparing to rush inventory across the border and others rethinking their supply chains and investment strategies.
U.S. president-elect Donald Trump said last week that he would impose a 25-per-cent tariff on all imports from Canada and Mexico on his first day in office unless the two countries address border-security concerns.
Financial markets are largely discounting the possibility that Mr. Trump will follow through on his threat. However, exporters don’t have the luxury of waiting around to find out, and some are looking to reduce their exposure to potential tariffs ahead of Mr. Trump’s inauguration on Jan. 20.
“The good news here is every crisis has a bit of a warning shot, so it’s not like we’re blindsided. We have a few months to actually play out the scenarios,” said Jim Kilpatrick, Deloitte’s leader of global supply chains and Canadian consumer products.
He said he’s spoken to a number of companies that are planning to move additional inventory to U.S. warehouses, or ship more to American customers, in the coming months to front-run potential tariff increases. Others are reaching out to U.S. buyers and offering to cover part of the cost of the potential tariff – which would be paid by the importer – to avoid losing the client.
“You can’t move enough inventory across to buy yourself an extended period of time without incurring significant risks to the cost of inventory,” Mr. Kilpatrick said in an interview. “But a prebuild of inventory, or moving it in advance of tariffs, can buy you some incremental time.”
Dennis Darby, chief executive of the industry group Canadian Manufacturers and Exporters, said he’s heard of some U.S. companies doubling up orders from Canadian suppliers, although it’s too early to know whether this is part of a broader trend.
“There’s not, all of a sudden, a big convoy of 53-footers going across the Ambassador Bridge, trying to race to the U.S. But I think, where it makes sense, people are looking to beat the price increase,” Mr. Darby said.
This kind of opportunistic front-loading happened in 2018 when Mr. Trump imposed 25-per-cent and 10-per-cent tariffs on Canadian steel and aluminum, respectively, during his first presidency.
In the months between when the tariffs were announced and when they came into force, Canadian steel exports to the U.S. jumped 22.6 per cent and aluminum exports jumped 12.5 per cent. Shipments then dropped sharply when the tariffs came into effect. The same thing happened to U.S. steel and aluminum exports to Canada, when Ottawa retaliated with its own tariffs.
Mr. Trump only won the U.S. presidential election a month ago, and it’s less than two weeks since he posted his threats against Canada and Mexico on social media, so it’s too early to see much pull-forward happening in the trade data.
The latest numbers from Statistics Canada, published Thursday, showed a 1.1-per-cent month-to-month uptick in merchandise exports in October. But that was before the election.
Looking beyond Canada, there are signs that freight shipments to the United States are picking up steam, particularly from China, with a rise in both air and ocean freight volumes in recent months. But it’s hard to discern exactly what’s driving this, said Ed Ryan, CEO of logistics and supply chain data provider Descartes System Group.
“My gut is that it’s probably more related to how they think the Christmas season is going to go,” Mr. Ryan said in an interview. “But you might see people start to react to these tariffs. I think most of the people are planning right now to do that, and if they are, you’ll see it start to show up in like the next 30 days.”
There are anecdotal signs of front-running. Prologis, Inc., the largest logistics warehousing company in the United States, has seen an uptick in inquiries about storage space since the election, according to Chris Caton, the company’s managing director of global strategy and analytics. “Doubtless some of this is related to the potential change in trade law,” he said in an interview.
Greg Crane, senior logistics co-ordinator with Paige Logistics Ltd., a trucking company based in Surrey, B.C., said he’s seen an unusual spike in truck volumes going both north and south across the border in recent weeks. That suggests U.S. companies are also rushing to get goods into Canada in case Ottawa retaliates to any tariffs, he said.
“I do thousands of loads a year to the U.S. and it was pretty much finished for the year a couple of weeks ago. But now it’s starting to pick up again, ever since the threat of the tariffs,” Mr. Crane said.
Other trucking executives are interpreting truck movements differently. Ronen Gilkarov, vice-president of operations at ET Transport, a trucking company based in Vaughan, Ont., said there’s been an increase in trucks heading south in recent months. But he chalks this up to a weak Canadian dollar and falling U.S. interest rates spurring American demand, rather than tariff threats.
Nina Pratt, head of sales at warehousing company Kendrew Distribution Services Ltd., based in Woodbridge, Ont., said she hasn’t seen a pickup in demand from U.S. companies moving goods to Canada. But she did just receive a large delivery from China after Ottawa’s recent announcement of 25-per-cent tariffs on Chinese steel and aluminum.
“We were supposed to get a couple of containers and all of a sudden then we got about 60 of them,” Ms. Pratt said.
Stuart Bergman, chief economist of Export Development Canada, said he’s spoken with Canadian companies that expect to front-load shipments to the U.S. However, he said this a Band-Aid solution, rather than a permanent response to the rising threat of American protectionism.
“It may help absorb some of the impact of the next quarter or even six months, but ultimately its mitigating impact is somewhat limited. In certain sectors, it may also not be feasible, due to storage costs or freshness concerns,” Mr. Bergman said in an e-mail.
Many exporters are starting to think about “longer-term or structural responses,” he said. That could include investing more in U.S. production lines, setting up foreign subsidiaries and increasing shipments to non-U.S. markets.
“We’ve entered into a world where economic nationalism has become a more pervasive, even acceptable response to economic challenges,” Mr. Bergman said.
This article was first reported by The Globe and Mail
