Exporters considering strategy to deal with Trump trade and tariff policies
President Donald Trump has said tariffs are “the greatest thing ever invented” and the best way to “max out” America’s economic power in the face of people and countries that are raiding U.S. wealth.
But for Canadian companies selling into the United States, the punishing taxes Mr. Trump has vowed to slap on imports are something else entirely. Four Canadian business executives interviewed by The Globe and Mail characterized the Trump tariffs as a looming menace that could test their leadership mettle and force a rethink of their operations. If a lengthy trade battle ensues, the tariffs are a full-blown crisis in the making.
“It’s just going to be a disaster,” if the U.S. President moves forward with all his threats, said François Fauteux, managing partner at Montreal private equity firm Phoenix Partners, who’s also chairman of label machine maker Nita Inc. “I’m trying to take what he says with a grain of salt. He’s a clown.”
Mr. Trump has vowed that soon after being sworn into office on Monday, he will slap a 25-per-cent tariff on every item the U.S. imports from Canada, an opening shot in a trade war that many economists warn could hurl Canada into a recession.
In his inauguration speech Monday, Mr. Trump declared that “America will be a manufacturing nation once again.” But his Day 1 executive orders didn’t include immediate tariffs on any countries’ exports. Rather, he said on Monday evening that he thought tariffs would be coming Feb. 1 and directed federal agencies to evaluate U.S. trade relationships with Canada, China and Mexico.
Business leaders here are keeping cool in the face of the threat of tariffs. But they’re not waiting around to see what actions Washington will take.
Behind the scenes, the four executives have been plotting strategy with their management teams and boards. And they have been making moves: building inventory south of the border, boosting efforts to book U.S. contracts ahead of Mr. Trump’s inauguration and exploring other markets. It boils down to preparing for a bomb of unknown magnitude.
Montreal-based Guru Organic Energy Corp. is among the movers. The energy drink company, which is trying to pitch itself as a healthy alternative in an image-challenged industry, has amassed six months’ worth of stock in the U.S., where it generates about one-quarter of its $30-million annual revenue through retailers such as Amazon, Whole Foods and Costco.
Guru has also lined up a contractor with U.S. facilities to make its energy drinks if needed, said chief executive officer Carl Goyette, who took Guru public in 2020. Much of his company’s output is now produced in Toronto because the weakness of the Canadian dollar makes that a better option than other countries.
“It’s hard to plan for something that feels a little bit surreal,” Mr. Goyette said. “But you have to take the threat seriously.”
In a worst-case scenario in which President Trump imposes a 25-per-cent tariff on Canadian imports across the board, Guru would produce all of its U.S. sales volume in that country, Mr. Goyette said. He estimates that would hurt the beverage company’s gross profit margins, but not dramatically.
Some 700 kilometres west of Montreal, in London, Ont., Ben Whitney is trying to keep Armo Tool Ltd., his family’s privately held machine maker, on course as he stares into the unknown. The corporation, which employs 200 people and does 25 per cent of its $50-million in annual sales in the U.S., designs and builds assembly lines and other automated solutions for manufacturers such as Magna International Inc. and 3M Co.
The good news is that Armo Tool books large orders. The bad news is that those are not long-term contracts. As a result, the company quotes for work every day and a big change in the Canada-U.S. exchange rate or tariff environment immediately affects its ability to win new business.
The fallout from a nightmare scenario of a 25-per-cent tariff would be softened by the exchange rate and limit any layoffs he might have to do, Mr. Whitney said. But any countermeasures Canada initiates, particularly on steel and aluminum, would also raise his costs for materials.
Mr. Whitney says he’s prioritized finishing projects for U.S. customers in recent weeks “so that we could just get some stuff out the door.” And he says his sales staff has got their “foot to the floor” trying to pad the backlog with new work. Beyond that, he’s counting on the Trudeau government to quickly re-establish Canadian-U.S. trade ties.
“This is not a fun challenge. This feels like really needing rain and just staring up at the sky and waiting for it,” Mr. Whitney said. “Trump is a bully and he’s going to get some wins that he can announce. Hopefully, our government can get beyond that and back to a stable trading relationship.”
Etienne Borm, president of auto parts maker Etbo Tool and Die Inc. in Aylmer, Ont., warns that Ottawa has to make a deal with Washington on trade within weeks, or a few months at the most, and not let things spin out of control. Automakers in the U.S. can’t immediately replace Canadian parts suppliers with domestic ones because many of those parts are sole-sourced. But the longer a dispute lasts, the more chance there is of those commercial relationships becoming undone.
“This uncertainty is going to add questions in our customers’ minds as to whether they should source in Canada or not,” Mr. Borm said. “I think we’re going to see fundamentally a decline in new business.”
Etbo collects between $75-million and $100-million in annual revenue, with about 30 per cent of that business coming from U.S. customers, Mr. Borm said. He said the current situation has forced the company to launch a serious analysis into planting a toehold in other countries and expanding sales to other industries, including nuclear.
“Are we on the path? Are we having those meetings? Are we having those management discussions? Absolutely yes,” Mr. Borm said. “Can we pivot the business in two months? Absolutely no.”
Back in Montreal, Mr. Fauteux has dissected the situation and the options for Nita, which generates 80 per cent of its roughly $22-million in annual revenue from U.S. customers such as giants Procter & Gamble Co. and L’Oréal SA. The labelling machines Nita makes are high-value and high-margin, and can cost upward of $400,000.
Mr. Fauteux has concluded that he’s not going to chicken out and lower the price of his machines but, rather, let clients absorb the inevitable price hikes. Nita’s equipment is technically superior to those of rivals, he says, and any price premium would be justified. As a Plan B, the company owns a niche label system manufacturer in Minnesota called Shorewood Engineering Inc. that it could use to bolster production.
“I would kind of relish that opportunity to negotiate one-on-one with our large customers and say, ‘We’re not gouging you. We’re not making any more money. It’s a result of your government’s policies,’ ” Mr. Fauteux said. “It’ll be a great case study for us to see what happens.”
Many business leaders are worried and expecting the worst, Mr. Fauteux said. But he believes Mr. Trump’s actions will be limited by the economic damage they could cause, including a spike in U.S. inflation and tanking stock markets.
“I’m frustrated that we’re all talking about this and we’re all scared of the bogeyman,” Mr. Fauteux said. “Since when do we believe everything that Trump says?”
This article was first reported by The Globe and Mail
