KPMG survey finds nearly half of Canadian businesses plan to shift operations to U.S to mitigate potential tariffs

Canadian businesses are stepping up action south of the border as trade tensions with the United States escalate, a new survey has found.

 

Almost half of Canadian businesses plan to shift more investments and operations to the U.S. to mitigate potential tariffs and maintain market access, according to a report released on Wednesday by accounting firm KPMG. Almost two-thirds of Canadian businesses reported making more shipments to the U.S. ahead of President Donald Trump’s inauguration last week.

 

The results from the survey, which included 250 business leaders from across Canadian industries, come as Mr. Trump threatens to hit imports with punitive tariffs. In remarks delivered via satellite last week to global leaders gathered in Davos, Switzerland, for the World Economic Forum, Mr. Trump urged businesses to “come make your product in America, and we will give you among the lowest taxes of any nation on Earth.”

 

Looser regulations and lower taxes make doing business in the U.S. more attractive, especially in the face of 25-per-cent tariffs on Canadian goods, economists say. In the survey, 85 per cent of the respondents agreed that the federal and provincial governments must cut taxes to stay competitive.

Nine out of 10 respondents said they “wholeheartedly believe” that the federal and provincial governments “must stand firm in protecting Canada’s sovereignty and values,” even if it hurts their business. Over eight in 10 want a targeted, dollar-for-dollar retaliatory response.

 

The findings come as political leaders grapple over Canada’s response to Mr. Trump’s threats. The federal opposition parties are divided on how to respond to an attempt by the government to table an emergency relief bill. On Tuesday, The Globe and Mail reported that Ottawa is planning a multibillion-dollar, pandemic-style package for workers and businesses if Mr. Trump follows through on his tariff threat.

 

The survey suggests such a program would be necessary for many companies – more than half say they will lay off employees if tariffs are imposed. Eighty per cent of the business leaders surveyed said Ottawa should support Canadians whose jobs are disrupted or lost with help of that magnitude.

 

Mr. Trump has threatened to impose 25-per-cent tariffs on imports from Canada and Mexico as early as Feb. 1. As economists and market watchers weigh the possibility the President will move ahead as promised or take a more measured approach, Canadian companies are already taking steps to offset the potential for a recession.

 

While businesses speed up plans in the U.S., many are pausing capital spending plans until there’s greater clarity on trade relations. The poll found that merger-and-acquisition activity will also be affected, with almost six in 10 saying they will delay deals for at least six months.

 

In an online panel on Tuesday organized by KMPG, former finance minister Bill Morneau called on business leaders to review their supply chains in light of escalating tensions with China. He also urged an early reopening of renegotiations over the United States-Canada-Mexico Agreement and strategic retaliatory tariffs from governments.

“All these things are challenging to achieve in real life, as we experienced in 2018,” said Mr. Morneau, who served as finance minister during the first three years of Mr. Trump’s first term in the White House. “Our goal will be to try and make this happen really as quickly as we can to get to the table.”

Mr. Morneau, who resigned as finance minister in 2020 over what he later described as disagreements with Prime Minister Justin Trudeau over COVID-19 relief spending, said long-standing challenges such as interprovincial trade barriers and low investment in research and development are being intensified by a “breaking apart of what has been successful over the last generation” to a “new normal.”

 

Lucy Iacovelli, a partner at KPMG specializing in tax and law, said the new U.S. administration’s economic and trade policies are already having huge ripple effects “in Canada and around the world.”

 

“No matter when or if U.S. tariffs or tax cuts take effect, now is the time to be pro-active and understand your exposure and develop mitigation strategies,” she said.

 

 

 

 

 

This article was first reported by The Globe and Mail