‘Effort to mitigate risks’: Inside Corporate Canada’s strategy for Trump’s tariff threats
Canadian companies are stepping up their efforts to mitigate risks under U.S. President Donald Trump’s threat of a 25-per-cent tariff on imports from Canada.
Across industries, chief executive officers and prominent Bay Street advisers say, businesses are looking at measures that range from selling government tax credits to accelerating long-term growth plans south of the border.
Canadian businesses are reaching for as many tools as they can to grapple with an unpredictable opponent who isn’t fighting by traditional rules. Mr. Trump did not follow through on a weeks-long promise to impose 25-per-cent tariffs on imports from Canada and Mexico on his first day back in the White House, but he has since set Feb. 1 as the new deadline.
Policy-makers and economists are debating whether Mr. Trump means to carry through on this renewed threat, which he repeated in a video address to government and industry leaders at the World Economic Forum in Davos, Switzerland, but many businesses in Canada aren’t waiting to find out what actions follow his words.
Companies of all sizes are stress-testing scenarios of possible tariff rates and durations, setting up sales and distribution centres in the United States, and accelerating plans to either grow south of the border or move there entirely. As Mr. Trump vows to impose tariffs on foreign countries, he is also promising to cut domestic taxes and loosen regulations.
Canadian companies have been backed into a corner, said Ian Robertson, founder and partner of leadership advisory firm Jefferson Hawthorne Group, and the former CEO of Kingsdale Advisors. Some are now weighing the costs of moving operations to the U.S. against the benefits.
“Factors like corporate tax rates, regulatory burdens and capital gains structures come into play,” he said in an interview. “These discussions are still in a blue-sky phase for many, but the underlying sentiment is clear that the status quo is not sustainable.”
While some large companies have dedicated teams to game out scenarios, many mid-sized and small firms lack the resources to develop contingency plans. “Companies are now forced to explore opportunities that they otherwise wouldn’t have,” he said.
Canadian partners at accounting giant KPMG said outreach from clients accelerated as Mr. Trump’s inauguration day approached and executives realized they would need to work more pro-actively even without knowing what exactly to safeguard against.
Demet Tepe, a partner at the firm who specializes in international transfer pricing, said the dark mood among clients has shown signs of lifting as companies take more specific action. Still, there is a correlation between the level of concern and the size of the company.
“While multinationals have the resources and plans in place, SMEs are now catching up, often starting from scratch,” she said. “But the issues they face are fundamentally the same.”
Joy Nott, a KPMG partner in the customs and international trade practice, said companies are negotiating with U.S. clients over who will foot the bill if tariffs are imposed, examining ways to bring down the cost of duties, and giving more attention to the effects levies would have on a more detailed level.
Just because a product is assembled in Canada doesn’t mean the full product will necessarily incur a charge of price times 25 per cent, she said.
“We don’t know whether or not it means every shipment from Canada or only the shipments from Canada where the goods are made in Canada, which is what we think is the most likely scenario that’s going to happen,” she said. “Tariffs are far more nuanced than that.”
Jack Shinder, president of AMBICO Ltd., an Ottawa-based maker of specialty doors with factories in Canada, the U.S. and around the world, said his company could shift production and focus more on licensing its intellectual property, which includes doors that are resistant to bullets and explosions.
“We’ve done that already with a number of people in the U.S.,” he said. “And so we would broaden that level of co-operation because they would be making products for us under our name.”
Mr. Shinder said he has “plans B, C and D” shared with his staff in the event Mr. Trump moves ahead.
“I have to have a plan. I’m not going to act on it, but I need it to be gamed out. I mean the best scenario is that I don’t have to do anything, but the reality is that I’m going to have to do something.”
Bryan Watson, senior vice-president of Venbridge, which provides tax consulting services to small and medium-sized enterprises, said companies are doing “whatever they can” to be nimble.
“The general principle is beg, borrow, steal, sell a kidney,” said Mr. Watson, who is also managing director of CleanTech North, an industry organization. “Whatever you need to do to get enough of a war chest to be able to survive and plan for the next two to four years.”
The threat of tariffs is adding to the challenge for companies struggling to raise capital in sluggish Canadian equity markets, he said. “Investigating the pantheon of financial tools that will let you do that is imperative.”
Businesses he works with are increasingly selling tax credits – taking out loans of the same value as money they’d collect in months, well past tax seasons.
“Companies are looking at what they’ve got in their financial wheelhouse and bringing forward what cash they have.”
Still, shifting operations mainly to the U.S. is top of mind for some businesses. Nathan Obeid, president of Vineland, Ont.-based GGS Structures Inc., which designs and makes agricultural and industrial greenhouses, said it is prepared to shift production. “At the end of the day, I’ve got to look at the business surviving,” he said. “The first mandate is keeping the business alive.”
With a small team, he cannot game out detailed scenarios that larger companies can, but the possibilities are nevertheless constantly running through his mind. “It’s sad because it does mean impacts in a small community to these families that, you know, hey, I’ve been working here for 25 years, 30 years.
“But if I was starting a company brand new, I would not start it here. I would just go straight to the U.S.”
This article was first reported by The Globe and Mail
