by: Hessie Jones
Tariffs is the prevailing topic in the minds of Canadians in recent weeks, not only because of the Trump administration’s messaging and chaos surrounding it but also because of the grave implications it has at home for consumers and Canadian business.
The events continue to change daily however this is what has transpired in the last 3 months:
- In the wake of Trump’s November 2024 re-election, Trump’s campaign had prominently featured promises of aggressive tariff policies, with specific criticisms directed at Canadian and Mexican manufacturing sectors.
- November saw Trump threaten to impose 25 percent tariffs on Canadian and Mexican products on his first day in office, citing border security issues related to fentanyl trafficking, illegal immigration, and perceived trade imbalances with Canada. This threat prompted swift Canadian action in December 2024, when the Canadian government announced a $1.3-billion plan to strengthen border security and disrupt fentanyl flow.
- On January 20, 2025, President Trump signed an executive order initiating public consultations and studies on the impacts of the Canada-United States-Mexico Agreement (CUSMA) on American businesses, with particular focus on farmers.
- February 1st, Trump signed an executive order imposing comprehensive tariffs on Canadian exports to the United States. This order established a 25 percent tariff on all “products of Canada,” with a reduced 10 percent tariff on energy resources.
- Prime Minister Justin Trudeau responded immediately, announcing that Canada would implement a two-phase retaliation package totaling $155 billion in tariffs on American goods1 — $30 billion immediately on selected imports and then $125 after 21 days. Canadian provinces have followed with their own retaliatory tariffs
- Just two days after the initial tariff announcement, on February 3, 2025, a temporary reprieve emerged. Trump announced a 30-day delay in implementing tariffs against both Canada and Mexico, claiming that both countries had made border security concessions.
- However, the reprieve proved short-lived for specific sectors. On February 9, 2025, Trump announced his intention to impose 25 percent tariffs specifically on steel and aluminum imports,
- On February 27, Prime Minister Justin Trudeau clarified that if US tariffs proceed as planned, Canada would implement its previously announced two-step retaliation plan: In response to the executive order on US tariffs, the Canadian government had announced a series of retaliatory measures, which would have included imposing its own 25% surtax on $155 billion worth of US goods. These countermeasures, which have also been paused for 30 days, are designed to protect Canadian industries and workers from the economic impact of potential US tariffs and to signal Canada’s commitment to defend its trade interests.
- On March 1st the US Administration initiated another investigation into Canadian lumber, which threatens additional tariffs on lumber
- The broad tariffs took effect on March 4, 2025. By midnight, the Canadian surtax on $30 billion of U.S.-origin goods imported into Canada took effect; and 21 days later, on the remaining $125 billion of U.S.‑origin goods.
- Specific steel and aluminum U.S. tariffs are scheduled to begin on March 12, 2025.
- On March 5th, the administration exempted Big 3 automakers from Canada, Mexico tariffs for 1 month, enshrined within the CUSMA agreement
- March 6th, Trump approved a one month pause on tariffs on Mexico and Canada for goods and services compliant with the CUSMA agreement.
- As of March 7th, Canada has a one-month reprieve from the 25 percent tariff on all products from Canada. While the surtax on the $30 billion of U.S. origin goods remains, Canada has paused the second planned retaliatory tariffs of $125 billion in response to this temporary US tariff reprieve.
These tariffs have profound implications for Canadian businesses and consumers. More recently, companies like TFI International, a Montreal-based transportation firm, considered relocating their legal registration to the U.S. considering 75% of their revenues originate in the US. However, it faced shareholder backlash from Caisse de Depot et Placement du Quebec (CDPQ), one of TFI’s largest shareholders and has since reversed course on this decision.
Aside from oil and gas, Canada’s largest export sector is the auto industry. “On Tuesday, Mr. Trump suggested that the only way out of tariffs for the sector is to move all its production to the United States. Aside from abandoning a skilled work force, that would require billions of dollars in new investments.”
Tariff threats have created considerable uncertainty for Canadian businesses, with survey from CFIB Data indicating that companies have delayed expansion plans (24%), put hiring on hold (20%), and revised sales projections downward in response. Among exporters, that number rises to 34%.
This level of uncertainty is expected to play out in the coming months as this administration ‘decides’ whether to revise its tariff threat to more targeted sectors. It is increasingly unclear what will happen in the coming days and weeks.
Implication on Canadian business
The first businesses impacted by the new tariffs will be Canadian exporters, along with companies that import goods from the US: Industries such as agriculture, automotive, and energy These businesses will feel the immediate effects of the trade measures from both sides.
Next in line will be businesses within the supply chain or those closely connected to exporters, as the ripple effects spread across various sectors.
Overall, the Canadian economy is projected to shrink by 1%, which signals negative growth — a clear indicator of a recession. According to Brookings Institution, Canada is expected to lose more than one percentage point of GDP growth due to the U.S. tariffs, and if Canada retaliates to the full extent, this could increase to more than 3 percentage points shaved off from GDP growth. Longer term, according to the report, if the tariffs were to stay in place, “Canadian exports heading south would be decimated by 9 to 19 percent.”
The net effect: US tariffs and Canadian surtaxes are likely to raise costs for Canadian businesses, disrupt supply chains, and shrink profit margins. These impacts could reshape the Canadian economy. Additionally, the US presidential executive order focused on Canada, which calls for stricter border security and increased inspections, may significantly impact cross-border trade and supply chain efficiency.
For Canadian Businesses It’s All-Hands-on-Deck
There are broader measures the provinces and federal governments are undertaking to ease the burden on the Canadian consumer and business.
- Canadian government is taking significant steps to reduce interprovincial trade barriers, which could potentially add $200 billion to the Canadian economy
- The Bank of Canada has reduced its policy rate from 5% to 3%, with further reductions expected.
- Trudeau recently announced potential expansion on EI Benefits
- Remission program of the Canadian surtax for eligible goods affected by the tariffs;
- Prime Minister Trudeau has indicated that the government is in “active and ongoing discussions with provinces and territories to pursue several non-tariff measures” if US Tariffs are not withdrawn.
However, all businesses — including those not directly subject to tariffs — should evaluate how these measures could affect their operations, as this will have impacts across the broader economy.
BDC: Running your Business in 2025 Means Building Resilience in a Changing World.
BDC recently presented a webiner to help businesses navigate this economic uncertainty. Their advice: Instill an all-hands-on-deck mentality. Your business will be operating under a weakened Canadian dollar and within a volatile trade environment.
The perception of time is now compressed. In response to the U.S. administration, you need to shift to a new approach to planning. This is now your new time horizon:
- Immediate aftermath (30 days):
This is now your short-term focus. It’s crucial to have a plan ready for the month immediately following a disruptive event or shock.
- Quarter horizon (2-3 months):
This becomes your medium-term outlook. It covers the remainder of the current quarter after the initial 30-day period.
- Extended view (6 months):
This is now considered your long-term perspective. While you can make some educated guesses about this timeframe, it’s important to recognize that certainty decreases as you look further ahead.
All-Hands-On-Deck Approach
In times of crisis or rapid change, adopting an “all hands on deck” mentality is essential. This approach involves engaging all teams and business lines, including your employees, who are also reading the headlines and may be concerned. Keep them engaged and reassured during these periods.
Your leadership team will need to remain on top of company performance. Review key performance metrics on a weekly basis. Meet regularly and stay on top of the issues, and if possible, assign a crisis task force to focus on these issues, if amendable, while the rest of the operation focuses on the day-to-day.
Considerations for this compressed time horizon is described in detail:
The First 30 Days: The Immediate Aftermath
Evaluate your financial flexibility using various indicators and ratios. This process can be likened to preparing your vehicle for a challenging journey on an unpredictable road.
- Liquidity – Can I pay my bills?
- Profitability – What are my margins?
- Productivity – Am I making the most of my assets?
- Leverage – How much debt am I carrying?
Calculate your break-even point and determine what you need to make to cover all your expenses and generate a net income of $0.
Plan for the Worst and Hope for the Best
When evaluating your ability to weather market fluctuations, consider various scenarios and their potential impacts. This is where price and cost management come into play:
- How would a 25% increase affect the demand for your product?
- Can your business withstand a decrease in sales volume at the higher price points?
- Alternatively, could you manage a reduction in product prices without jeopardizing your financial stability? Can you handle the entire increase, or only a portion of it?
- Have you developed contingency plans for worst-case scenarios if you lose a critical client or if a key supplier can no longer meet your needs?
Manage Your Cash Flow
One of the primary focuses should be on managing cash flow. Consider delaying payments on certain payables where possible, without damaging important supplier relationships. This can help preserve cash in the short term. Additionally, review your expense and investment plans. Identify which expenses can be postponed and which investments might need to be put on hold temporarily.
Operational Adjustments
Flexibility in your operations is key so adjust your production schedules or delivery timelines. This might mean scaling back production in certain areas or renegotiating delivery terms with customers. Align your operational activities with the current market demands and your financial capabilities.
Contract Review and Revision
Take this opportunity to review contracts with your key customers and suppliers. Work with your lawyers and financial advisors, you may also want to explore clauses in these contracts to understand your obligations and exposure, and if possible, to protect yourself against significant price fluctuation or to increase predictability.
Supply Chain Optimization
Before making any changes, have a clear understanding of your financial boundaries. You should already have a good grasp on how much margin you can afford to sacrifice, and the extent of cash reserves you can reasonably utilize. This forms the foundation for making informed decisions about your supply chain. In the meantime, identify and establish relationships with alternative suppliers to reduce the dependence on a single or limited number of sources, and potentially lower costs.
Quarter Horizon (2-3 months):
Strategic Cost Management in the Medium Term
For the next two to three months, it’s crucial to conduct a thorough review of your company’s cost structure. This involves a detailed, line-by-line examination of your expenses to identify areas where costs can be cut or reduced.
When reviewing expenses, it’s important to differentiate between discretionary costs and those that are committed or mandatory. This distinction will help you make informed decisions about where to make cuts without compromising essential operations.
Consider phasing out or temporarily halting unprofitable products. Caution to evaluate this strategically, ensuring that short-term gains don’t jeopardize your company’s long-term viability.
Pricing Strategy Reassessment
This period is also an opportune time to reevaluate your pricing strategies. Given the compressed planning cycle, you may not have the luxury of extensive market research. Instead, focus on direct communication with customers to understand their willingness to pay and gather intelligence on competitors’ pricing.
Remember that open communication and collaboration with customers and partners will be key to finding mutually acceptable terms. Recognize that everyone is facing similar challenges in the current economic climate.
Consider some tactical pricing adjustments:
- For higher-margin product lines or less price-sensitive markets, you may be able to adjust pricing to offset impacts on lower-performing or more price-sensitive products.
- Continuously monitor the impact of pricing changes on sales and customer behaviour, and be prepared to adjust your strategy as needed.
Supply Chain Considerations
Considering potential tariffs or supply chain disruptions, make it a practice to explore new suppliers or alternative materials. Take advantage of the research you applied in the first 30 days to optimize your supply chain. Be aware that changes to established supply chains can be disruptive, so approach this process carefully and strategically. and remember the goal is to navigate through the current challenges while maintaining a strong foundation for future growth and stability.
Extended View (6 months and beyond):
This is now considered your long-term perspective. While you can make some educated guesses about this timeframe, it’s important to recognize that certainty decreases as you look further ahead.
No one knows how long this period of volatility will last. As the situation evolves your business needs to remain nimble so you may need to go back to the first two phases of the time horizon.
The priority is enhancing your business’s productivity—leveraging technology, automation, and AI can significantly boost efficiency.
According to the BDC, in Canada, business productivity has been a long-standing challenge, often tied to insufficient investment in technology. While there has been federal investment committed to boost this AI gap, this lack of focus on innovation has weakened productivity, impacting both business competitiveness and the country’s overall economic standing. For business owners, you need to identify areas of waste within your operations and pinpoint where money is being lost. Your employees can highlight where workflows are breaking down or where certain processes fail to add value.
Once you’ve identified the pain points affecting productivity, it’s essential to take action to resolve them. Set a clear timeline for implementing solutions and assign someone who is both responsible and accountable for each task.
Eliminate processes that don’t add value and aim to standardize operations wherever possible. Consistency reduces errors and creates a foundation for automation. As per the BDC, “We see it repeatedly with our clients, their production capacity increases by 20% or more. The quality improves and they reduce costs.”
Diversification as your Strategy
Diversification can be achieved in a variety of ways. When it comes to customers, focus more on selling more to customers in Canada, if you don’t already. With the potential for interprovincial restrictions being lifted, this should reduce the friction between provinces and provide you with more opportunities to expand your customer base.
Re-examine your target customer and determine whether there are other demographics (by age group, lifestyle or income) you should consider. This will entail some market research testing but is a feasible strategy to expand your existing offerings to a wider audience.
At the same time, review your current product offerings and determine profitability on a per customer basis. Monitor and determine channels that are working and those that have not been considered but could be effective. Should you consider expanding your distribution through retail partners from your current online strategy?
Also, consider where adjacent industries may benefit from your products. This looks at a longer time horizon and requires more strategic consideration. Could a B2C producer of bamboo fashion clothing consider the healthcare sector for uniforms?
Focus on your most profitable services/products to determine product extension or new offerings. Talk to your customers? Are their preferences trending in a different direction? In a time of uncertainty, the time for testing new markets, new industry and new channels to build for the long haul is right now.
In Times of Uncertainty, Be Resilient
It is unclear what Canadians will face especially in the face of whip-lash policies we’re witnessing on this tariff roller coaster.
This is the time to be vigilant and proactive, to scrutinize your business performance more often, and to constantly find ways to build efficiencies while finding new business opportunities.
Government support measures will provide some relief; however, the onus remains on business leaders to act decisively. The compressed time horizon demands agility, transparency, and collaborative planning. Build collective resilience by engaging employees, partners, and customers.
Ultimately, businesses that adapt, innovate, and prioritize operational efficiency will not only survive but may also find new avenues for growth.
If you have questions on impacts to your business, please contact us at communications@altitudeaccelerator.ca.
