February 13, 2024
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By Atul Oka, Senior Director of Strategy and Business Development, DUKE Heights BIA
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On January 20th, 2025, President Donald Trump issued a presidential memorandum titled “America First Trade Policy”, which outlined the immediate trade priorities for his new administration. This memorandum covers three main areas:
1. Addressing unfair and unbalanced trade
2. Economic and trade relations with the People's Republic of China
3. Economic security matters
The memorandum directs various federal agencies to evaluate key aspects of U.S. trade policy and issue reports to President Trump no later than April 2025.
Despite this request, on January 21st, 2025, President Trump indicated his intention to impose 10 percent tariffs on China and 25 percent tariffs on Mexico and Canada by February 1, 2025.
In response, while both Canada and Mexico indicated possible counter tariffs to American goods and services, the White House on February 3, 2025, confirmed a 30-day pause on the tariffs on Mexican and Canadian goods in exchange for additional boarder control measures including the deployment of a $1.3 billion boarder plan by Canada to stem the flow of Fentanyl and illegal migrants into the United States from the Canadian border.
On February 4, 2025, shortly after the U.S. tariffs of 10% on China entered into force, the Chinese Ministry of Commerce announced retaliatory tariffs of 15% on certain U.S. goods, effective from February 10, 2025.
On February 10, 2025, President Trump signed executive orders to slap 25 per cent tariffs on all steel and aluminum imports into the United States, including Canadian products, starting on March 12, 2025. It should be noted that the 30-day pause on the initial set of tariffs on Canadian and Mexican goods expires in early March, and could be reinstated by the Trump Administration at any time post this date.
Possible mitigation strategies:
Irrespective of the rationale, it is clear that Canadian businesses, and their U.S. counterparts face a period of trade uncertainty. These tariffs and potential retaliatory tariffs will have both an immediate short-term impact as well as a broader longer-term impact to Canadian businesses and economy.
Here are a few steps your business can take to help you prepare and mitigate the risk to your business.
- Analyse possible impact
If you have not done so already, analyse and document the inputs (current cost, and where they are sourced from), and outputs (sale price, and which market you sell these to), so you are able to identify potential risk to your supply chain or client base.
Once you have a list of inputs and outputs, you will be able to gauge your businesses exposure from American suppliers and/or customers.
A good tool developed by the BDC, EDC and Federal Government to check tariff rates on imports and exports and keep track of tariff developments is available: https://www.tariffinder.ca/en/getStarted.
- Cost sensitivity analysis and possible mitigation strategies
To understand the potential impact to your business, it maybe worthwhile doing a cost sensitivity analysis. In scenario 1, apply a simulated cost increase for the input products originating partially or wholly from the U.S. This measures the possible impact of retaliatory tariffs that Canada may place on U.S. goods. Does your business have the margin to absorb this additional cost? Can you investigate and diversify your supply chain for these inputs?
And/or scenario 2, apply an increase in the sales price of your goods or services if part of your market is in the US. This will help you judge how much a client from the U.S. will now potentially have to pay for your products. Will your product still be competitive in the U.S. market at this new price point? Are there other potential non-U.S. markets where you can expand your sales? Canada has multiple free trade agreements which may make exploring new markets easier.
As a final activity, review and analyse your business processes. Are there avenues where you can reduce waste, improve efficiencies, or optimise business processes? Broadening both supply chains and target markets proactively will allow businesses to better weather these uncertain times.
It should also be noted that President Trump has indicated a possible announcement of reciprocal tariffs on Thursday, February 13 to all countries that currently have tariffs on any U.S. goods. It is unclear at this point how targeted or broad these may be. While this move further increases uncertainty, businesses in Canada should act proactively by identifying risks, analysing impact, and diversifying supply chains and sales channels.
