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(Photo: © ai tekno concept / Adobe Stock)
Canadian business leaders remain steadfastly united in fighting American tariffs, according to a new survey by KPMG in Canada. Two-thirds of those polled say they can weather a trade war that lasts more than a year and almost nine in 10 support the use of retaliatory tariffs against the United States.
The uncertainty around U.S. trade policy has had Canadian companies rushing to find ways to mitigate their risk and tariff-proof their organization. While it varies by company and industry, mitigation strategies include identifying areas to optimize and streamline operations, forming partnerships to open up new markets, diversifying supply chains, divesting non-core activities, exploring foreign-exchange hedging opportunities, incorporating tariff and transfer pricing plans, seeking exemptions, and securing subsidies or taking advantage of tax incentives.
“The business community remains unwavering in its commitment to stand up for Canada,” stated Timothy Prince, the Canadian managing partner for clients and markets at KPMG in Canada. “The size of the tariffs and the length of time tariffs remain in place will impact their ability to weather the coming storm. Already the uncertainty is prompting companies to examine every facet of their business to understand their options, with three-quarters already undertaking a strategic review of their operations.”
As these companies prepare for what could be a protracted fight, they are expecting government to take steps to help the economy as well.
“While they will do what they must to ride this out, they expect governments to take bold action to eliminate interprovincial barriers, build a national energy-agnostic corridor, reduce red tape, and revamp the tax system to improve their ability to compete,” he explained. “As many as 86 per cent say it’s time to diversify energy export markets with increased pipelines and infrastructure in Western and Eastern Canada, and reduce our reliance on having to move oil and gas to Eastern Canada through the U.S.”
Nearly ninety per cent want “strong and determined” political will at all levels of government to finally open up trade within Canada. As many as 84 per cent say the elimination of interprovincial barriers will be extremely or very important to the survival of their business in a trade war with the U.S. and want the barriers removed as quickly as possible.
Fighting tariffs with infrastructure
The diversification of energy markets had 86 per cent saying that it is time for increased pipelines and infrastructure from oil and gas-producing regions in the West and East coasts for export to non-U.S. markets, with the same percentage wanting Canada to move an increased volume of oil and gas (via West to East pipelines) to reduce reliance on moving oil and gas from the U.S. to Eastern Canada.
Tariffs during the first Trump administration on Canadian steel and aluminum lasted almost a year. While two-thirds of business leaders say their company can withstand a tariff war that lasts more than one year, 30 per cent say their company will face “significant profit losses” if a tariff war lasts more than one year. The remaining three per cent say their companies will go out of business if it lasts beyond one year.
Half say they are already reducing production and/or laying off employees in anticipation of tariffs, and more than a quarter expect to start reducing headcount and production four-to-six months into a tariff war. Half say that by this time next year, they expect their headcount to decrease in Canada, highlighting the need for businesses to accelerate mitigation efforts and governments to move quickly to lift economic growth, said Prince.
“It’s imperative that companies future-proof their operations, take a hard look at their supply chains to find key concentration risks and vulnerabilities, evaluate how tariffs will impact their costs, cash flow, and liquidity and how much they’re able to absorb or pass on to their customers,” stated Tammy Brown, national industry leader for industrial markets at KPMG in Canada. “We are working with our clients to develop scenario plans to map potential trade policy changes and impacts on their organizations. This will help build resiliency and flexibility in their supply chains to react quickly and effectively as the landscape changes. And while many were already focused on optimizing their operations, this trade uncertainty has created a new sense of urgency.”
Business leaders are also looking abroad for new markets. About half say they have three to five alternative markets for their products other than the United States, and 27 per cent have one or two alternative markets.
KPMG in Canada surveyed 602 Canadian business leaders in late February for the report.