TLDR
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Canada’s businesses find themselves in a position where they need to respond and adapt as trade tensions become the new normal.
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Businesses might want to look into new markets at home, as the drive to “buy Canadian” could provide new opportunities for domestic businesses.
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Canada has 15 active free trade agreements that cover 51 global markets. Government programs are available to help domestic businesses make inroads in foreign countries.
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Canadian businesses can better insulate themselves from the volatility by budgeting for the unexpected and unlocking access to more working capital.
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For those that can’t avoid the trade war, it may be worth registering an American subsidiary or moving operations south of the border to circumvent tariffs.
Canadian businesses have inadvertently found themselves on the front lines of a trade war.
As tensions rise and tariff threats fly organizations are starting to feel the pinch. According to a recent survey by the Canadian Federation of Independent Businesses, 62% of business owners say they’re taking a hit as a direct result of the ongoing trade war between Canada and the United States. The study also found those in the manufacturing, wholesale and transportation sectors have been the hardest hit so far.
According to the Government of Canada, roughly $2.5 billion worth of goods cross the Canada-U.S. border daily, totalling over a trillion dollars in trade per year. In 2023, domestic merchandise exports to the United States totalled nearly $550 billion, accounting for nearly 77% of Canada’s total exports.
Though the details of the duelling threats and escalations change by the day, the dollar’s declining value, the effects on consumer confidence, and the overall climate of instability are likely to remain. Canada’s businesses find themselves in a position where they need to respond and adapt as trade tensions become the new normal.
Here are some ways your business could prepare to weather the stormy conditions brought on by this trade war.
1. Expand your business’s presence in Canada
With the world’s largest consumer market right at its doorstep, the United States has long remained an obvious primary target for Canadian goods. As tariffs and trade restrictions balloon at the border, however, now may be the best time to look elsewhere.
Before expanding your scope internationally, however, your businesses might want to look at new markets in your home country. According to Statistics Canada, just 41% of Canadian businesses purchase goods and services from Canadian suppliers based outside their home province, while just 27% sell to their products and services interprovincially.
Though the country has a significantly smaller consumer market, the drive to “buy Canadian” could provide new opportunities for domestic businesses to blunt the effects of slower international sales through greater activity at home.
With that said, businesses should familiarize themselves with some of the challenges connected to interprovincial trade; from geographic distance, restrictions on the sale of certain goods, and regulatory differences in licensing, safety and technical standards. While there is renewed momentum to remove internal trade barriers between the provinces, your business may be affected by exemptions included in the Canadian Free Trade Agreement (CFTA).
2. Look to new global markets
Diversifying your business away from the United States is likely to require more than just a greater push at home, which is why Canadian businesses may also choose to consider looking beyond their immediate geographical neighbourhood.
Canada’s international free trade agreements
Though the Canada-U.S.-Mexico Agreement (CUSMA, formerly the North American Free Trade Agreement or NAFTA) often gets the most attention Canada has similar free trade agreements with the European Union (via CETA) and the Indo-Pacific (via CPTPP). In fact, Canada has 15 active free trade agreements that cover 51 global markets whose a combined GDP accounts for 61 per cent of the global economy.
Resources to help Canadian businesses expand into new markets
Expanding into international markets can be difficult and costly, especially when there is language, time zone and cultural barriers to contend with. Businesses looking to expand internationally, however, don’t need to go alone: A number of government programs are available to help domestic businesses make inroads in foreign countries, such as the Trade Commissioner Services at Global Affairs Canada, provincial government trade and investment offices, and Export Development Canada (EDC).
RBC has been a National Partner of the Trade Accelerator Program (TAP), which is designed to help small and medium-sized businesses grow internationally through strategic planning sessions and hands-on workshops.
The free RBC Global Connect tool, meanwhile, helps Canadian businesses identify which countries are best suited for their products or services, helping clients to expand globally and facilitate international operations.
3. Budget for disruptions
With the trade war rapidly evolving, it’s hard to predict who will be affected, and how significantly. Canadian businesses can better insulate themselves from the volatility by budgeting for the unexpected.
Specifically, as a business owner, you may choose to look at your expenses and consider the line items that may be at risk of higher prices. For expenses likely to be subjected to tariffs, calculate what a 25% price hike might look like, and plan accordingly. You may want to consider alternative suppliers to help reduce costs.
For businesses on the higher end of the U.S.-exposure spectrum, consider exploring options for securing additional working capital to cover higher operational or material costs. You may also need to plan for disruptions in payment schedules as supply chains adapt to fluctuating prices.
Start by checking for financial assistance programs designed to help blunt the effects of the trade war, such as Canada’s recently announced Trade Impact Program administered through EDC. You can also speak with your financial institution or RBC Relationship Manager to explore your financial options.
4. Consider setting up a business in the U.S.
Sometimes, if you really can’t beat em’, the only option is to join em’.
While pivoting away from the United States to internal or international markets is viable for some businesses, others simply can’t exist without the United States. For those that can’t avoid the trade war, it may be worth registering an American subsidiary or moving operations south of the border to circumvent tariffs.
According to a January survey by KPMG, 65% of Canadian businesses took pre-emptive action to prepare for the looming trade war by moving goods or production to the United States prior to President Trump’s inauguration. Another 48%, meanwhile, said they planned to shift their investments to the United States and set up operations south of the border to reach the American market without running into tariffs along the way.
Canadian businesses can speak with their financial institution or RBC Relationship Manager to learn more about the resources and assistance available for setting up banking arrangements in the United States.
5. Stay up-to-date with the latest news and insights
The current trade and tariffs news cycle is unlike a typical news cycle, in that world changing events seem to happen at breakneck speeds.
Canadian business leaders can’t afford to ignore the news but can’t afford to succumb to information overload, either. That is why it may be helpful to turn off the 24-hour news channels, ignore social media, and go straight to the source.
For example, Global Affairs Canada’s news site offers the latest information on tariffs and Canada’s foreign policy decisions. RBC’s Trade Hub, meanwhile, offers thought leadership and insights from the bank’s business and finance experts to help clients navigate tariff related challenges.
Canadian business owners didn’t ask for this trade war, but they can’t simply ignore it, either. Fortunately, Canada’s business community has proven itself resilient and innovative through countless challenges in the past, and with the right approach, they will survive this threat too.
By diversifying your customer base (either within Canada or internationally), carefully managing your financial resources, considering moving operations, and staying on top of the latest news and information, you can equip yourself to lead your business through this new economic reality.
