January 21, 2025

Personal Economic Consulting

Smart Investment, Bright Future

Looking Ahead to 2025 in International Trade: Trade Tensions, Tariffs, and Supply Chain Vulnerabilities | Knowledge

Looking Ahead to 2025 in International Trade: Trade Tensions, Tariffs, and Supply Chain Vulnerabilities | Knowledge

2025 has ushered in a period of uncertainty with a new US administration on the horizon, Canadian domestic political change, and an increasingly volatile global economic and geopolitical environment.

To help Canadian businesses prepare for and navigate this uncertainty, we examine key recent international trade developments and their implications for Canadian businesses.

Some of the most significant recent developments are:

  • A second Trump administration
  • China surtaxes
  • Measures to combat sanctions evasion
  • A new forced labour reporting regime & a strengthened forced labour import ban

Cumulatively, these developments should encourage Canadian businesses to begin critically assessing their supply chains to identify and address vulnerabilities, as well as to ensure that they have appropriate compliance processes in place.

A Second Trump Administration: Tariffs & the 2026 CUSMA Review

The election of Donald Trump is the most consequential recent international trade development for Canadian businesses. President-elect Trump campaigned on the promise to impose tariffs on all goods entering the United States and just weeks after his election, he announced his intention as President to impose 25% tariffs on all products entering the US from Canada and Mexico.

While there remains much uncertainty and time for things to change before his inauguration, it is clear that:

  • The US President has broad powers to implement tariffs by virtue of the powers delegated to the Office of the President by Congress.
  • The unilateral imposition of tariffs would likely be contrary to the commitments in the CUSMA to allow duty free entry of originating goods, but practically speaking the CUSMA is unlikely to be a barrier to the imposition of tariffs.
  • Any Canadian response would likely include retaliatory tariffs, which would also impact Canadian businesses importing US goods.
  • The US has a growing list of grievances regarding its trading and general relationship with Canada, which the President-elect could seek to address through these tariffs.
  • The CUSMA is up for review in 2026 and the aggressive approach suggests that CUSMA will likely not be extended in 2026 without amendments.

Canadian businesses should prepare for potential tariffs by:

  • Mapping their supply chains to identify vulnerabilities.
  • Revising contracts to allocate potential liabilities for increased duties or to allow for early termination without penalty if retaliatory tariffs make US inputs prohibitively expensive.
  • Identifying potential alternative markets (for exporters) or suppliers (for importers).
  • Trying to move as much product across the border in advance of the January 20th inauguration.

Whether President-elect Trump imposes tariffs on Canada or not, his threat marks the return of a more disruptive “America first” trade policy and suggests that the 2026 CUSMA joint review will be hard fought.

China Surtaxes

In 2024 Canada ratcheted up trade tensions with China—its second most important trade partner—by imposing:

  • A 100% surtax on Chinese-made Electric Vehicles.
  • A 25% surtax on Chinese steel and aluminum products.

While the government previously committed to introducing new surtaxes on imports of certain solar products and critical minerals from China early in 2025, it is not clear how much of their regulatory powers they will use during prorogation. However, it would be prudent to assume that such surtaxes will be imposed by any successor government.

Importers should therefore examine and adjust their supply chains to mitigate the risk, while these surtaxes also raise the possibility of retaliation by China, giving rise to further supply chain uncertainty for Canadian exporters.

Countering Sanctions Evasion

2024 saw increased attention on sanctions evasion with amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA). Key amendments, include:

  • Duty for reporting entities under the PCMLTFA to report transactions that may be related to sanctions evasion.
  • New obligations for importers/exporters to declare whether their imported/exported goods are proceeds of crime or relate to money laundering, the financing of terrorist activities or sanctions evasion, and that the goods are actually being imported or exported.
  • New record keeping obligations related to importations/exportations.
  • New powers of retention and seizure for border officials if they have reasonable grounds to believe goods are proceeds of crime or are related to money laundering, the financing of terrorist activities or sanctions evasion.

In light of these amendments, businesses should undertake due diligence on their supply chains and implement compliance processes to mitigate potential violations and the potential seizure of their goods.

Forced Labour: New Legislation, Reports, and Strengthening Canada’s Forced Labour Import Ban

On January 1, 2024, Canada’s Fighting Against Forced Labour and Child Labour in Supply Chains Act (FCLA) entered into force, subjecting thousands of companies to annual supply chain reporting obligations.

Although the FCLA has brought increased attention to supply chains, it does not impose any mandatory due diligence obligations on businesses. For this reason, the government committed to introduce mandatory human rights due diligence obligations, create a new oversight agency, and strengthen Canada’s forced labour importation ban.

While any legislative changes are likely not to come to fruition in light of the prorogation of Parliament, businesses can still count on greater enforcement of Canada’s existing forced labour importation ban. This is likely to be a result of an increased focus on Canadian border issues by the United States, including on the importation of goods produced by forced labour, while any new Canadian government is similarly likely to take further action to combat forced labour.

The increased attention on forced labour, including a more aggressive Canadian enforcement posture, will give rise to significant risk for importers in 2025 and they should therefore undertake and properly document their supply chain due diligence to eliminate or minimize such risk.

Conclusion

Heading into 2025, Canadian businesses should prepare for continued supply chain challenges. Given the speed of new developments, it is more important than ever for businesses to anticipate these challenges to avoid being caught off guard.

 


link

Leave a Reply

Your email address will not be published. Required fields are marked *

Copyright © All rights reserved. | Newsphere by AF themes.