December 6, 2024

Personal Economic Consulting

Smart Investment, Bright Future

Navigating uncertainty: how U.S. trade policies could impact Canadian businesses

Navigating uncertainty: how U.S. trade policies could impact Canadian businesses

Jesse Goldman: I’m Jesse Goldman, partner in the Competition, International Trade and Foreign Investment Group at Osler.

Canadian businesses have been wondering about the implications for their business with the U.S. since the election. Today we’re going to discuss how Trump trade and tariff policies, to the extent we know what they are, will affect Canadian businesses going forward.

Tariffs on imports were the hallmark of the Trump trade policy from 2016 to 2020, with a focus on China. Those tariffs, however, also became tariffs on the U.S.’s allies, including Canada. The tariffs were really designed to fulfill three goals: to correct trade imbalances; to protect U.S. industries; and to leverage negotiations with even allied countries to get better outcomes for U.S. exporters and U.S. business in general.

How did the tariffs affect allied trading partners like Canada?

So, while the tariffs were directed at China, they also greatly affected U.S. allies, like Canada, Mexico, the European Union. So, an example of this that many people will remember would be the so-called 232 tariffs against steel and aluminum. Those were used to leverage concessions from Canada and Mexico in the USMCA negotiations.

What are the potential implications for Canadian businesses under this administration?

I think we’re going to continue to see the same political and economic themes that we saw in the first Trump administration, maybe a little bit more refined and a little bit more directed. The U.S. would be acutely aware that its trade deficit with Canada for goods has increased by over 20 percent in the last two or three years.

So, it’ll be looking to negotiate with Canada to ensure that that trade imbalance comes back into line with U.S. objectives. I think the U.S. will also be acutely aware that Canada has doubled down on things like protection for its dairy industry, has doubled down on the digital services tax over U.S. objections, and will be certainly seeking to change the landscape for U.S. businesses in Canada as a result of that.

What is the significance of understanding the legal basis for tariffs in U.S. law for Canadian businesses?

It’s important to understand how tariffs are made in the U.S. these days. They’re not the same as the way they used to be. It used to be that most of the authority vested in Congress and that there was a lawmaking procedure that went into tariffs. Congress has delegated a lot of the authority for trade and tariff policy, in particular to what we call the executive branch, the president. And now the president, at the stroke of a pen, can affect tariff policy, meeting both economic and political objectives, almost overnight. And that places countries like Canada in a pretty vulnerable position because the traditional abilities of allies to influence that policy changed in some pretty substantial ways over the last few years.

What are the implications for the USMCA and Canadian businesses?

It’s a near certainty that the USMCA is going to be reviewed, likely at the request of the U.S., in the summer of 2026. Canada and Mexico will be playing defense at that point because the U.S. has a number of grievances about the USMCA and it wants them fixed in a way that helps the U.S. So, for Canadian business, it’s looking at months, if not years of uncertainty around the outcome of those negotiations. And in fact, whether there’s going to be a USMCA in existence at the end of that at all.

What specific concessions might the U.S. demand from Canada?

The U.S. may demand concessions from Canada on various issues, which could include supply management, a long-time irritant for the U.S., particularly Canada’s dairy supply management. I think the U.S. will be looking for wholesale changes in Canada’s supply management system that would favour U.S. exporters. The other one would be the digital services tax. U.S. big tech has been very upset about Canada’s digital services tax and the fact that it was done unilaterally over the objections of the U.S. The other one would be, the U.S. will be looking to change domestic ownership  restrictions for Canadian telecom, and will probably be looking to either get rid of or substantially change protections for Canadian cultural industries.

What economic uncertainties might Canadian businesses face?

It’s the uncertainty associated with moving from a rules-based trading system to a pretty chaotic and unilateral environment driven by a U.S. agenda. So, for Canadian businesses that are heavily reliant on the U.S. market for exports and for their business, in general, they’re looking at increased costs, declining market share, and potentially declining business valuations.

It becomes speculative at that point, but I think in that type of environment, Canadian businesses are either looking at an acquisition strategy, potentially of their own, if that’s available to them, to hedge against U.S. trade-driven uncertainty. They’re potentially becoming more attractive acquisition targets themselves if business valuations are declining due to, you know, being less competitive in the U.S. market and in an environment with reduced U.S. market access, I think the general message for Canadian businesses is to start planning now.

How might Canada respond to protect its industries?

Canada will need to respond, it’ll need to respond for economic as well as political reasons and it’ll respond by retaliating against U.S. industries. So, this puts Canada in a very difficult position.  There’s a delicate balance that has to be struck between retaliation and ensuring the prosperity of business. It’s a very fine line that has to be walked by Canada. But the name of the game will be once unilateral measures start, retaliation almost always ensues.

What should Canadian businesses do to prepare for upcoming trade disruptions?

Canadian businesses can prepare in a couple of key ways. One would be supply chain diversification and diversification of their markets, bearing in mind that the U.S. may become a more difficult place to sell into and that Canada may become a more difficult business environment as well.

This is going to be a rapidly changing environment. Things can change in terms of tariffs and other U.S. trade policy literally overnight. So, they’ve got to engage experienced trade experts and trade counsel so that they can get the advice they need quickly, in order to plan for these changes.

link

Leave a Reply

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

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