There’s a certain level of national pride that comes with the anticipation of Canada Day. It’s the one day a year when Canadians show unabashed pride in their country and its heritage. It’s a kind of nationalism that ordinarily modest and polite Canadians reserve for events such as a European vacation or cheering on their Olympic athletes.
But it seems this Canada Day will have a particularly palpable level of nationalism. July 1st is the day Canada’s countermeasures to U.S. steel and aluminum tariffs take effect. And judging by some of the sentiments expressed on social media and the comment boards of mainstream media, the buds of a “Buy Canadian” movement are well in place.
Canada’s response to the U.S. tariffs is an understandable and expected diplomatic act, not to mention measured in its scope. Few nations would have responded otherwise. But there is a downside to any trade conflict, and that downside will have a profound impact on the small businesses in Canada for whom the U.S. market is a critical supply source.
For many small businesses, the tariffs imposed by Ottawa will result in one of three outcomes: they will be forced to absorb the cost and further diminish already thin profit margins; they will be forced to reduce investment in their business development; or they will be forced to pass the cost along to the consumer, making them even less competitive against big business.
The good news is that it is precisely these sorts of watershed moments that spur change in often static business practices. For many businesses, the U.S. market has been the only logical market from which to source goods, given its geographic proximity and parallels in business and regulatory processes. As Prime Minister Justin Trudeau recently noted in the media, “the interconnectedness between the Canadian and U.S. economies is not going to change any time soon.”
But there are other options available to small businesses with the wherewithal to seek out alternative suppliers. Being a signatory to the Comprehensive Economic & Trade Agreement (CETA) with the European Union opens up many doors of tariff-free opportunity for other sources of materials.
Similarly, earlier this year, Canada signed in principle the Comprehensive & Progressive Agreement for Trans-Pacific Partnership (CPTPP). While the agreement still must undergo a ratification process and may not take effect until 2019, it too provides Canadian businesses with a wealth of new, tariff-free sourcing opportunities in 10 Pacific Rim countries.
This is something Canadian businesses should be doing irrespective of the outcome of the current tariff dispute. Inevitably, many of Canada’s small and medium-sized businesses will take a wait-and-see approach with the hope that the dispute is resolved expediently and amicably. And it may be.
But given the current sentiment toward trade in Washington, it’s quite possible this is only one of many potential trade disputes that may arise in the coming years. To safeguard against supply-chain disruption, businesses should have backup suppliers in place. These are suppliers in other international markets who can offer the same or comparable supplies to Canadian businesses on short notice in the event sourcing goods from the U.S. becomes too costly.
Getting backup suppliers in place isn’t an overnight task. It requires months of research to ensure a supplier is reliable, able to coordinate expedient shipping and has products that meet Canadian regulatory requirements. In addition, weeks of volume and price negotiation could be required before an agreement is solidified.
There’s no question that the U.S. will continue to serve as Canada’s primary import and export market. Our proximity to the U.S., our cooperation on security and regulatory policy and our ease of trade across the most porous border in the world guarantees that.
But Canadian business would be well served to establish supply-chain contingencies for precisely the sorts of circumstances in which they will find themselves on July 1st when Ottawa’s countermeasures to U.S. steel and aluminum tariffs take effect.
In a world in which change and disruption to global trade have become constant, having a backup plan isn’t just sensible, it’s absolutely critical.
Stéphan Galarneau specializes in trade for small business at trade services firm Livingston International.