Will tariffs affect my business? How can I prepare? Will my business survive?
For Canadian businesses, the introduction of tariffs from the new United States administration will have a direct impact on operations, costs, and profitability. Understanding these impacts and preparing accordingly is essential for businesses to stay afloat through the ongoing uncertainty.
Understanding Tariffs
Put simply, a tariff is a tax on imported or exported goods. Governments use tariffs for various reasons, including:
- Protecting Domestic Industries: By making imported goods more expensive, tariffs can encourage consumers to buy locally-produced alternatives.
- Retaliation in Trade Disputes: Countries may impose tariffs in response to trade restrictions or duties imposed by other nations.
- Revenue Generation: Tariffs can be a source of income for governments.
Common types of tariffs include:
- Import Tariffs: Taxes on goods entering the country, often leading to increased prices for consumers and businesses.
- Export Tariffs: Less common, these are levied on goods leaving a country.
- Retaliatory Tariffs: Imposed in response to another country’s trade restrictions or tariffs.
How Tariffs Impact Canadian Businesses
When tariffs are introduced or increased, Canadian businesses can experience several challenges:
1. Increased Costs for Imported Goods
Many Canadian businesses rely on imported raw materials or finished products. Tariffs increase the cost of these goods, leading to higher production expenses and a negatively impacted cash flow.
2. Supply Chain Disruptions
Businesses dependent on international suppliers may face delays (due to customs processes and increased costs) or need to find alternative sources, leading to issues with inefficiencies and increased operational complexity.
3. Competitive Disadvantages
If tariffs make Canadian businesses’ products more expensive compared to international competitors, they may lose market share both domestically and abroad.
4. Price Increases for Consumers
Higher costs for businesses often translate into higher prices for consumers, reducing overall demand and potentially affecting business revenue negatively.
How Businesses Can Mitigate the Impact of Tariffs
While businesses cannot control government trade policies, they can take proactive steps to minimize the impact of tariffs:
1. Financial Planning & Forecasting
Businesses should assess their exposure to tariffs and factor increased costs into financial forecasts. Budgeting for potential price fluctuations will help maintain financial stability.
2. Customs and Trade Strategies
- Work with customs brokers to navigate tariff regulations and find cost-saving strategies.
- Take advantage of the Duty Drawback program, which provides refunds on duties paid for imported goods that are later exported.
3. Supply Chain Diversification
- Identify alternative suppliers in countries with more favorable trade agreements.
- Explore sourcing from domestic suppliers to reduce dependency on imports.
4. Contract and Incoterm Negotiations
- Renegotiate contracts with suppliers and customers to better distribute the costs associated with tariffs.
- Adjust Incoterms (International Commercial Terms) to shift some responsibility for tariffs and import costs.
5. Leverage Government Support and Programs
- The Canadian government offers various programs to support businesses affected by tariffs. Staying informed about these opportunities can help mitigate financial strain.
- Engage with boards of trade and business associations for guidance and advocacy on trade-related issues.
Tariffs are an unavoidable reality in international trade—especially in 2025. Unfortunately, their impact on Canadian businesses can and will be significant. However, by understanding how tariffs work, planning strategically, and leveraging available resources, businesses can minimize disruptions and maintain their competitiveness. Proactive steps like financial forecasting, supply chain diversification, and engaging with trade experts can help businesses navigate tariff challenges effectively.
At SBLR, we can help business owners with budgeting and financial forecasting to help prepare for the financial implications of tariffs. Request a consultation to get started.