Do you believe that the tariff threat is now over and the US will come to their senses in a month? If so, I have a bridge to sell you. It’s in Brooklyn.
This round of bluster, threats and withdrawal at the last minute is only the start. The next round will be harder and for higher stakes. 40% tariffs if we don’t dismantle our dairy protections in 60 days? And so on. The biggest benefit we got was to truly understand the need to work together.
Canadian businesses that sell to the US need to use this pause as an opportunity to assess the long term threat to their products. If the risk is high, we need to make some very hard investment decisions on entering new markets. Or start a price war with US competitors, which is never fun.
REVIEW.
There are three main categories of products or services sold into the US from Canada, each with its own level of risk of being replaced.
One: US buyers need the product. And will pay for it.
Two: US buyers will slowly look for alternative suppliers. And replace you eventually (maybe).
Three: US buyers will replace the product quickly. And you will lose that business if you don’t react.
For Canadian manufacturers and service providers that have a product that the US needs and can’t be replaced, you are technically in a good position, all things considered. The US buyer and/or their customers will have no choice but to pay the tariff when importing the product and will have to incorporate it into their cost. Inflation and the inevitable downturn in the economy due to tariffs (mirroring the 1920s and 1930s) will be your primary concerns. But in the short term, the US buyers will not have a choice, and American consumers will pay the price.
For these companies, working on keeping positive relationships with US buyers will be your primary goal. Explain clearly that your “price increases” are out of your control and work hard to continue to provide excellent service to overcome the pain to their customers.
For Canadian products or services that would take a few years for US buyers to find new suppliers, you have an opportunity to show the value of staying put with your product rather than going through the pain of the associated supply chain disruptions. The reality is, less than 20% of manufacturing requirements can be suddenly be ramped up or alternatives found in the US. The severe irony is that Canada was seen as the “nearshoring” partner the US needed to strengthen North American supply chains. So there are no real short term options for the US to build new plants or factories and have them produce cost effective and fast delivery to US customers. Claiming the US will rebuild their manufacturing capacity back up to 1960s levels within a few years is just not possible. So work hard to convince buyers that you are the best option even at a higher cost.
The hardest review will be for Canadian products and services that are easy to replace with US alternatives. You will only have one choice – lower your prices to absorb the tariff amount. This requires your entire team to assess your COGS and see where savings can be found. Review your Canadian and international customers and work on ways to pitch deals for expanded sales outside the US. Set up a US entity and become an American company to sell to Americans. Acquire a small firm in the US to become American. But find a way to absorb the hit as quickly as you can.
We have heard a lot about finding new markets lately. But it’s very important to note that this could take year or more. This strategy is still VERY important, however, as we know now that the US has no intention of playing fair or working with us to solve real problems. So get started now.
Reach out to federal or provincial programs like Export Navigator to be connected to advisors, connect with BDC to investigate funding or international expansion support and connect with international expansion specialists like Exportspark to get started today.
Exportspark has worked with hundreds of companies on looking at new markets for expanding global revenue and works with associations, economic development agencies and trade associations to build out training and exporting capabilities specific to their sector and memberships. Contact us today to see where we can help.