Navigating U.S. Tariffs: A Strategic Roadmap for Canadian Businesses

The policy platform of the new U.S. Administration presents a significant challenge to Canadian businesses. As announced on February 9th, steel and aluminum products from Canada will see tariffs of 25% imposed starting March 12. In addition, there is a threatened 25% levy on all goods originating from Canada. These tariffs present a direct threat to profitability, supply chains, and long-term growth, demanding strategic action now. This situation requires a proactive approach that combines a deep understanding of stakeholder impacts, robust resilience planning, and innovative risk treatment solutions to position your company for long-term success.

As experts in risk, Zurich Resilience Solutions (ZRS) sees these dynamics as part of the new normal. While this new normal can be challenging to navigate, businesses that quickly find stability and clarity can position themselves to better weather these unpredictable storms. In this point of view, I share a brief primer on the impending tariffs and some recommended approaches to help your organization prepare and manage through the volatility ahead.

Understanding the tariff impacts

There are a number of elements to consider and look at when assessing the potential impact of tariffs on the Canadian economy. Businesses of all types could face an impact – big and small, domestic and international, and cutting across almost every industry. The U.S. is Canada’s largest foreign customer with nearly $600 billion annually in total exports. Some provinces like Alberta, Ontario and New Brunswick could have greater exposure, as these are highly trade-intensive with a majority of their exports going to the U.S. But regardless of region or province, it is important for every business to take note.

We recommend that business leaders consider the following:

• Systemic Disruption: These tariffs are not isolated - they have the potential to disrupt the entire Canadian economy, especially impacting diverse industries such as primary metals, food and beverage, chemicals, machinery, and aerospace – where broader supply chain dependencies come into play.
• Supply Chain Vulnerability: Deeply integrated supply chains with the U.S., while efficient, are now a major vulnerability. Tariffs will lead to increased costs and potential delays.
• Investment Erosion: Uncertainty is already causing a chilling effect on investment. Companies are hesitant to commit to new projects in Canada, fearing reduced profitability and market access, leading to an "investment drift" towards the U.S.
• Profitability at Risk: Tariffs directly increase costs, squeezing profit margins and forcing difficult decisions about pricing, sourcing and production. Now is a great moment to look inward at productivity measures and how to gain boosts in performance.
• Retaliatory Escalation: Canada's commitment to retaliatory tariffs on U.S. goods means this is not a one-sided issue. It's a potential trade war that could further destabilize markets and increase costs.

Building resilience though a proactive strategy

To effectively navigate the tariff threat, we recommend a proactive and urgent strategy to prepare your organization and its stakeholders. And, to turn preparation into action that can help you to minimize the impacts to whatever extent possible.

1. Conduct a Precision Risk Assessment: Identify the specific vulnerabilities your business faces due to potential tariffs. This should be a cross-functional exercise cutting across finance, operations, supply chain, production, and other key areas of the enterprise to gain a holist view of major risk areas and stakeholder impacts.
2. Develop a Business Resilience Plan: Create tailored business continuity and disaster recovery plans that address the unique needs of your business and key stakeholder groups. The outputs of your risk assessment can shape what areas need more urgent focus, investment or contingency planning. Being prepared for the unknown and having cross-functional teams in place to address issues in real-time can be a strength in the face of adversity.
3. Optimize your Supply Chain: The pressure is on to diversify supply chains and identify alternate suppliers and logistics partners to create safeguarding measures. The access (or cost) to goods, raw materials and other components will experience unpredictable dynamics, depending on sources of origination and local competition for more localized sourcing. The goal here is to establish a flexible and adaptable supply chain, reducing your vulnerability to any single point of failure.
4. Develop a Strategic Communication Plan: Create a communication strategy and rapid response plan to keep employees, customers and suppliers informed during crisis moments, or during phases of acute volatility. During fluctuating times, instability can create confusion and impulse reactions, and this can impact your reputation if not managed well. It’s essential to be planned and guided, as this can help strengthen trust and transparency with key stakeholders.

According ZRS business continuity expert Edward Manukian, “Begin by understanding your stakeholder expectations and the potential tariff impacts. While opportunities exist to mitigate tariff effects, urgent proactive planning is critical. Focus on assessing potential exposure points across your entire value chain. Pragmatic preparation should be your priority in such situations.”

Volatility is coming - now is the time to prepare

The potential tariffs are a call to action. Organizations have a choice: respond reactively once damage is done or proactively build business resilience measures. A strategic approach that combines a thorough understanding of stakeholder impacts, robust resilience planning, and innovative financial protection is essential. This is not just about surviving; it's about positioning your company for long-term success and stability in the wake of looming volatility. Want to learn more and ensure you’re as prepared as possible? Our team of advisors understands the landscape and how you can best be ready with a plan of action.