How Canadian companies can prepare for Trump’s potential tariffs

Executive summary

Canadian companies may need to be concerned with President-elect Donald Trump’s proposal to impose tariffs on Canadian goods entering the U.S., which has the potential to disrupt key industries, such as crude oil. This move may impact trade agreements like CUSMA, possibly extending trade tensions to Mexico as well.

Businesses may consider preparing for increased tariffs by diversifying supply chains, reconsidering manufacturing locations, and staying in close communication with American partners. The situation remains uncertain, so Canadian companies should keep a close watch on developments.

Canadian companies may feel anxious after President-elect Donald Trump recently stated that he intends to impose tariffs on all goods entering the U.S. from Canada upon his return to the White House on Jan. 20, 2025. Canadians should remain cautious and continue to monitor developments in Washington and Ottawa.

Canadian businesses may consider preparing for raised tariffs by:

• Diversifying their supply chains to include global partners.
• Reconsidering manufacturing locations relative to customers—including rules of origin, which determine applicable tariff treatment of goods based on the manufacturing/production process.
• Analyzing transfer pricing policies to ensure potential increases in tariff rates are considered.
• Communicating with material American suppliers and customers.

Trump, tariffs and implications for Canadian businesses

In the U.S. government, the executive branch has broad powers to set tariffs it deems appropriate to protect the American economy and national security. However, it remains to be seen whether Trump will follow through with increasing tariffs on goods entering the U.S. from Canada.

Trump introduced the possibility on Nov. 25 in a series of social media posts signaling his intent to raise tariffs on goods from Canada, Mexico and China as a means of compelling those countries to address immigration and drug trafficking problems harming the United States. As Canadian businesses respond, it is important for them to be mindful of the difference between a statement and an actual proposal.

Trump favors the use of tariffs to deal with a variety of policy issues. This approach may include any future renegotiation of the Canada-United States-Mexico agreement (CUSMA). In any case, Trump’s recent statement may be particularly disruptive for Canadian industries reliant on the American market—such as crude oil, which sent approximately 97 per cent of its products to the U.S. in 2023, according to Canada Energy Resource.

Companies should also be mindful of how Canada might respond if tariff increases are implemented. There is a track record from Trump’s first administration.

During negotiations to replace the North American Free Trade Agreement in 2018, then-President Trump targeted Canadian softwood lumber, steel and aluminum with tariffs. In response, the Canadian federal government placed tariffs on a slew of U.S. goods, including steel, aluminum and food products. While talks concluded later that year with the introduction of CUSMA, neither side lifted the tariffs until May 2019.

Looking ahead: U.S. tariffs on Canadian goods

There is still a large degree of uncertainty around President-elect Trump’s tariff policies. As domestic entities respond to his statements about potential tariff increases, the trade policy outlook may evolve significantly. Canadian companies should remain cautious of committing to material changes, consider the actions listed above, and continue to monitor developments.

Read more about the Canadian tax implications of the new Trump administration in the next edition of The Real Economy Canada. Click here to subscribe.