Canada is bracing itself for uncertain economic times as U.S. President Donald Trump warns of potential 25% tariffs on imports from its northern neighbor. On January 23, 2025, during the World Economic Forum held in Davos, Switzerland, Trump stated, “If you don’t make your product in America... then very simply you will have to pay a tariff, differing amounts, but a tariff which will direct hundreds of billions of dollars, even trillions of dollars, to strengthen our economy and pay down debt.” This bold claim can potentially undermine the longstanding relationship between Canada and the United States, which has relied on simple answers to deeply complex trade dynamics.
For decades, Canada has enjoyed predictable access to the vast U.S. market, underpinned by various trade agreements like the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and the recent Canada-United States-Mexico Agreement (CUSMA). Now, the specter of tariffs raises concerns and creates palpable tension. John Weekes, who was Canada’s chief negotiator of the original NAFTA, pointed out the challenge, stating, “The hope would be... to pursue a negotiated resolution to the situation to avoid damage to American economic interests.” The very notion of tariffs is jarring for Canadian businesses already grappling with investment decisions.
Already, Canadian companies are on high alert. Many are scrambling to implement contingency plans amid heightened anxieties around Trump's unpredictability. Businesses are venturing to assess their operational presence within the U.S., with the common sentiment being they need to explore any avenues to safeguard their future without waiting for definitive moves from Trump. Ian Robertson, founder of the Jefferson Hawthorne Group, noted, “Companies are now forced to explore opportunities they otherwise wouldn’t have.” This sentiment is increasingly shared among businesses major and minor alike as they navigate this complex environment.
Despite recent promises of tariff implementation, Trump has yet to follow through, having first hinted at it on his inauguration day and again reiteratively. The upcoming February 1 deadline looms large over Canadian companies. Firms both large and small are re-evaluing their strategies, including assessing tax incentives and even contemplating moving operations to the U.S. Factors like corporate tax rates come to the forefront of discussion. Many companies are weighing the loss of Canadian jobs against potential gains from shifting their manufacturing footprint south.
Unfortunately, the smaller players are feeling particularly vulnerable, with fewer resources to build contingency plans or make swift operational changes. “While multinationals have the resources and plans, SMEs are now catching up, often starting from scratch,” noted Demet Tepe, partner at KPMG. This insights highlights the significant divide between larger corporations and smaller enterprises, who find their agility compromised under economic duress.
The unpredictable nature of the situation has caused Canadian businesses to initiate negotiations with their U.S. counterparts, addressing who will bear the financial brunt if tariffs are introduced. Negotiations are more than mere discussions about pricing; they represent the very survival of these companies. Notably, Jack Shinder, president of AMBICO Ltd., shared, “I’ve got plans B, C, and D,” indicating the necessity of preparedness for multiple scenarios should realities become grim.
Yet the potential for retaliatory measures if tariffs come to fruition leaves Canada particularly exposed due to its trade dependency on the U.S.; retaliations could inflict significant wounds on the Canadian economy. “From an economic perspective, retaliations against all American imports would be as damaging to the Canadian economy as the original American tariffs,” warned Weekes. This comment emphasizes the necessity for strategic and prudent responses rather than tumultuous ones.
Looking forward, Canadian leaders are focusing on boosting other economic pathways. The Trudeau government is pushing toward becoming more resilient by strengthening trade with other regions and developing its industrial capabilities. Investment strategies focusing on energy exports, particularly underpinned by crude resources and technology sectors, are gaining traction. Efforts to eliminate interprovincial trade barriers and provide local businesses with the support needed to flourish could also bolster the Canadian economy without flaring tensions with the U.S.
Fundamentally, Trump’s harsh rhetoric offers Canada a challenging predicament but also presents opportunities. Business leaders must adapt and innovate if they are to thrive amid turbulent winds blowing from across the border. Nathan Obeid, president of GGS Structures, communicated the core of this ethos, “At the end of the day, I’ve got to look at the business surviving.” This highlights the immediate focus for Canadian businesses amid uncertainty—a path to survival, requiring agility and resilience.
Canada’s response remains to be seen. The nation’s historical reliance on its southern neighbor means it faces significant challenges if the trumpet of trade war beats louder. Ongoing negotiations and partnerships will be key as Canadian industry evaluates its strategies under the looming tariff threats. The business community must go beyond defensive operations and seek not just to survive but potentially thrive, turning adversity to opportunity.