Strategies for manufacturing businesses navigating tariff impacts

Tariffs on goods between the U.S. and Canada uniquely impact manufacturing businesses.

Over recent weeks, we’ve been talking with clients about their concerns. In this insight, we summarize the major trends and provide insight into how you can navigate some of these challenges.

Concerns about rising costs

Tariffs present a real threat to costs. Some manufacturers rely on U.S. imports to make their products and could face a 25 percent tariff on some critical components.

Are there options to offset these price increases? You can start by trying to pass off the cost increases to the customer. However, given the elevated rate of inflation over recent years and broader challenges in the economy, customers may not be willing to accept higher prices.

Another option is to look at your internal operations. You can offset some of the tariff impacts by improving your efficiency to produce more with the same resources. Some of the priority areas to explore include:

• Operations excellence – Is your operation running as efficiently as possible? By improving your process and systems efficiencies, you can reduce your cost and increase your output.
• Quality control – If your organization is experiencing quality issues, we recommend addressing the problem immediately. Quality issues lead to waste and erode your profitability.
• Product mix – Focus your resources on what matters most. Prioritize products that are high-margin or essential to your customers.

Questions about U.S. operation implications

To avoid tariffs, some organizations have considered opening operations in the U.S. This is a significant step and needs to be carefully considered.

The U.S. tax system can be complex and quickly impact your profitability. Some business owners underestimate the impact of paying taxes in multiple jurisdictions.

In many cases, taxes are also revenue-dependent, so you may be subject to different legal and regulatory requirements that you’re unfamiliar with.

Also, consider the market you’re entering:

• Are you confident that you understand the competitive landscape and there’s a market for your business?
• The exchange rate as a Canadian business exporting to the U.S. may make your prices more competitive. Moving to the U.S. would eliminate that opportunity.
• How would the tax implications impact your bottom line?

Moving to the U.S. is a viable strategy for some businesses, but it is critical to understand that this process has many pitfalls.

What are government supports and programs are available?

Tariffs are going to create significant challenges for some manufacturers. Multiple levels of government have announced their intention to support heavily impacted businesses.

For more information about Canada’s support programs, visit our resource page.

The federal government’s tariff remission process is especially relevant to manufacturers. To understand and support businesses impacted by tariffs, the government is soliciting requests for businesses to receive relief from paying tariffs or refunds on tariffs that have already been paid.

You can learn more about the remission process here.

Loan programs from EDC and BDC

Trade Impact Program – Export Development Canada

The Trade Impact Program will deploy $5 billion over two years to help exporters reach new markets and navigate economic challenges such as non-payment, currency fluctuations, cash flow issues, and expansion barriers. 

Learn more about the program here: EDC Trade Impact Program | EDC 

Pivot to Grow loan – Business Development Bank of Canada

Pivot to Grow is a trade support loan program that will offer $500 million in financial support, advice, and loan deferrals, to small and medium-sized businesses (SMBs) with concrete financial impacts directly resulting from U.S. tariffs. This can include cancelled contracts, increased costs, or lost customers.

The financing and deferrals will be focused on SMBs supported by a viable business model with direct sales into the U.S. market, or those in supply chains with direct exposure to the U.S.  

Learn more about this loan program here: Pivot to grow loan | BDC.ca