Canadian businesses say they can withstand a tariff war

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Two thirds of businesses say they can withstand a tariff war with the United States that lasts more than a year, according to a new survey released on Tuesday by KPMG in Canada.

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Joy Nott, a partner in KPMG’s customs and international trade practice, says companies have already put strategies in place to limit the tariff risk in their operations.

“A lot of companies have taken months and months of inventory and they’ve transferred it to the United States already,” said Nott. “So I’m talking to companies who have maybe moved six to eight months worth of inventory to the United States, which normally that stuff would have been stored in Canada and shipped across as needed.”

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Nott says a remaining 30 per cent of businesses said they will face significant profit losses and three per cent would go out of business.

The survey, completed last Friday, collected the opinions of 602 large and mid-size businesses across Canada. Approximately half of the companies surveyed are involved in energy and natural resources, industries that are expected to be hardest hit by U.S. tariffs. The remaining businesses surveyed are involved in other industries, such as consumer and retail, agriculture, construction, financial services, transportation, infrastructure, technology and telecommunications.

Half of businesses surveyed say they are already reducing production and/or laying off employees in anticipation of tariffs and 28 per cent will start reducing headcount and production four to six months into a trade war. Half expect their headcount to decrease in Canada over the next year.

About half (46 per cent) of businesses say they have three to five alternative markets for their products other than the U.S. But 52 per cent of businesses say it will be challenging for them to shift their business to another jurisdiction in the short-and-medium-term.

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“Canada is the only country that has a free trade agreement with all G7 countries,” said Nott. “And now, I find clients are asking me about it, they’re questioning it, they’re looking at the world map, they want to know where else we have free trade agreements.”

Nott added that it will be difficult to shift overnight but that she has been answering a lot of questions about other jurisdictions.

The KPMG poll also found that 62 per cent of businesses would consider shifting some of their production activities to the U.S. as mitigation tactic in a trade war.

“So far I’m seeing it’s more the ones that already have some manufacturing or some locations in the U.S., so absolutely short-term if that’s a mitigating approach for some of them,” said Tammy Brown, partner and national industry leader for industrial markets at KPMG in Canada. “I have no doubt that there are lots of discussions going on in boardrooms.”

As many as 84 per cent say the elimination of interprovincial barriers will be “extremely or very important” to the survival of their business in a trade war and that internal barriers should be brought down as soon as possible. Nearly nine in 10 businesses would like to see “strong and determined” political will on all levels of government to open up free trade in Canada.

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“Some say that they could expand their domestic sales by as much as 25 per cent if those barriers can come down,” said Nott.

More than eight in 10 businesses support retaliatory tariffs against the U.S.

“The sense I get when talking to companies, it’s a question of national pride and sovereignty,” said Nott. “They’re Canadian and they want to see Canada and the business community in Canada succeed, and they plan on being part of that.”

• Email: jgowling@postmedia.com

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