What the new US trade tariffs could mean for your business
Within days of taking office, President Donald Trump...
Within days of taking office, President Donald Trump has caused ripples across the world by threatening to introduce hefty import duty taxes (tariffs) on a long list of goods supplied into the United States by other countries, including Canada.
The proposed 25% tariff facing Canadian imports would, if it were to come to fruition, exert downward force on the country's economic stability and disrupt existing trade relationships between the two countries.
A recent social media post from Canadian Prime Minister Justin Trudeau offers some light at the end of the tunnel as the proposed implementation date of 4 February has been delayed by 30 days to allow for negotiations and discussions to take place, but it is important to note that changes to existing trade agreements are still possible. Here is a look at what could happen and what it might mean for your business.
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What goods would be taxed?
Under President Trump's plans, a 25% tax would be applied on food and drink, clothing, homewares, automotive parts and many other routine, everyday imports. A 10% tax would be applied to energy products.
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What is the expected impact of this tax?
Canadian businesses that export goods to the US would be required to pay this heightened tariff, which would increase their costs, reduce their profit margins and threaten their viability. Passing these costs onto Canadian consumers would also contribute to inflation and worsen the cost of living crisis.
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What countermeasures and solutions are available?
If these tariffs are applied, Canadian businesses will face significant challenges, and countermeasures will need to be enacted to balance the books and ensure a fair trade agreement is established.
This could include a retaliatory 25% tariff on US goods imported into Canada, temporary government relief on tariffs to allow businesses time to establish new, local supply chains, and permanent government relief on products that cannot be sourced domestically or from other overseas trading partners.
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What does this mean for franchises operating across the US and Canada?
There are many global franchise businesses that would be affected by the introduction of these tariffs. If you belong to one of them, it is a good idea to speak with your franchisor to determine what contractual protection you have against unexpected increases in the costs of sourcing your products.
Check your franchise agreement to see who is responsible for payment of duties and taxes on imports. Your contract may contain a clause allowing you to renegotiate your agreement under certain, specific circumstances. You may need to exercise a contract price adjustment if your business will be unduly impacted by these changes to remain viable.
Check whether you have trade credit or currency hedging insurance, and if so, consider using this product now to protect your operating position. As always, if you have concerns, speak to a professional about your own specific circumstances and follow their advice.
