Will Tariffs Silently Eat Your Profits?

Whether or not you buy products, parts or materials from the US, you may still face higher costs due to the ongoing trade war.
 
There are four tariff drivers of higher costs. A couple of them are not so obvious:

1. On US products that are subject to Canadian counter-tariffs. Eg. produce you buy from the US and resell here in Canada.
2. On products from US suppliers who will have to pay US tariffs on the parts and materials sourced from Canada or other countries. Eg. a washing machine you buy from the US that uses steel sourced from Canada and electronic components sourced from China.
3. On products from US suppliers who onshore their production to avoid paying US tariffs on parts and materials sourced from other countries, and will produce their products at a higher cost as a result. Eg. a computer you buy from the US for resale whose production has been reshored from China.
4. From price increases from Canadian suppliers who have US suppliers upstream in their supply chains that fall under one or more of the above three situations. Eg. bicycles you buy from a Canadian supplier that has components sourced from the US.

Notice how these tariffs can stack up as these scenarios are combined. A US product can increase in price because it is produced with parts and materials from Canada or other countries that are subject to US tariffs, while that higher priced product can then also be subject to Canadian counter-tariffs, increasing its cost to companies and households here. The product’s price could be further increased by the US company bringing some part of its production back into the US.
 
While these scenarios will be avoided in many cases by companies switching to suppliers in Canada or other countries, the simple fact remains that production costs and prices are likely to increase. Companies source products, parts and materials from companies in countries that can produce the quality of product they want at the lowest price, due to their lower production costs. As production is moved to other countries to avoid the high cost of tariffs, production costs and prices will increase, as long as those cost increases and capital investments are lower than the cost of the tariffs.
 
As such, depending on the extent and amount of tariffs implemented, and how long they are in place, virtually every prairie-based company will face higher supply costs in some way, at some point or over time.
 
Note that indirect price increases, as in points 2, 3 and 4 above, may take months, quarters or years to materialize. The Bank of Canada estimates it will take up to 3 years for the pricing effects of US tariffs and Canadian counter-tariffs to make their way through all parts of the Canadian economy. This could be further complicated and extended with US tariffs on other countries around the world.
 
The bottom line is that, as long as this trade war continues, prices and costs for everyone are likely to increase, and significantly. And so, it’s important to be looking closely and proactively at your costs so you can make adjustments to your operations before they affect your bottom line.
 
For other ways to navigate these challenging times with confidence, get the free complete Trade-War Success Guide for Small to Mid-Size Companies below.

Access Your Trade War Success Guide

If you are a prairie CEO who wants to grow a thriving company through these turbulent times, more quickly, more easily and with less stress and headache, please contact me here.

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