Facing up to the threat of tariffs

How to deal with the threat of tariffs?

Since the election of Donald Trump to the presidency of the United States, and even more recently since his inauguration on January 20 and the multitude of executive orders that have followed, we have been living in a climate of great economic uncertainty, which is having its share of adverse effects on consumers, both individuals and businesses. The uncertainty created by the tariffs imposed by the U.S. and Canada’s response is making it difficult to make investment decisions, and to manage day-to-day operations, by complicating the budgeting and financial projections that normally guide our decisions. Tariffs can have a direct or indirect impact on both supply and sales, with no end in sight, adding to the uncertainty.

In fact, some companies are already starting to feel the impact of this trade war – let’s not mince words.

As of March 19, 2025, tariffs on products complying with the Canada-U.S.-Mexico Agreement are for the most part duty-free until April 2, 2025, following Mr. Trump’s retreat on this point. At that point, we’ll be exposed to the mood of the American president, and risk seeing a repeat of the same scenario as before, namely the imposition of 25% tariffs on all goods without knowing what the government can or can’t do to avoid this, hoping for another period of reprieve or, even better, the abandonment of this trade war which is good for neither country. It’s hard to know where to stand in such a context. However, the 25% tariff on steel and aluminum exports has been in force since March 12, 2025, and there is no indication that President Trump will back down to this level. What’s more, from April 2, 2025, the reciprocal tariff decree will come into force, meaning that the US will tax products entering its territory at the same level as other countries tax the same type of American products. This will have an impact on dairy products and Canadian softwood lumber, among others. In short, we’re not out of the woods yet. Right now, the Canadian government is working with the U.S. administration to obtain exemptions, and that’s about all we know.

The importance of buying local

Of course, what we’ve been hearing a lot about since the start of this trade war is the importance of buying local, of favoring Canadian and Quebec products over American ones. The objective here is not to harm American companies, although they will obviously be affected, but rather to help Canadian companies get through this crisis. Last week, I attended a conference given by Isabelle Hudon, President of the BDC, and she quoted the BDC’s chief economist, Pierre Cléroux, who after some analysis came to the following conclusion: “If each Canadian consumer replaces $25 worth of American products with $25 worth of Canadian products every month, this will prevent Canada from falling into recession”. Here we see the importance of buying local, and reading between the lines, the BDC’s prediction that Canada will enter a recession in 2025 if the tariffs are maintained or implemented.

The importance of diversification

This tariff war shows that Canada and Quebec are hugely dependent on trade with the Americans. This is normal, as the economies of the two countries are highly integrated, and it’s not a problem when free-trade agreements are respected. However, when a president does not respect his signature, the situation can become problematic. Just as in the stock market, where diversification is one of the keys to long-term success, the same principle applies in business: it’s time to review our supply chain and our trading partners, starting with the rest of Canada (provincial governments are working to break down barriers) and Europe, which represents roughly the same market as the U.S., but on the other side of the Atlantic. Developing markets takes time, so it’s vital to get ahead of the game and get started quickly, if at all possible in your line of business. You don’t know how long the tariffs will be in force, it could be 1 month or 4 years, even more. But having a diversified set of business partners will help you win in the long run. Investissement Québec’s Panorama program provides financing and support for a diversification strategy outside Quebec.

The importance of budget planning

As I mentioned in my introduction, it’s extremely difficult to predict the short-, medium- and long-term impact of tariffs imposed by the United States and Canada, especially as the situation is constantly evolving. But that doesn’t mean we shouldn’t give the exercise a try, especially if we think difficult decisions are on the horizon, such as lay-offs, price increases, the abandonment of certain activities or the re-evaluation of investment projects. If the data are uncertain, it is always possible to draw up scenarios ranging from the most optimistic to the most pessimistic. The information derived from these analyses will help you make better decisions. Our specialists at Amyot Gélinas can help you with your budget planning exercise.

Government assistance

For the time being, the main assistance measure already announced comes from the Quebec government with the FRONTIERE program, which will be managed by Investissement Québec as an agent of the Quebec government. Here’s a summary:

Objective

The program is designed to provide financial support to Quebec companies in the manufacturing or primary sector (agriculture, mining, forestry, etc.) that are suffering the consequences of U.S. tariffs, to help them maintain their activities and preserve their liquidity.

Eligibility criteria

Be registered in Quebec and have been in business there for at least two (2) years;
Have generated sales of at least $3,000,000 for the last completed fiscal year;
Demonstrated profitability for at least one of the last two completed financial years, except for companies subject to countervailing and anti-dumping duties on their softwood lumber exports to the U.S. market;
Have generated at least 25% of their sales from exports to the U.S. for the last completed fiscal year.

Financial assistance

The program offers loans of up to C$50 million per company. Interest rates have not been announced.
The maximum loan term is 7 years.
A moratorium on capital repayment can be granted for up to 24 months.

The usual programs to support investment, in particular, are still in effect, but note that the new terms and conditions and budget envelope for the Essor Program (components 1 to 4) will be announced when the Quebec budget is tabled on March 25, 2025. Stay tuned for our budget reports, which will summarize the main actions put forward by the Quebec government.

The BDC, EDC, the Canadian banks, Desjardins and the MRCs via the Local Investment Funds (FLI) can also come to your aid, first and foremost by granting you a moratorium on the loans you already have. This measure has already been announced for FLIs. The BDC also has an additional budget envelope of $500 million for the new Pivoter pour se propulser program, whose objectives are similar to those of the FRONTIERE program, but where the sales requirement is $2 million (rather than $3 million).

On March 22, 2025, the federal Ministry of Agriculture issued a press release announcing an improvement to the AgriStability program, with a doubling of the payment ceiling to $6 million and an increase in the compensation rate from 80% to 90%.

In conclusion

There are a number of things you can do right now to better prepare yourself for the impact of tariffs. It’s important to keep abreast of announcements from the various levels of government, as they adapt to changing circumstances.

An article by Gustave Legault-Brousseau, CPA Director – Consulting Services