Strategic Response Framework to the 2025 US Tariffs: From a Canadian Vantage Point

Overview of the 2025 US Tariffs

The implementation of 25% US tariffs on $155 billion of Canadian exports has created an unprecedented risk environment for cross-border commerce. The tariffs are part of a broader plan to impose tariffs on imported goods from Canada, Mexico, and China. The new implementation date for the tariffs is set for April 2.

For Canadian enterprises, this represents both a systemic shock to integrated North American supply chains and a catalyst for fundamental reconfiguration of trade dependencies. This analysis reorients global tariff risk management strategies through a distinctly Canadian lens, focusing on sectoral vulnerabilities, domestic policy tools, and opportunities for hemispheric trade realignment.

Implications and Risks for Canadian Companies

Heads of Enterprise Risk Management (ERM) can support their organizations in addressing potential tariff impacts by evaluating risk exposure, testing the effectiveness of risk owners’ mitigation strategies, and performing scenario analyses to forecast possible outcomes. The imposition of tariffs is expected to have significant repercussions for Canadian businesses and the broader Canadian economy. Organizations need to assess how President Donald Trump’s sweeping U.S. tariff declarations and retaliatory actions from other nations might influence their ability to provide essential goods and services. ERM leaders are ideally situated to help their organization quantify the risk and respond adequately through these three steps:

1. Analyze how tariff risks impact the organization.
2. Prepare risk owners to navigate tariff volatility and uncertainty.
3. Engage in proactive scenario analysis.
4. Develop risk mitigation strategies to minimize the impact and likelihood.

1. Assess How Tariff Risks Impact Your Organization

The imposition of tariffs is expected to have significant repercussions for Canadian businesses and the broader economy. Higher operational costs can squeeze profit margins, reduce cash flow, and limit the ability to reinvest in growth, particularly affecting Canadian goods. The tariffs can also lead to a decline in exports, weaken Canada’s GDP, slow economic growth, and increase unemployment.

Canadian companies should assess their exposure to the tariffs and develop strategies to mitigate the risks.

Prepare your organization for the effects, range, and length of U.S. tariff policies by using the table below to pinpoint relevant risks to your business. This table highlights key risk indicators (KRIs) along with their implications from tariff actions. While we’ve approached this from a broader Canadian business perspective, feel free to use it as a foundational tool in assessing the risks and potential opportunities that U.S. tariffs may offer your company.

Preparing risk owners to navigate tariff volatility and uncertainty is a critical step for Canadian businesses facing the challenges posed by the 2025 US tariffs. This preparation involves a multi-faceted approach that empowers risk owners to take informed actions and make strategic decisions.

Firstly, it is essential to foster a culture of collaboration and open communication across the organization. Risk owners should be encouraged to share insights and experiences, creating a collective understanding of the potential impacts of tariffs on different business areas. Regular meetings and workshops, via a Risk or Tariffs Taskforce, can facilitate this exchange of information, helping to identify vulnerabilities and opportunities within the organization.

Secondly, equip risk owners with the necessary tools and resources to analyze and respond effectively to tariff-related risks. This includes access to real-time data on tariff changes, market trends, and geopolitical developments. By leveraging advanced analytics and scenario modelling, risk owners can better predict potential outcomes and develop contingency plans to mitigate adverse effects.

Furthermore, it is crucial to establish a clear framework for decision-making that aligns with the organization's overall strategic objectives. Risk owners should be empowered to make timely decisions based on predefined criteria and thresholds, ensuring a swift response to emerging threats or opportunities. This may involve setting up a dedicated task force or committee to oversee tariff-related decisions and actions.

Training and development programs are also vital in enhancing the capabilities of risk owners. Providing targeted training on topics such as international trade laws, customs regulations, and supply chain management can equip risk owners with the knowledge needed to navigate complex tariff landscapes. Additionally, fostering partnerships with external experts and industry associations can provide valuable insights and support in managing tariff-related challenges.

Finally, encourage risk owners to adopt a proactive mindset by continuously monitoring the external environment and identifying early warning signals of potential tariff changes. This proactive approach allows businesses to anticipate disruptions and adjust strategies accordingly, minimizing the impact on operations and financial performance.

By implementing these strategies, Canadian businesses can empower their risk owners to effectively navigate tariff volatility and uncertainty, ensuring resilience and agility in an ever-changing trade landscape.

3. Engage in Proactive Scenario Analysis

Use scenario analysis to drive immediate action so your organization is prepared to respond to tariff impacts when they materialize. Invite risk owners involved in managing tariff risk to partake in a session to identify value at risk, interim signals and low-cost actions to take now.

Frame your conversation around core value drivers that may be at risk if tariffs impact your organization. For example, a tariff may hinder your organization’s ability to deliver a core product or service, potentially resulting in lost customer trust.

After determining the core value at risk, work with the group to determine interim events that could indicate the risk is materializing. This will help you determine the actions (and associated timelines) to take in preparation.

For example, if the interim event increased the cost of critical supplies, you might ask participants, “What are the first three things we could do if the cost of critical supplies increased?”

Use the responses from this conversation to identify two or three low-cost, low-regret actions your participants can take now to prepare your organization.

4. Develop Risk Mitigation Strategies to Minimize the Impact and Likelihood Stemming from Tariff Risks

Strategies for Canadian Businesses

• Review contract terms and Incoterm usage to understand who will be liable for duties and tariffs.
• Engage with customers and suppliers to understand their best path forward.
• Consider transfer-pricing arrangements to manage duty costs.
• Assess duty relief options, such as engaging with governments on both sides of the border.
• Diversify markets to reduce dependency on the US market.
• Canadian importers should explore remission processes to mitigate the financial impact of surtaxes on US-origin goods.

Canadian Government Support and Retaliatory Tariffs

Managing Trade Disruptions and Compliance

• Canadian businesses should review their trade compliance to minimize duties payable.
• The Canada Border Services Agency (CBSA) will administer the tariffs and duties will be payable by the importer of record.
• Businesses should understand the International Emergency Economic Powers Act (IEEPA) and its implications for trade.
• Steel and aluminum imports will be subject to 25% tariffs.

Advocacy and Engagement

Engaging with Governments and Stakeholders

• Canadian businesses should engage with governments on both sides of the border to secure exemptions or affect the scope of goods subject to the tariffs.
• Collaborative approaches through industry groups can maximize the effectiveness of these efforts.
• Businesses should also engage with stakeholders, such as suppliers and customers, to understand their concerns and develop strategies to mitigate the risks.

Market Development and Diversification

Exploring New Markets and Opportunities

• Canadian businesses should explore opportunities to expand into other markets and deepen relationships with existing non-US partners.
• Federal and provincial support programs may assist with market diversification initiatives.
• Businesses should also consider the Trade Expansion Act and its implications for trade relationships.

Tax and Duty Relief

Understanding Tax and Duty Relief Options

• Canadian businesses should understand the value of duty and how it can help manage duty costs.
• Businesses should also understand the customs duties and how they can be minimized.
• The National Tax Leader can provide guidance on tax and duty relief options.

Preparing for the Future

Building Resilience and Agility

• Canadian businesses should build resilience and agility to respond to changing trade relationships.
• Businesses should develop strategies to mitigate the risks associated with trade deficits and tariffs imposed.
• Businesses should also consider the implications of the tariffs on their supply chains and develop strategies to minimize disruptions.

Conclusion and Key Takeaways