Ottawa | Reuters — Canadian exporters are scrambling to find ways to avoid a potential 10 per cent import tax promised by U.S. President-elect Donald Trump, including the possible shifting of production or supply lines south of the border.
Amid warnings from the Bank of Canada on Wednesday that protectionist policies brought in by Trump could drive companies to invest in the U.S. rather than Canada, executives said their search for options has already begun.
Canadian exporters are not alone, with global business leaders talking up the benefits of local production to shield themselves from criticism from Trump, who will be sworn in as president on Friday.
Read Also
U.S. grains: Corn sets contract lows on expectations for big US crop
Chicago Board of Trade corn futures set contract lows and soybean futures sagged on Friday on expectations that beneficial weather for U.S. crops will lead to bumper harvests, analysts said.
“We’re a Canadian company, we like to build things in Canada and export them… but you can’t sell stuff and not make money,” said Jim Rakievich, chief executive of Edmonton-based McCoy Global, which makes oil and gas industry equipment.
“We could move our production down into the U.S. fairly quickly, we could absorb that production (in our U.S. plants) if we had to.”
National Bank Financial estimated a 10 per cent border tax could cause Canada’s total goods exports to the U.S. to drop by about nine per cent, with non-petroleum goods sinking almost 11 per cent.
Exports are expected to drive about a third of Canada’s economic growth in 2017, behind only consumption and government spending, according to the Bank of Canada’s forecast this week. The U.S. is Canada’s largest export market with about 74 per cent of all goods heading south.
Canadian companies with U.S. affiliates may be best placed to weather a shift in tariffs, if they can shift production or investment to their U.S. plants to avoid an import tax.
Foreign affiliate sales to the U.S. rose to $298.4 billion in 2014, the latest year for which data is available, from $285.8 billion in 2013, according to Export Development Canada.
Some exporters without U.S. subsidiaries have already begun to search for new investments.
One such company is Mehadrin Group, which includes Canada’s biggest kosher meat processor.
Mehadrin had planned to sell Canadian-certified kosher meat in the U.S. but is now moving quickly to find U.S. sources of kosher meat as well as wholesale space in New York and Massachusetts to warehouse it, rather than try to import it from Canada and then raise prices to cover the cost of a tariff.
Now, the company is “looking at a couple of places,” including a slaughterhouse in California, “that can produce some volume for us,” according to Vladimir Budker, a financing consultant for Mehadrin Group.
“Plan B is to look at a couple of local (U.S.) producers — we’ve looked but didn’t approach them yet — to see if there is any change in policy, in NAFTA or taxes. We’d be looking at this avenue pretty fast,” Budker said.
For others, their cross-border business is far too integrated and specialized to easily separate U.S.-bound goods to avoid a tax.
Veso Sobot, director of corporate affairs at plastic pipe maker IPEX Inc., said products can cross the border between IPEX’s 18 plants in Canada and seven in the U.S. before they are even ready for market, making a shift in production to make products in the United States for U.S. customers impossible.
Instead, he’s hoping Trump will come to see that Canada is not a low-cost competitor that needs to be targeted.
“We feel very hopeful that… we will have an exemption to Trump’s Buy American policy. We believe Canada is not America’s problem.”
— Reporting for Reuters by Andrea Hopkins in Ottawa.
CORRECTION from Reuters, Jan. 25, 2017 — An earlier version of this article incorrectly identified Vladimir Budker as the CEO for Mehadrin Group.
