From risk to resilience: navigating the tariff challenge for Canadian businesses

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Key takeaways

Businesses across Canada are facing a turbulent climate as the U.S. federal government’s tariffs have cast a pall over trade and supply chains throughout North America. As they seek ways to respond to a potential trade war with Canada’s closest trading partner, it will be important to consider two approaches – first, a reactive response that addresses the short-term impacts and second, a proactive strategy that addresses long-term opportunities to diversify and strengthen their resilience. 

For many businesses, this trade war will feel familiar, representing a return to 2018 when first-term President Trump levied tariffs on steel and aluminum from Canada and Mexico. Canada retaliated with tariffs of its own.

“Many Canadian business owners have certainly seen it before and are more prepared this time around,” says Anupinder Singh, Director & Head, Trade and Working Capital Solutions at Scotiabank.

How are businesses impacted? A short-term and long-term view

While the situation continues to evolve daily, many businesses are aware that they will be impacted and are looking for advice on how to get through this challenging period in the short term and how to fortify their businesses in the long term. 

Short-term approach: Bracing for the immediate impacts

Over the short term, impacts will be sharp and unavoidable for many Canadian businesses – in 2024, Canada exported 76% of its goods to the U.S. and imported half of its goods from the U.S.¹ These impacts may include:

• Operating costs
• Access to working capital 
• Inventory management
• Supply chain disruption 
• Market access
• Currency fluctuations  
• Falling demand for their products

The good news is that companies can work with their banking partner to help mitigate the short-term business risks tied to tariffs, including: 

• Balance sheet management
• Accelerating cash conversion 
• Payables financing
• Currency hedging strategies 
• Discounting letters of credit

These measures can help businesses manage the impact of tariffs in the short term while providing breathing space to develop proactive, longer-term responses to the new cross-border reality. And it’s those long-term actions that are the key to turning tariffs from immediate business risks to business opportunities over the long haul.

Long-term approach: finding opportunity with stronger, more diversified supply chains

Many businesses are using this latest tariff threat to explore how they can diversify their end markets, create more resilient supply chains or implement changes to their operations to build healthier, more diversified businesses. 

As Singh notes, transforming a business is a “long-term play that will not happen overnight. The important thing for us is to support clients through this journey and learn from each other rather than show them a prescribed path,” he says. “Every company is different, and no two paths will be the same.”

When transitioning from a single, dominant North American market focus to operating in multiple international markets, there are several considerations, including: 

• Understanding trade agreements in other markets
• Learning about local regulatory requirements in new markets 
• Hedging for currency risk and understanding the impact of FX
• Implementing changes to cash flow and liquidity 
• Managing risk across different markets
• Altering supply chains 
• Establishing new procurement partners
• Investigating alternative shipping capabilities and infrastructure 
   

Canada’s Trade Agreements²

1. Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) 
2. Canada-Chile Free Trade Agreement
3. Canada-Colombia Free Trade Agreement 
4. Canada-Costa Rica Free Trade Agreement
5. Canada-European Free Trade Association (EFTA) Free Trade Agreement 
6. Canada-European Union: Comprehensive Economic and Trade Agreement (CETA)
7. Canada-Honduras Free Trade Agreement 
8. Canada-Isreal Free Trade Agreement (CIFTA)
9. Canada-Jordan Free Trade Agreement 
10. Canada-United States-Mexico Agreement (CUSMA)
11. Canada-Panama Free Trade Agreement 
12. Canada-Peru Free Trade Agreement
13. Canada-Republic of Korea Free Trade Agreement (CKFTA) 
14. Canada-Ukraine Free Trade Agreement (CUFTA)
15. Canada-UK Trade Continuity Agreement (Canada-UK TCA) 

Mitigating risk while building resilience: how an experienced banking partner can help

Businesses will need to carefully examine their operations to fully understand the unique impacts of new trade rules and develop appropriate strategies to strengthen business resilience and drive new growth. The key is finding the right banking partner with deep international and regional experience and diversified banking capabilities in cross-border trade, financing, payments, and digital innovation. 

• Deep local footprint across North and South America: It is essential to find a banking partner with on-the-ground expertise outside of the U.S. to help you navigate through these new impacts. For example, Scotiabank’s corporate and commercial banking presence in Canada, Mexico, the Caribbean, and Latin America allows it to provide specialized advice and insights for businesses looking to operate in those markets. 

• Comprehensive toolkit of trade finance capabilities: Every business will be on its own unique journey to adapt to the new cross-border trade environment, so the right banking partner will need a wide range of financing solutions capabilities to help it manage cash flow, reduce risk, support supply chains and facilitate seamless international transactions. See Global Trade Finance & Banking Solutions | Scotiabank Canada. 
   

What businesses can do to meet this challenge

While tariffs have the potential to significantly disrupt the trade landscape and present complex challenges to businesses, there are steps businesses can consider, such as:

• Engaging with your banking partner to discuss how they can help you mitigate the short-term impacts while supporting your business’ journey to become more diversified and resilient. 

• Analyzing your regional strategy and assessing how well your banking partner is positioned to help you manage within those local markets.  

“There is uncertainty in the market, and naturally, our clients are feeling it, too.  What I say is they’re not alone. They have a financial institution with an international footprint that can be leveraged to support them through this journey,” says Singh.

Reach out to your Scotiabank Relationship Manager to discuss how we can help you navigate your business through this fast-evolving trade environment. 

^{1 U.S.-Canada Trade Relations, Congressional Research Services, February 13, 2025.
2 Trade and Investment agreements, Government of Canada.}