Two-thirds of businesses say they can weather a trade war that lasts over a year

Two-thirds (67%) of Canadian business leaders say their companies can weather a trade war that last more than a year, according to a KPMG survey. The consulting firm polled 602 business leaders at mid-sized and large companies – with half of the companies being in the tariff-vulnerable sectors of industrial manufacturing and energy/resources.

A further 86% support retaliatory tariffs on the United States, with a similar proportion (83%) wanting a targeted, dollar-for-dollar response.

America’s broad-based, 25% tariffs against Canada – which went into effect on Tuesday – have Canadian companies searching for ways to mitigate tariff-related impacts and risk. Options include streamlining operations, forming partnerships to open up new markets, diversifying supply chains, divesting non-core activities, exploring foreign-exchange hedging opportunities, incorporating tariff and transfer pricing plans, seeking exemptions, and securing subsidies and tax incentives.

“The business community remains unwavering in its commitment to stand up for Canada," said Timothy Prince, managing partner for clients and markets, KPMG Canada. "While they will do what they must to ride this out, they expect governments to take bold action to eliminate interprovincial barriers, build a national energy-agnostic corridor, reduce red tape, and revamp the tax system to improve their ability to compete.”

Eight-six percent want increased pipelines and infrastructure to bring oil and gas from Western to Eastern Canada for export to non-US markets, as well as to supply Eastern Canada with oil and gas instead of importing from the US.

Meanwhile, over 8 in 10 business leaders want strong political will to open up trade within Canada, with a similar proportion saying the elimination of interprovincial barriers is very important to the survival of their businesses during a US trade war. Nearly a third (31%) say they can redirect 11%-25% of their sales to markets in Canada.

Half of business leaders say they are already cutting production and/or laying off employees in anticipation of tariffs. Over a quarter (28%) anticipate reducing headcount and production four-to-six months into a trade war, and 50% expect to reduce headcount a year into a trade war.

Two-thirds (67%) of respondents say the weak Canadian dollar will partially or fully offset the negative impact of tariffs.

Sixty-two percent of leaders would consider shifting some production activities to the US as a mitigation tactic. And while many are looking for different export markets, over half (52%) say it would be challenging to shift business to another jurisdiction in the short- and medium-term.

"It's imperative that companies future-proof their operations, take a hard look at their supply chains to find key concentration risks and vulnerabilities, evaluate how tariffs will impact their costs, cash flow, and liquidity and how much they're able to absorb or pass on to their customers," said Tammy Brown, leader for industrial markets, KPMG Canada.