Dealing with Tariffs have become a significant concern for business owners, governments, and consumers alike. The United States, our largest trading partner, is threatening a mutually beneficial relationship that represents $3.6 billion in goods and services exchanged daily and supports hundreds of thousands of jobs on both sides of the border. This situation raises a critical question: What can be done?
Flavio Volpe, President of the Automotive Parts Manufacturing Association and member of the Prime Minister’s Council on Canada-U.S. Relations, addressed this question after the Council’s inaugural meeting. His first piece of advice was clear: “Well, what we don’t do is panic.” Staying calm in uncertain times is challenging but essential.
Speaking to the business community in Ottawa, Daniel Tisch, the President and CEO of the Ontario Chamber of Commerce, presented three primary strategies to mitigate the impact of tariffs on your business:
- Increase Prices: Raising prices can be difficult as customers may hesitate to pay more, potentially delaying their purchases or seeking alternatives. However, some price increases may become necessary depending on your exposure to tariffs. It’s important to communicate transparently with your customers about the reasons for price increases to maintain trust and loyalty.
- Lay-off Staff: Temporarily laying off staff can have long-lasting impacts on a business. Employees are the heart and soul of your operations, but tough times call for tough decisions to ensure the vitality of your business. Consider alternative measures such as reducing hours or implementing temporary pay cuts before resorting to layoffs.
- Change Suppliers: Changing suppliers might result in a more cost-effective approach. This strategy requires careful consideration of the supply chain and potential alternatives. Research and establish relationships with new suppliers who can offer competitive pricing without compromising quality.
Assess Your Exposure
To determine the best actions to reduce your risk, it’s crucial to understand how threatened tariffs might impact you. Examine your supply chain to identify where your products originate. For instance, if you run a restaurant, investigate the source of your chicken. Was it grown and slaughtered in Ontario or Michigan? The origin of products is not always clear. You might purchase bread baked in Canada but made with wheat imported from the United States. Consult the Department of Finance to determine if your products are subject to tariffs.
Determine the Potential Impact
In assessing your exposure, you will undoubtedly find many risks that need addressing. Limited resources make it important to prioritize those with the largest potential impact on your business. Review the risks identified and assign a dollar value to each. For example, a restaurant might spend $30,000 on rice of American origin and only $2,000 on tomatoes. Focus your attention on minimizing the impact on your rice purchases.
Below is a risk matrix to assist in classifying each potential risk. We classify risks daily without realizing it. Consciously assigning risks into various categories helps determine which risk to tackle first.
Develop an Action Plan
Continuing the example of a restaurant facing impending increases in rice prices, assess what would happen if tariffs were implemented. It may become more cost-efficient to purchase rice imported from domestic sources or another country such as Thailand, which previously might have been more expensive than American rice.
Implementing Cost-Saving Measures
In addition to changing suppliers, consider other cost-saving measures to mitigate the impact of tariffs. This could include renegotiating contracts with existing suppliers, optimizing inventory management to reduce waste, and exploring bulk purchasing options to secure better pricing. Additionally, investing in technology to streamline operations and improve efficiency can help reduce overall costs.
Repeat
Your risk matrix and action plan will not be static documents. As the business environment evolves, so will your risks and mitigation strategies. Governments’ actions, either in the USA or Canada, will cause tariffs to escalate or deescalate over an uncertain timeframe. What once might have been a trivial risk could become a medium risk, warranting a mitigation strategy.
Collaborate and Stay Informed
Thousands of business owners across the country face similar challenges. Engage with your peers and share strategies for addressing these risks. Most importantly, stay calm, plan, and prioritize your actions to reduce the risk to your business. Joining industry associations and attending relevant conferences can provide valuable insights and networking opportunities to help you navigate these challenges.
Communicating with Stakeholders
Effective communication with stakeholders, including employees, customers, and suppliers, is crucial during times of uncertainty. Keep them informed about the steps you are taking to address the impact of tariffs and how it may affect them. Transparent communication can help maintain trust and foster collaboration in finding solutions.
Leveraging Professional Advice
Consider seeking professional advice from accounting firms, legal experts, and industry consultants who specialize in tariff-related issues. These professionals can provide tailored guidance and support to help you develop effective strategies for managing tariffs and minimizing their impact on your business.
