Tariff Tensions: Navigating the Canada-US Trade Tug-of-War

It's important to understand how this can impact our market, how this can impact our business, our clients, our potential supply chain and how we're going to adapt to it because we have choices as entrepreneurs. Tariffs are taxed, imposed on imported goods, making them more expensive. If your business relies on imported raw materials, tariffs can raise your costs and affect pricing. If this 25% tariff does come into play, it would reduce the GDP in Canada from the 3.4 to 4.2 percentage point drop. That would do is ultimately put the country in a recession. And the recession means that we've got negative growth. Good day and welcome to the Wealthy Entrepreneur podcast. I am your host, Bob Gauvreau. Now this is the place where we dissect the elements that contribute to entrepreneurial success from mindset and leadership to, to profits and revenue. Now we've got a very timely episode that we want to release this week and it's all around tariffs and how they impact small to medium sized business owners and what you need to know about them. As many of us are aware, there's a lot going on internationally right now, specifically with the relationship between Canada and U.S. and businesses between Canada and the U.S. and how are goods and, and our services are being traded amongst those two parties. Now for me, I have quite a few US specific clients we're providing services is not having a huge impact tariffs or this tariff discussion is not having a huge impact on us and what we're doing. But typically it's when there's imported goods. Now I want to just share high level what it looks like. I'm going to get into the top five elements of tariffs that every single business owner needs to understand. And then I'm gonna talk a little bit about the RBC economic report on thought leadership related to tariffs and just give you a little bit more insights. Ultimately, you know, I'm gonna conclude this session by saying it's important to understand how this can impact our market, how this can impact our business, our clients, our potential supply chain and how we're going to adapt to it. Because we have choices as entrepreneurs and one is to say, okay, well you know, these are really challenging poor me or we have the ability to say, yes, this is going to change how we do business. How do we innovate and come out on top of this. And I would say there's been a lot of challenges especially over the last five years globally and in our businesses and having to adapt to certain situations. Now some people are more highly tied to imports and exports, which this makes it A little bit more challenging. But how do we get ahead of it? And you're seeing a lot of political leaders trying to do just that at this moment as well. So let's talk about the top five things that business owners need to know about tariffs. Now I'm going to, maybe even I before I start that top five things. Tariffs are taxed on the importer. Okay. So it's interesting because when you know the United States, for example, is saying to Mexico and Canada, we're going to tax your goods, it's actually taxing the importer, the American business, on bringing in goods from Canada. So it's not the Canadian business that's having to pay the tax, it's the importer that's having to pay the tax. Now, the intention of this makes it so that businesses who are bringing in goods from other countries is it makes it harder for other countries to compete with other businesses in the United States who are maybe producing the same product or service. So. Or product I should say. So when they bring it in now, if there's a 25% tariff that's put on that, it's putting it as a competitive disadvantage to bring in products from other countries. And that's what they're trying to do in the United States right now is say we want you to support American only customers and we're going to disadvantage it in a certain way if we need to. Now, there's a lot of different things that we can talk about today. One being the currency exchange rate now is actually much higher than 25%. Currently as I'm speaking, it's between 41 and 42% today. And you know, that is a significant benefit to the Canadian dollar. So every US dollar that we're charging is actually a $42 Canadian. That's substantially more than the 25% tariff that is coming into place. And how that tariff gets shared between, you know, the US Importer and the Canadian. Let's focus on exporter is sort of to be negotiated. So there's a few things that are going to come up here, but I'm going to jump into the top five and then I'll circle back and let's talk about strategy of how we adapt to this and how these may impact our regular life. So the first component that every business needs to understand is that the tariff actually increases the cost of the imports. So tariffs are taxed, imposed on imported goods, making them more expensive. If your business relies on imported raw materials, tariffs can raise your costs and affect pricing. So this is something too. You know, as we're seeing some of the retaliatory tariffs that are coming into place between Canada and the United States and even with Mexico. So when that happens, we can see, okay, now there's maybe extra costs to the Canadian market for importing goods. We're going to have to pay a tariff now because the Canadian company is putting tariff charges on there, which means our imported goods could get more costly. So something to be aware of there. Number two, they can lead to supply chain disruptions. Now, what this means is that tariffs may force suppliers to change sourcing strategies, leading to delays, shortages, or the need to find alternative suppliers. Businesses should plan for potential disruptions related to this implementation of tariffs. Now, why could this potentially happen? Well, if you're a business that is getting taxed on imported goods and you've got other suppliers locally, let's say your business is in Canada, you are importing goods from the United States, you're now getting taxed, which means it's 25% higher. You're likely already paying a currency Exchange that's already 40 to 41, 42% higher already. Now there's a significant disadvantage to bringing in American made products versus Canadian. So there would have to be a fairly substantial increased cost for the Canadian manufacturers to even be able to compete with the US Side. So now it means as a Canadian business, I'm needing to source different goods that may be coming from a new supplier who's already got their business in line right there. They're manufacturing the goods that are needed for their customers. And now all of a sudden they might have this influx of Canadian buyers from them because of this imposed tariff. So now there might be more demand on that manufacturer to make more goods and they may or may not have the capacity. There may or may not be delays. So we're looking at, yes, there could be supply chain disruptions and definitely cost and pricing impacts on that as well. So that's number two. Number three, tariffs can trigger retaliation and trade wards. We're already starting to see this. When one country imposes tariffs, others may respond with their own, potentially reducing export opportunities. For businesses, staying informed about global trade policies is critical. So if you're someone who is importing or exporting, I feel like I'm in a Seinfeld commercial or one of their episodes when they said, I'm an importer exporter. Anyway, let's get back to this. But tariffs can trigger trade wars and you need to be paying attention to it. So I know there is a good site on the Canadian government that does talk about the tariffs and who is being impacted. We'll make sure that we throw it in the show notes or in the comments below. But I went through it. It's, it's an exhaustive list. It's, it's massive. There would certainly be a lot of different products that could be impacted by this. So you want to just be aware of whether or not it's going to be you, whether your imports are going to be taxed, whether your exports are going to be taxed, because it may not be seeming like it's costly to you, but if your main customers are American for examp, and you're exporting well, they've now got an increased cost. That might mean that they're looking in other places. It might mean that they want to renegotiate in some pricing. So you just want to be aware so that you can approach that client and that contract with the, with the right information and, and know what they're going to be approaching you with. Number four, they may create competitive advantages or disadvantages. Now this is where we need to be strategic and pay attention. If your competitors face tariffs and maybe you are as well, it can impact pricing and market positioning. Domestic producers may benefit from tariffs on foreign competitors, while importers may struggle. And that's exactly what the President of the United States is trying to do right now, is he's trying to cause pain for anyone who's trying to import goods from anywhere other than the United States and focusing on manufacturing that is in America. And you know, the challenge to this, and we could, you know, we could probably go on to this forever, but you know, the economic impact of this means that businesses in the US Are gonna have some real challenges and the consumers are gonna end up paying more money. And, you know, yes, there may be a little bit more manufacturing, but you know, there won't be as many. Especially if there's a tariff war, there won't be as many exports as well. So, yes, you know, you might get competitive advantage for some businesses and manufacturers of goods at that time in America, but the exporters or the ones who are importing goods are now going to have challenges with supply chain. They're going to have challenges with pricing, and consumers are ultimately going to be paying for this, right? So let's take an example. You've got an American business that is importing goods from Canada. They import it for $100. Now, the reason that they import it from Canada, one, it might be the dollar exchange. It might just keep it low and if that's the case, then a 25% tariff likely keeps that Canadian import still priced in the right way. It's still economical. So you got $100 import from Canada and then you've got a $100 manufactured good in the United States for $110. Okay, so now all of a sudden, if we add a 25% tariff on that Canadian good, that means it's $1.35 versus the $1.15. From a pricing standpoint, the American company would likely go back to, you know, the American manufacturer and say, hey, you know, we're, we're going to want to buy from you. Now, whether they have the capacity to do that or not is another interesting question. And I think in the long term, maybe those capacities change. In the short term, there's likely a chance that you're going to have to continue to use the Canadian company and import and pay the tax, because otherwise you're not going to be able to, to get any of those goods in short order. So what happens here is once that tariff again is in 25%, it's a $25 versus the, the $15 in America. Now, what we can do as the Canadian business is we can say, okay, we understand that you're getting hit with this tariff and we appreciate your business. What if we contributed a price reduction in order to retain your business? Now, we can't do the full 25%, but what we can do is we can bring it back down to that $15. So we'll, we'll reduce our price back by 10%. And that would get you at $115 compared to your American counterpart of $115. And what that'll do is it'll balance it out. We'll have to take a haircut and in the meantime, maybe we start looking for more Canadian consumers versus American consumers to take some of the supply that we have. So we want to be very, very strategic. It may cause an advantage in that case to the United States manufacturer that's producing something at a lower cost with the tariffs being included. But it may also change the strategy of that Canadian to say, okay, we're going to have to negotiate on pricing. We're still winning on the currency, that $115. At 42 additional cents a dollar, you're now 150. So the Canadian company is still winning with US dollar. I think all of those strategies need to be considered. Also diversifying away from US Based purchasers and looking at Canadian consumers as well and seeing how we can we can diversify whether it's Canadian, Mexican, European, whatever that looks like, find different buyers. So we have to go back on the business development train a little bit. So anyway, there are options and things to think about in that case, tariffs, costs can be managed. Businesses can mitigate tariff impacts by negotiating with suppliers. They diversifying, sourcing, applying for tariff exemptions or passing costs to customers strategically. And that's the other part. You know, back to our example, the American company that is importing the Canadian goods, there could be an element of that where, hey, we've negotiated, you know, we're going to take 10% off. We're now going to get it down to $115. Just that's equal to what the US one was. But this US company may increase their price up from, you know, let's say they were selling it for $200. They might put it up to 210 now. So the end consumer is the one who's really feeling some of the pain related to that increased price. But we need to know this as a business owner because we have these decisions that we need to make, right, related to pricing, sourcing, negotiating with our importers, negotiating with new customers, whether or not they're from the same country or different countries. So those are a few things that we want to be aware of related to tariffs, especially in the Canadian and US Markets and how they could impact us as business owners. When we reflect over to the RBC economic report, and I think this is called RBC Economics and Thought Leadership. A U.S. canada trade shock now in play. First, economic takeaways. That's the report this came from. I read through it. It's. It's really interesting to see the impact of this. As you can appreciate, there's a few things that they were highlighting in here. First off is that it may cause a recession in Canada and it may cause a recession in the United States as well. Although the United States economy has been performing better than the Canadian economy has, this sort of tariff could cause a recession because all of a sudden our sales to the US could drop. Right? And that's what we're saying the impact is. That's why the Canadian government and the leaders are saying we're also going to impose tariffs as well so that we stop buying from the US and we buy from Canada instead. That's a mitigating factor. But the idea would be, according to the RBC Economics reports, that if this 25% tariff does come into play, it would reduce the GDP in Canada from the 3.4 to 4.2 percentage points drop. And what that would do is ultimately put the country in a recession. And the recession means is that we've got negative growth now. There's good and bad that come with recession. So if you're not impacted by tariffs, what could potentially happen because we hit a recession? Well, it means that interest rates are going to drop and continue to drop. So it makes borrowing easier and it incentivizes people to reinvest in their business. Because if the economy is tanking and, you know, we're struggling, there's less incentive there for people to reinvest in the economy. And so they will stimulate it in those ways, which is great. Now, if you are impacted by, you know, consumers dropping the demand, right? If we've got increased costs that are happening in our lives because on our imports we're having to pay more and our companies aren't selling as much. So we have to raise our prices to cover our costs and our businesses. You know, there's a lot of things that are happening. Ultimately dropping the GDP in Canada could impact us and likely would create a recession. So that's what's happening. So when you see the political leaders that are fighting back against this so hard, they're trying to say, one, we don't want this for Canada, but two, you realize that this does have a negative impact, especially in the short term, on the US Economy as well and could potentially cause a recession down there too. So that's, that's part of what we need to be aware of. I won't go into any more details of that, but I, I think I just wanted to highlight that it could potentially cause a recession. So. And if that's the case, we need to be prepared for that as well. And we've done some episodes before on survive and thrive and what that looks like, you know, in times of economic downfalls and recessions, we need to be looking at tightening the ship, getting rid of any excessive spending. We need to be looking at maybe doubling down on marketing and business development on that side because if our business is going to shrink, it's going to be a little bit harder to sell more to people. So we have to be prepared for that. But we have to look at our business model and say how do we need to fix this business model to prepare for this? So this guys, is a summary of tariffs, how it will potentially impact us as business owners, how it will impact us as consumers as a country and as well in the US how this will impact the US as a country, all of the economic reports I don't feel like have been reviewed by the people making these decisions. Because the imposition of tariffs and the creating of a trade war does not in history have a long term benefit for any parties that are involved. And that's why you'll see a little bit more coming from other political leaders saying, why don't we just enhance our relationship, eliminate the taxes even more, trade even more and boost each other's economy. So guys, that's tariffs. Hopefully this has been really valuable. If there's anything in here that you feel has been extremely valuable, drop a comment. Make sure, make sure you give me a follow. We're gonna continue to bring information to you about not just tariffs, but how you can continue to have the financial confidence to drive your business in a great way. Cause you guys are doing an incredible job making positive progress in the world and we're here to support you with that. If you feel like there's anything in here related to tariffs that might be impacting someone, you know, share this with them. We're here to help empower them as well. That's the reason we have this podcast is it's free content to share information that may be able to help people make informed decisions. And we're really here to support entrepreneurs to be successful and in times where they become challenging, like a tariff war, like an economic downturn, we're here to support you and we've always got your back. Guys, my name is Bob Govreau. I have been the host. This is the wealthy entrepreneur talking everything tariffs today. Thanks for being here and I look forward to seeing you next time.