China is not the only country the Trump administration has in its tariff crosshairs. President Trump has already announced that we can expect to see a 25% tariff placed on all goods imported into the US from Canada, as early as February of this year. Why has Canada drawn this attention from the Trump administration? How can you support your clients that might be impacted by these new tariffs against Canada?
The Background
Long before a Trump presidency was even a twinkle in the eye of the Republican Party in the United States -- reaching far back into the early years of the Twentieth Century -- the patriotic slogan of “Buy American” was ingrained in US buying culture. The idea was this: American products were equal (if not superior) to comparable products produced in other countries; and buying American products created a demand for American labor. Ergo, if Americans buy as much American-made product as possible, the US will benefit from a self-funding economy that is resistant to foreign influence on its economy.
If only it were that simple. The US manufacturing and distribution sectors are heavily reliant on foreign commodities to produce goods; so, the US must constantly assess its position as both a consumer and creator and distributor of goods across multiple international markets. Canadian production and American consumption of commodities have been held up by the Trump administration as a prevailing factor idecline of manufacturing in the United States. So far, all the US has enjoyed from this type of tariff-based solution in the past has been higher prices. Whether or not that assertion bears out remains to be see – and continues to be debated among economists and pundits alike. But the upshot is that voters have a political Goblin to blame for their economic fears: foreign commodities.
To this end, the Trump administration has proposed a reductionist solution to the manufacturing decline in the US. Simply put, if the US places tariffs on Canadian steel, dairy, and other essential commodities, American buyers (public and private) that consume these commodities will naturally seek out cheaper American-sourced commodities to fulfill their needs.
The Proposed Tariffs
Trump has proposed instituting a 25% tariff on Canadian imports. If this happens, Canada’s economy risks losing jobs, projected by US news outlets of upwards of 2.6% of a total loss to the goods and services produced in Canada. The loss of jobs and national revenue, if it occurs, has a high likelihood of pushing the country into recession.
In addition to placing tariffs on Canadian goods, the Trump administration has prepared a “carrot” for US corporations in the form of a corporate tax reduction from 21% to 15% to encourage purchase of American goods and eliminate the Canadian corporate advantage of selling at a cheaper cost.
The Impacts
If the US follows through with creating an increased cost burden to Canadian importers, Canada will have to respond. Outgoing Prime Minister Justin Trudeau has promised a “robust” response to any Trump-imposed tariffs (and his most probable successors are equally robust, if not more so, in their readiness to confront the economic giant to their south). Just exactly what Canada intends to do in the form of retaliation remains to be seen. And considering how reliant the US is on energy imports in the form of crude oil, natural gas, and electricity, Canada could play tit-for-tat with the US in a sector that could literally leave the US in the cold.
Ultimately, Canada and the US must "play nice"with each other because of how reliant the two countries have become on one another. Any obstacle to the flow of this trade, vital to both businesses and ordinary citizens on both sides of the border, has the potential to create economic, health, and safety impacts for Americans, as well as the Canadian targets of the Trump tariffs.
How Can Your Firm Help Your Clients?
The comforting news in all of this is that law firms are positioned to assist their clients, regardless of what tariffs are imposed. We have already discussed the importance of walking clients through a risk assessment process and making recommendations for creating policies and procedures to ensure compliance.
Along with those crucial measures, firms should be prepared to offer their clients:
1. A detailed contingency plan for how to respond if tariffs are imposed.
2. A detailed analysis of tax rates for corporations in the US and Canada, as that will direct where potential supply streams may move and who your clients wants to enter into agreements with.
3. A detailed analysis of the market that they provide goods to, including any opportunities for exemptions and alternative markets to see to.
Conclusion
Ultimately, your client trusts you to stand with them as they review the information about their changing business landscape. Your client will trust your judgment and analysis of various market alternatives. While you cannot (and should not) make the decisions for your client, you should be sure to provide the most comprehensive analysis you can. This might require information, expertise, and thought processes that are outside the traditional range of expertise of many law firms. Nonetheless, if you can develop it for the benefit of your client, it can help you build a compelling competitive advantage over law firms that take a more passive approach.
At Walker Clark, we can be resource that sets you up to thrive despite the economic climate. Contact us today to discuss how we can partner with you to prepare you to face the coming changes with clarity and purpose.
Sarah Max
For more information about Walker Clark strategic planning services, click here.
