U.S. Tariff Overview: Questions, Findings and Considerations

Five questions to ask about the impact of tariffs on local government:

1. How are we assessing the impact of tariffs on our supply chain?
2. What steps have we taken to diversify our supplier base?
3. How are we leveraging technology to enhance supply chain resilience?
4. What risks have we identified in our supply chain as well as secondary impacts, and how are we planning to mitigate them?
5. How often do we conduct risk assessments and update our contingency plans?

Canadian Business Interview Findings:

Canadian businesses have made significant strides to improve their operational efficiency and retool their supply chains in the last five years to navigate the pandemic, high interest rates and inflation. Moving forward, it will be crucial for Canadian businesses to have a well-structured strategy that adapts to evolving geopolitical risks.

An interview of 250 Canadian business leaders to understand their reactions and responses to the tariff threats posed by U.S. President Donald Trump finds that most leaders want the federal and provincial governments to take immediate steps to eliminate inter-provincial trade barriers, reform the tax system, provide incentives to onshore and encourage Canadians to “Buy Canadian.”

• 86% say potential tariffs are a "wake up call" to improve productivity in Canada and in their business.
• 90% want government to encourage Canadians to "Buy Canadian".
• 85% say the federal and provincial governments must reduce business taxes and reform the tax system to stay competitivewith future U.S. tax reform.
• 80 per cent agree the federal government should reintroduce income supports similar to those offered during COVID to help Canadians whose jobs are disrupted or lost due to tariffs.
• Yet 79 per cent are concerned about the related inflationary impacts of increased fiscal spending if a “bailout fund” is created.
• 62 per cent will try to offset costs in other ways rather than pass them on to consumers
• 48 per cent plan to shift investments or production to the U.S. to serve the U.S. market and reduce costs

Implementing a proactive trade strategy:

In the current environment, it is highly important to proactively assess current business strategies, structures and supply chains to mitigate risk and build resiliency.

1. Assess the scope of the tariffs being imposed: Utilize trade data to gain a comprehensive understanding of the current landscape, including potential impacts and opportunities. This information can help pinpoint specific products or materials that are most susceptible to tariff increases and assess their effects on revenues, operations, and partnerships. By grasping the potential impact of tariffs on costs, companies can adopt cost-saving measures to sustain profitability.

2. Develop a targeted response strategy: Prioritize targeted operating outcomes to develop a response strategy model and scenario evaluation:

• Diversify supply chains: By improving supply chain visibility, companies can better understand their operations and consider alternative suppliers located in countries with fewer tariffs, which can help reduce the risks of disruption. Additionally, enhancing resiliency through scenario planning and data-driven decision-making will enable proactive planning for future challenges.
• Tariff exclusion process: Some tariffs allow for exclusions that fit the eligibility criteria. Companies can request exclusions for specific products, requiring detailed justifications and documentation.
• Evaluate contracts and partnerships: Conducting a thorough review of contracts related to customs duties and tariffs to understand obligations between parties can provide opportunities for cost reduction and improved compliance.
• Country-of-origin rules: Assess the application of these rules in your operations.

3. Consider federal relief measures: The Canadian government introduced the tariff remission process as support for businesses impacted by tariffs. Collect the necessary information and submit an application for tariff recovery on goods imported from the U.S. for qualifying entities under the Canadian tariff remission process. These entities can recover tariffs if the goods cannot be sourced from Canada.

4. Monitor regulatory changes: Access to insightful trade intelligence will be critical for businesses to stay informed and allow them to proactively adjust their strategies and operations. This monitoring will help minimize unexpected costs and disruptions, ensure compliance, and maintain competitive advantage in the global market. KPMG professionals can support with ongoing monitoring and guide you on how changes could impact your local government. 

Risk management strategies will be crucial for making quick changes:

While modifying supply chains can help avoid tariff costs, doing so can introduce new risks with untested third-party suppliers. Businesses must carefully vet new suppliers and ensure contractual obligations are reviewed to meet compliance requirements and manage risks like fraud and cybersecurity.

In this rapidly changing trade environment, robust risk management strategies are needed, including:

• Dynamic enterprise risk assessments to understand changing and emerging risks and their interrelationships
• Evaluating third-party risk dependencies and conducting scenario analyses
• Reviewing and updating contract obligations
• Continuous contingency planning
• Utilizing data analytics and AI tools to support financial modelling, monitor risks and support decision-making across the business