Trade, Tariffs, and the U.S. Election: How It Could Impact Cross-Border Shipping

The Canada-U.S. trade relationship is one of the largest in the world, supporting sectors like automotive, technology, and consumer goods. With the 2024 U.S. election just days away, talks of trade policies and tariffs have been stirring up concerns about cross-border shipping. Here’s a closer look at the proposed 10% tariff on U.S. imports, its potential impact on Canadian businesses, and strategies companies can use to adapt.

Understanding the Proposed Tariffs and Their Effects

The 10% Tariff Proposal

In the 2024 U.S. election discussions, one proposal suggests a 10% blanket tariff on all imports, led by Donald Trump, aiming to boost American industries. This tariff, designed to curb dependency on foreign goods, could sharply increase the cost of Canadian exports and affect key sectors like automotive, agriculture, and electronics. For Canadian exporters, these added costs may impact their competitiveness in the U.S. market.

Why the Tariff?

This tariff is intended to support U.S. manufacturing by prioritizing domestic supply chains, creating jobs, and limiting international competition. Supporters say it could also address trade imbalances, particularly with countries like China. However, it may strain alliances with countries like Canada, potentially leading to retaliatory measures and changing long-standing trade patterns.

A Look Back: Historical Context

During the Trump administration (2016–2020), tariffs on steel and aluminum led to retaliations from trade partners, including Canada. While such tariffs can benefit specific U.S. industries, they often spark trade disputes, increase consumer prices, and create diplomatic tensions.

Current Challenges in Cross-Border Shipping

Volume and Value of Trade

In 2023, Canada-U.S. trade reached $900 billion, with Canada supplying essential exports like oil, vehicles, machinery, and lumber. Smooth cross-border movement is crucial, making any new tariffs particularly impactful.

Industries at Risk

Industries like automotive rely heavily on cross-border trade for components and finished products. Agriculture, electronics, pharmaceuticals, and energy also depend on seamless shipping, and new tariffs could disrupt production and market access.

Existing Shipping Hurdles

Cross-border shipping already faces challenges like customs delays, regulatory differences, and currency fluctuations. New tariffs would amplify these issues, complicating an already complex process.

Potential Impacts of Tariffs on Cross-Border Trade

Increased Costs

A 10% tariff could lead to higher prices for Canadian goods in the U.S., causing:

• Reduced Demand: U.S. buyers may look for cheaper alternatives.
• Strained Margins: Canadian businesses could struggle to absorb the increased costs.

For sectors like automotive, reliant on cross-border components, increased costs may eventually result in higher prices for vehicles.

Supply Chain Disruptions

New tariffs could require Canadian businesses to adjust their established supply chains, such as:

• Re-evaluating Suppliers: Companies might seek out different suppliers.
• Adjusting Inventory: Businesses may need to keep more stock on hand, challenging just-in-time systems.

These changes could lead to delays, added expenses, and challenges in maintaining production levels.

Impacts on E-Commerce

E-commerce companies leveraging Section 321 duty-free exemption (for goods valued under $800) might face cost increases if the 10% tariff applies, reducing Canadian competitiveness in the U.S.

More Complex Customs Compliance

Increased scrutiny at the border could complicate customs processes, leading to:

• More Documentation: New tariff codes and paperwork would be required.
• Delays and Bottlenecks: Extra inspections could slow down cross-border operations, impacting supply chains.

Strategies for Canadian Businesses

Cost Management Tactics

To manage increased costs, businesses might:

• Renegotiate Contracts: Consider sharing tariff costs with suppliers or buyers.
• Optimize Shipping Routes: Consolidate shipments or use more economical transport.
• Absorb Costs Temporarily: Staying competitive in the U.S. market might mean short-term sacrifices.

Supply Chain Diversification

Businesses can reduce their reliance on U.S. markets by:

• Exploring Alternative Suppliers: Look for sources from countries with favourable trade terms.
• Expanding to New Markets: Pursue exports to regions like the European Union or Asia.
• Nearshoring or Reshoring Production: Bringing production closer to Canada to limit cross-border challenges.

The Role of Logistics Providers in Managing Tariff Challenges

Logistics service providers (LSPs) like SFI can support businesses by optimizing supply chains. Key services include:

Route Optimization

LSPs offer expertise in cost-effective shipping and may recommend alternatives such as:

• Switching Modes: Rail or sea freight may help avoid high tariff costs.
• Utilizing Free Trade Zones: Processing goods before final delivery can reduce expenses.

Freight Consolidation

By consolidating shipments, LSPs enable small and medium businesses to share loads and reduce per-unit costs.

Warehousing Solutions

LSPs that provide warehousing close to U.S. markets can minimize delays and offer flexible solutions, such as:

• Strategic Storage: Temporary storage can manage demand fluctuations or tariff changes.
• Reduced Lead Times: Close warehousing ensures faster access to U.S. markets.

Building Resilient Supply Chains

Increasing Flexibility

Working with multiple suppliers from different regions can reduce dependency on any one country.

Strengthening Inventory Management

Increasing inventory can help manage shortages due to tariff-related delays, which may involve:

• Investing in Warehousing: Place stock closer to key markets.
• Maintaining Buffer Stock: To handle short-term tariff changes or trade disruptions.

Collaborating with Freight Forwarders

Freight forwarders can help with cross-border regulations and tariffs by:

• Route Expertise: Securing optimal rates and routes.
• Regulatory Insights: Assisting with compliance to avoid fees and delays.

Tariffs and North American Trade Agreements

USMCA Overview

The United States-Mexico-Canada Agreement (USMCA), replacing NAFTA in 2020, aims to streamline trade within North America. It includes provisions for tariff-free automotive trade and protects intellectual property.

Potential Renegotiations

If tariffs are implemented, Canada and Mexico may push to renegotiate USMCA, advocating for exemptions or adjusted terms to support fair trade.

Shifts in Trade Focus

Tariffs might encourage Canada and Mexico to strengthen trade with the EU or Asia-Pacific, creating new opportunities outside North America.

Broader Implications for Canada-U.S. Trade

Long-Term Trade Effects

While Canada and the U.S. have long maintained cooperative trade relations, a blanket tariff could strain this relationship. Potential long-term issues include:

• Eroded Free-Trade Benefits: Existing agreements may weaken, impacting business relations.
• Retaliatory Tariffs: Canada could impose tariffs on U.S. goods, complicating supply chains and raising costs.

Preparing for What Lies Ahead

As the 2024 election approaches, the proposed 10% tariff is a key consideration. Exploring strategies like diversifying supply chains and collaborating with logistics providers can help businesses navigate uncertainty. Adaptability and strategic planning will be essential as trade policies continue to evolve, and companies that stay proactive will be best positioned to succeed in a complex trade landscape.