With a trade war underway manufacturers are scrambling to diversify their offerings and trade routes to try and find new ways to compete amid a hostile trade environment.

Canadian manufacturers don’t know what to expect day to day, delaying capital investments as they call on the federal government for assistance in opening up new trade corridors, reducing interprovincial trade barriers, or changes to the reciprocal tariffs that will target the U.S.

JFE Shoji Power Canada’s CEO, Ron Harper, was one of these executives calling for changes to reciprocal tariffs.
“We need to use a scalpel onto trade policy, not a hammer. I get that we do need to respond in a timely way, but there needs to be open communication with businesses in Canada to ensure that the trade policies don’t have unintended consequences,” says the JFE Shoji Power Canada CEO. “Our government response has been good, targeting areas that have been impactful to the U.S., like alcohol, but when we deal with steel and fabricated products in manufacturing we need to be very careful.”

Tripar Inc. is a metal stamping and CNC fabrication company based out of Montreal, Que. that is being affected by the reciprocal tariffs as well.

“All Canadian manufacturers must be freaking out because we feel like we can’t raise prices. Our U.S. customers are already facing a 25 per cent tariff when they import our goods,” says Lauren Sevack, Chief Administrative Officer of Tripar Inc., in regards to reciprocal tariffs. “It’s about how we can manage that increase without our customers being impacted even more. We’re even absorbing that in certain scenarios to lessen the impact of their purchase in Canada.”

Ron Harper was also asked about how realistic it was to diversify trade away from the U.S.

“The U.S. manufacturing industry has become increasingly reliant on us. A lot of U.S. OEMs rely on us to make their fabricated components for them. The only way we can compete globally is if we can source materials locally. If I need to go back and forth with components with Europe to compete with European companies, that’s a really tough thing. For us, because we don’t have any primary raw materials production in Canada, the U.S. is a key trading partner.”

Ken Brooks, partner and senior VP at EY Orenda Corporate Finance, echoed this sentiment.

“There needs to be a longer-term strategy of seeing how we can diversify away from the U.S., but that’s a lot easier said than done. We’ve got a market 10 times our size directly to the south of us, and it’s a market we have great access to, both from a customer perspective and a supply perspective.”

“The cost of shipping things to Southeast Asia or Europe will be prohibitively more expensive and will make us less competitive in those markets,” he added.

The Canadian manufacturing industry’s links to the U.S. are clear, which raises questions about what the industry can do to remain competitive.

“Where do we drive the most value from our customers?” Brooks posited, before proposing a key strength as well.

“Canadian manufacturing has been able to differentiate itself based on quick turnarounds and market innovation. We don’t tend to be big-volume players, but instead, we’re more specialized, more value-added, and our customers in the U.S. value that.”

Fabricated components, automotive and aerospace parts and other materials are just some of the offerings many small businesses across the manufacturing industry in Canada deal in when it comes to cross-border trade.

“We’re extremely affected because we have so many partnerships in the U.S.,” says Sevack. “These days we’re feeling like we have to move ground. We’re trying to minimize the impact on our U.S. partners and sometimes that feels like it’s to the detriment of our own company.”

Sevack spoke about how historically, steel tariffs were imposed on raw steel, and now because they’re imposed on derivatives and any companies using U.S. steel, many small businesses manufacturing and trading with the U.S. are affected.

“We feel like we dodged a bullet with sweeping tariffs, to only be hit by another bullet in steel tariffs,” Sevack says. “Even when it comes to vetting and investing in U.S. operations. All of that is so time-consuming that you’re not actually working on your business. It’s a cycle of chaos and hindering our economy because we’re pausing real expansions, real innovation just to spend time on something counter-intuitive.”

One of the key questions that remain is how important that value-added proposition is to U.S. partners and clients.

“A lot of discussions are happening within our manufacturing client base regarding this,” says Brooks, in reference to how valuable sourcing low volumes and certain specifications are to U.S. customers. “That’s an opportunity Canadian manufacturers have been able to benefit from and that hasn’t changed. If those things are still valued by the U.S. customer, there’s a lot they’ll be willing to pay for.”

The whole gamut of alternatives are still on the table for manufacturers, and they’re battling through a trade war that is presenting painful options but with an opportunity as well, in the reminder of how critical their businesses are to their U.S. client base.