High costs, shifting gears: Quebec business leaders say diversifying exports easier said than done
Expanding to new markets might be worthwhile investment, expert says
With the threat of U.S. tariffs looming at the beginning of March, Quebec government officials are looking for ways to diversify the province's economy, which has historically relied on American markets.
But business leaders across different sectors say for them, that's easier said than done and more of a long-term strategy rather than an imminent solution.
Julie St-Arnaud is the president of Huppé, a Quebec-based furniture company that's been in business since 1967.
"We're living a nightmare; it's a roller-coaster of emotions," said St-Arnaud following the on-again, off-again, threat of tariffs from the United States, which was put on pause for 30 days on Feb. 3.
Over the last week, St-Arnaud has been communicating nonstop with Huppé's American clients — who represent half of its business — to offer reassurance and gauge next steps.
The company hasn't lost any contracts, for now, but she says retailers are waiting before buying entire furniture collections and setting up show rooms that may or may not become more expensive in the near future.
Protecting those relationships with U.S. clients has been the priority, St-Arnaud says. The move to diversify is a few steps lower on the Huppé action plan and even then, it would likely be limited to Mexico where the company already sells products.
The company would have to adjust how it moves its product so it can bypass the incoming U.S. tariffs. Shipping to Europe, though possible, would make their furniture significantly less competitive, given the cost of transportation.
For Jean Simard, the president and CEO of the Aluminum Association of Canada, a move to diversify needs to come with a degree of certainty that it will be worthwhile, as building relationships takes considerable time.
"We've been in the U.S. market for decades. If one day you decide to move out, well that metal is in demand in the U.S. so someone else moves in, and making a comeback is pretty hard," he said.
That's something that's especially true for those in the value-added metal market, where pieces are alloyed and shaped to fit parameters set by the client, for example, in the automotive or aerospace industries.
Exploring new markets entails building new relationships from scratch and obtaining proper certification which can take years. For instance, Simard says he can't all of a sudden produce transmission lines destined for Europe using North American specs.
"I have to get re-certified, you know, it's a year and a half, two years down the road, maybe more."
Because most of Quebec's aluminum producers operate in a commodity-based market — selling bars to be remelted — where norms are more uniform across the globe, shifting the shipment destination is just a matter of logistics, says Simard, meaning that switching markets is easier in that sense.
'We should see the cost as an investment'
Florian Mayneris, an economics professor at Université du Québec à Montréal (UQAM), says he's defended the idea of diversifying Quebec's exports for a while, but isn't surprised it's taken the threat of tariffs to trigger a broader conversation — why incur significant costs when times are good?
"But this may be the price to pay in order not to depend anymore on the U.S. in a period where the U.S. is a highly uncertain country and trade partner," said Mayneris. "We should see the cost as an investment."
That's not to say the relationship between Canada and the U.S. has always been good, but past uncertainty has been manageable, according to Mayneris. "If Trump is moving forward with [tariffs], like, it will be a disaster for us."
In the agriculture and fisheries industries, diversifying would entail bolstering the food processing sector at home.
Paul Lavoie, the general manager of the economic development corporation in Sept-Île, Que., says fishers in the city have told him they've avoided expanding to Quebec's North Shore because it's easier to process their catch in the U.S.
"Almost 100 per cent of what they take out from the sea goes to Boston," Lavoie said. "The 30 days is not enough to change the whole way you do business, but I think we have to see this as a wake-up call."
He added interprovincial trade barriers also get in the way of diversifying to the rest of Canada.
Martin Caron, the general president of Quebec's union of agricultural producers (UPA), says producers have to process perishable food if they want to ship it to Europe successfully. That extra step is something Quebec would have to invest in, he says.
"It's also difficult to enter a market where the demand is already being met," said Caron.
Retaliatory tariffs a source of anxiety
Caron says he hopes to see the provincial government support businesses directly instead of issuing loans and increasing their debt. The cost of diversification is something companies will be paying in the long run, he says.
He says producers also want the Canadian government to opt for a targeted tariff approach if it comes to it, given that many need material from the U.S. for their production.
Fertilizer, packaging material, milk boxes, are examples of things that are imported from the U.S.
Huppé also relies on American imports since the specific type of wood they use isn't found in Canada, says St-Arnaud.
Both St-Arnaud and Lavoie hope that if tariffs are imposed, solidarity over shared turmoil can strengthen the trade relationship between Canada and Mexico.
Most of Mexico's corn imports come from the U.S., according to the Mexican government. Lavoie wonders if that's a demand that Canada can fill instead.
Making Quebec more fiscally attractive
Simard says the tariffs aren't the biggest challenge facing the province.
He says the "massive deregulation" in certain sectors and lowering of the income tax in the U.S. is threatening to make it far more attractive than Canada's business environment.
Instead of relying on subsidies and loans to combat tariffs, Simard says the Quebec government should look to make the province more fiscally attractive to investors. This could include offering tax incentives and lowering energy costs for industries, among other measures.
According to Simard, whether or not Trump goes through with his tariffs, the U.S. president has made it clear that it's safest to do business with America in America.
"If you're outside the ring, you're going to be taxed," he said.
"How do we reposition ourselves? That's far more important than tariffs … that's the silent killer."
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