Global tariffs gave Canada unexpected advantage. How Trump's pause narrows Windsor's silver lining
Initial U.S. levies ranging from 10 to 46% gave Canada a leg up on other countries, says local chamber
For seven days, companies in countries all over the globe scrambling to find somewhere to build products that avoided U.S. President Donald Trump's reciprocal tariffs were looking at Windsor-Essex, Ont.
A manufacturing hub with a large cluster of tool and die makers. The area is known for its strong ties to America's automotive industry and its ability to make the machines that make those parts.
When Trump initially announced tariffs ranging from 10 to 46 per cent on goods imported to the U.S. it gave Canada a leg up against the competition.
"It also created a situation that Canada is now potentially in an advantageous position relative to other countries around the world," said Ryan Donally, president and CEO of the Windsor-Essex Chamber of Commerce.
Trump has slapped tariffs on goods entering the U.S. from Canada, but that rate is set at 25 per cent for things that don't fall under the Canada-United States-Mexico Agreement (CUSMA).
There's no tariff for CUSMA compliant items, outside of steel, aluminum and the non-U.S. content of Canadian-made passenger vehicles.
A company manufacturing something in Taiwan and importing the goods to America gets slapped with a 32 per cent tariff.
Canada's lower tariff, by comparison, created a new equation for companies to consider in the production of goods for the American market.
Canada, Mexico had key advantage over most countries
On Wednesday morning, Donally said Windsor companies were taking calls from American purchasers exploring those options.
"The folks I was chatting with at the trade task force table are seeing ... American purchasers really dipping their toes in the water testing what the cost of product might look like coming from Canada versus other countries."
But a few hours later, with the stock market experiencing a near record slide, Trump put a 90-day pause on the Liberation Day tariffs and put down a 10 per cent baseline tariff for more than 75 countries instead.
Now, an American purchaser would be looking at a 10 per cent tariff on goods imported from Taiwan or a potential 25 per cent tariff on a non-CUSMA compliant good from Canada.
"We were in this privileged position where because of our free trade agreement we were the only two countries on earth that could be in a situation to have products that didn't actually attract a tariff," said Joy Nott, a partner with KPMG, a tax and audit advisory services company with 30 years of experience in trade and customs.
"But what happened today actually puts us back on our back heel."
Something manufactured in Canada that falls under the free trade agreement can enter the United States without a tariff, which is better than the 10 per cent baseline most countries now face.
But that also means purchasers need to produce the good in Canada without adding any expenses to the cost of production that would eliminate the savings in tariffs.
A day after Trump announced his initial Liberation Day tariffs, the Taiwan-based Minth Group touted a $300-million automotive parts manufacturing facility in Windsor.
Minth's chief strategy officer William Chin said at the time that Trump's reciprocal tariffs offered Canada an opportunity to lure in companies looking to sell in the American market.
"Look at the tax rate for Vietnam. That was the top destination for Asian companies trying to sell to the U.S. to circumvent China," said Chin.
"With USMCA in place, we're going to have more and more companies coming to Canada, for sure."
Late last month, Prime Minister Mark Carney said that whoever becomes the next Prime Minister will enter into wide-ranging negotiations of a new economic and security agreement with the United States.
Getting declarations wrong too big a risk
Until a new deal is in place, high level managers and heads of companies will be combing through paperwork that was usually reserved for middle management.
Nott said when CUSMA was first signed, companies looked at free trade certification as a form filing exercise that wasn't a high risk affair.
That's changed now that the potential penalty the United States can issue for shipments that aren't actually CUSMA compliant have grown.
"Getting it wrong doesn't necessarily mean paying for example a 5 per cent duty," said Nott.
Now it's a penalty for getting it wrong, 25 per cent tariff and interest to the government.
"Put those three things together, it's too expensive to get it wrong now."
Donnally and the Windsor-Essex Chamber of Commerce, in partnership with Invest WindsorEssex, have been holding information sessions with trade experts to help companies adapt to a shifting landscape.
"There is extreme ambiguity still, regardless of the efforts being made on this side of the border," said Donnally, noting the time and cost considerations companies need to make if a load is turned away while trying to enter the United States.
"Our trade task force, to a person, has been saying that there's no clarity on what exactly they will face when they do hit that border."
Companies now forced to explore markets beyond America
Federica Nazzani works with companies trying to navigate those challenges as managing partner of Capital Assist in Windsor.
"A lot of what we've discussed are really more of the impacts on the broader economy and some of the risk mitigation steps that businesses can take," said Nazzani.
She said some of this is comparable to what companies experienced at the start of the pandemic in 2020.
"But I think the difference this time is that people are starting to see that maybe this really is a shift in the way that we do business and this is much more fundamental to business practices."
She said a lot of the questions are about what businesses should be focusing on mid-term and long-term under what could be a new form of globalization.
Nazzani said companies have depended on the American market now need to explore Asian and European markets which could open opportunities they never considered.
"We don't really explore that because we've had sort of a natural partner our border here," she said.
"I think that's going to be something that will either get forced upon us or people will be much more proactive about."
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