Taking a proactive approach to tariffs will lead to beneficial outcomes.

One of the most hot-button issues in the aftermarket and beyond is the potential impact of U.S. tariffs. Compared to the U.S., the Canadian aftermarket is small; as a result, most of our supply flows through the U.S. at some point.

Historically, this was not an issue despite significant U.S. tariffs on China and other countries because product subsequently exported out of the U.S. was eligible for tariff drawbacks that refunded most of these costs after product left the country.

 

Increased cost

The newly implemented tariffs on China are no longer eligible for these drawbacks and as a result any product from China that flows through the U.S. will have an increased cost into Canada.

Given that the stated intent of the new U.S. administration is to significantly increase tariffs worldwide, any product flowing through the U.S. will be at risk of significant cost increases if these new tariffs are ineligible for drawback. Regardless of if, or when, these new tariffs may come into place, there are four years left in the new administration and with that will come significant cost uncertainty. The Canadian aftermarket needs to take a long, hard look at our supply chain and work to insulate ourselves from any U.S. actions.

In speaking with suppliers over the past number of months it is very clear which companies have been actively working towards mitigating this risk by considering how they can bypass any forthcoming tariffs by changing their country of origin for product flowing through the U.S. or assessing how to bypass the U.S. entirely and bring the product directly into Canada.

Centralized supply risks
Many suppliers have already seen the risks associated with centralized supply and have spent the last number of years diversifying their manufacturing. The first Trump administration and the supply issues caused by the pandemic showed that supply from a single country or location is more susceptible to total breakdown than a diversified supply chain. While many of these changes are still in process, by the end of the next four years, these suppliers are likely to reap the rewards of proactiveness in both the Canadian and American aftermarkets.

Regardless of whether the administration says they are going to delay or not apply tariffs right now; we should not let our guard down. Everyone in the Canadian aftermarket should be reviewing their sourcing and determining which lines are most at risk. For the at-risk lines, it would be prudent to discuss with your supplier what they intend to do in the event of tariff cost increases, and if unsatisfied with their answer, you should look to partner with those suppliers who have, and are, showing themselves to be the most proactive at protecting their Canadian business.

Being proactive
Whether that be through diversified supply locations, bringing product directly into Canada or offering other options to help their Canadian partners, a proactive partner is much more likely to be able to react to whatever comes than those who are sitting back with a wait-and-to-see attitude. Even if nothing impactful happens over the next four years, reducing supply chain risks will always be beneficial to your business. The first suppliers off the mark to deal with this issue will be the winners and will gain an enviable market share.