Canadian Small Businesses Impacted by Talk of New NAFTA
For many of Canada’s small businesses, the recent meeting between US President Donald Trump and Canadian Prime Minister Justin Trudeau was a nail biter. For months, speculation about the fate of the North American Trade Agreement had been circulating out of Washington, albeit with a much stronger emphasis on neutralizing the trade imbalance between the US and Mexico. The meeting was supposed to offer greater insight on what Canada might expect from a new NAFTA. And according to President Trump we can expect “tweaks.”
That leaves room for plenty more speculation. What’s certain, however, is that any change to NAFTA will have an impact on Canada’s small businesses—an impact that will be as broad and varied as the businesses themselves.
Positive or negative impact will generally be determined by geography and industry. New trade arrangements between Canada, the US, and Mexico could potentially harm manufacturing SMEs in Canada and Mexico while benefitting those in the US, but could affect America’s independent clothing retailers with as much adversity as Mexico’s textile manufacturers.
For many US employees of small and medium-sized businesses that rely on high-volume trade with Mexico, the death of NAFTA could potentially vanquish their jobs as some six million American jobs are dependent on trade with their southern neighbor.
As is often the case with any trade deal, the devil is in the details, and thus far details of what a new trade regime would look like have been scarce and shrouded in politically charged rhetoric directly mostly at Mexico.
However, once those details become available, SMEs will need to move quickly to adapt to whatever the new normal might be. According to the fine print of the agreement, a US withdrawal would require a six-month notice. On the surface, that might seem to be a generous amount of time to adapt (and for some it might be), but for most SMEs it will involve a flurry of activity. For those US and Canadian businesses that flurry of activity might even be a two-stage process – each one equally as disruptive as the other.
According to the agreement, if the US pulls out of NAFTA, trade arrangements with its northern neighbor would revert to the original Canada-US trade agreement signed in 1988. But if the US chooses to pull out of that, as well, it will require another six-month notification, forcing those affected to cope with an interim trade regime before a more permanent trade arrangement can be put in place.
Make no mistake, regardless of geography or industry, this will profoundly upset the business models of SMEs far more than their large-enterprise counterparts who have not only reserves in place to mitigate against disruptions in cash flow, but also redundancies to protect against supply chain interruptions.
For SMEs, the quashing of NAFTA will mean identifying in short order new suppliers, new modes of transporting goods, and possibly entirely new business models and consumer markets. The introduction of new tariffs could price some businesses out of some markets while opening new markets to others. Businesses that deal with chemicals or dangerous goods could find their supply chains stalled with new red tape, as could businesses in industries facing protectionist tariffs (e.g. softwood lumber, auto parts manufacturers, etc.)
What’s perhaps most destabilizing isn’t so much whatever the final outcome might be but the ongoing period of speculation and doubt around trade policy. Such instability tends to stymie businesses’ investment plans and bring down overall economic activity.
On the bright side, most businesses, small or otherwise, have a list of suppliers who support them in their trade activity – from freight operators and customs brokers to lawyers and trade-compliance consultants. While these suppliers perform day-to-day operational functions, entrepreneurs and business managers shouldn’t be afraid to lean on them for counsel on longer-term strategy and/or short-term alternatives to get through tumultuous times.
For small businesses to emerge from this period unscathed, they will need to maintain a strong resolve, as well as an ability to nimbly respond to change. Both are tall orders for enterprises with traditionally razor thin margins and limited cash flow, but it is these characteristics that will ultimately define success in a new world order of trade protectionism.
Stéphan Galarneau is the vice-president of inside sales for North America at Livingston International and has been leading the overall management and performance of Livingston International’s small business sales group in Canada since 2011. His team works exclusively with small and medium enterprises and focuses on international trade advisory services. He has more than 25 years of industry experience.