Though Carney is optimistic he can reach a deal that lifts all of Trump’s tariffs before the end of July, Canadian businesses are already diversifying their operations beyond the U.S.Stefan Rousseau/Reuters
Prime Minister Mark Carney is eager to have all U.S. tariffs lifted before the end of the month, but Canadian businesses are already turning away from their biggest trade partner by launching operations in other countries and setting up financing arrangements to enter new export markets.
To work around U.S. President Donald Trump’s whipsawing tariff policies, businesses are renegotiating supplier contracts, establishing new facilities outside of Canada, and seeking complex financing arrangements to cover higher costs, according to bankers and trade financiers.
Even if Canada inks a new trade deal with the U.S., they say businesses will no longer risk relying solely on their neighbour to the south to fill their supply chains.
“From a client perspective, we’re seeing more asks for Mexico, the U.K. and Europe,” Elizebeth John, Citibank’s managing director of treasury and trade solutions for Canada, said in an interview.
“We are not going to go back to where we were because now the question that every risk manager will ask is, ‘we are so dependent on this counterparty, but what if something changes economically?’”
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Trade financing is a complex business wrought with mounting fraud risks as well as wide-ranging regulatory and taxation hurdles. Lenders finance trade activity with loans and other products to facilitate the movement of goods across borders while mitigating risk and co-ordinating multiple transactions.
In recent months, trade finance specialists at banks and other lenders have seen a surge in demand as Canadian businesses race to navigate volatile rule changes.
Businesses are moving quickly. Ms. John said she recently spoke with a client that asked Citibank for assistance setting up cash management services in Britain and Europe. For a company that typically operated solely in Canada and the U.S., the new setup marked a significant shift in its operations.
U.S.-based Citibank – which has a physical presence in 94 global markets – is one of the largest foreign banks in Canada. It provides businesses with treasury and trade solutions, as well as capital markets, commercial banking and other services.
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For decades, Canada has grappled with weaning itself off an overreliance on the U.S. Canada has 15 trade agreements with 51 countries, and yet businesses have shied away from expanding further into those markets.
Since the U.S. government threw its relationship with its largest trade partner into a tailspin by imposing tariffs, Canada’s trade landscape has shifted.
Exports to the U.S. in May edged lower by 0.9 per cent, following a 16-per-cent decline in April. It marked the fourth consecutive monthly decline as Washington maintains tariffs on some sectors of the Canadian economy.
Meanwhile, Canada’s total exports rose 1.1 per cent. Cargo volumes from Montreal to Spain climbed 147 per cent year-over-year in May and rose 10 per cent to Northern Europe, according to data from the Port of Montreal.
In some cases, Canadian companies are opening shop in other countries by acquiring local businesses, according to Michael Malak, country manager of Ebury Partners Canada, a subsidiary of the British payments group.
Ebury – backed by Spain’s biggest bank, Banco Santander – expanded into Canada in 2017 after the company noticed a jump in demand from the country’s small and medium-sized businesses for international currency payments, foreign exchange risk management and import finance solutions. The company has offices in 25 countries.
In recent months, some of Ebury’s clients, particularly those in transportation and retail, have purchased smaller companies in Mexico to quickly establish a presence in the country and access the market’s close trade ties with Brazil and China. This also allows Canadian companies to use an established business model to navigate the complicated taxation and regulatory regime.
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Even though Mr. Trump’s tariffs on Canada were not as bad as initially feared, businesses have continued to seek out new trade partnerships in global markets and reconfigure their supply chains, Mr. Malak said.
“The strategic lens of executives now is to diversify what they have going on because at the end of the day, a lot of them had their eggs in one American basket,” he said. “Now the tide has changed and that has affected them quite significantly.”
While the foreign markets closest to home are getting the most attention, Canadian businesses are looking even further afield. National Bank of Canada organized events in recent months to introduce clients in Montreal to new trade opportunities, and one focused on Southeast Asia drew a significant turnout as businesses look to diversify.
Not all companies are able to turn away from their U.S.-based supply chains. Dealing with new partners in unfamiliar markets can be risky, and it takes a few years to establish trustworthy relationships.
Some businesses – especially industrial companies – are considering setting up operations in the U.S. or expanding existing facilities in the country to avoid increased costs from tariffs, Ms. John said.
But building out U.S. facilities is capital intensive and could require heavy investment over several years, and the uncertain policy environment makes it difficult for businesses to commit to these types of long-term investments.
“A lot of them are still cautious as to whether they should do that in case things change and they find that the investment was not required or not yielding the kind of benefits that they expected,” Ms. John said.
Companies are also attempting to negotiate new price agreements with U.S. suppliers to help offset high tariff costs. But Mr. Malak estimates that about half of Ebury’s clients that took this route were successful, leaving the other half to seek out other options to manage expenses.
To help cover higher tariff-related costs, Citibank has seen increased demand for its electronic trade loan – a product it launched in 2023 to help commercial clients access credit more quickly than in traditional trade financing methods.
Fluctuations in foreign currency are also making trade more costly, and more businesses are seeking out ways to offset that volatility.
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As exchange rates swing in reaction to sudden changes in U.S. policy-making, companies are locking in foreign exchange prices to mitigate profit margin hits.
“Companies that never talked about hedging in the past are now talking about hedging,” Mr. Malak said.
Businesses are also rethinking traditional hedging strategies. To avoid unforeseen issues in the long-term, these agreements are typically booked for six to twelve months. But geopolitical turmoil and economic uncertainty are prompting businesses to take shorter-term bets of three to six months.
The U.S. dollar’s position as a world reserve currency is wavering, further complicating deal-making. This year, the U.S. dollar is facing its worst slump in decades.
“The U.S. dollar is not necessarily acting like the safe haven currency that everybody has expected it to be,” Mr. Malak said.
“The global economy has shifted in a way that people are trying to protect themselves and not count on the U.S.”
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