Catherine Fortin Lefaivre: Good afternoon. Welcome to the BDO On-Demand webinar on arguably the most important economic and political topic of the day. My name is Catherine Fortin Lefaivre from the Canadian Chamber of Commerce and I'm thrilled to be your moderator for the session today. So before we begin, I would like to acknowledge the indigenous peoples of the lands we are on today. While we meet on a virtual platform, I'd like to take a moment to recognize the importance of the lands we each call home. This acknowledgement reaffirms our commitment and responsibility to improving relationships between nations and deepening our understanding of local indigenous peoples and their cultures. I'm joined from Ottawa, Ontario, which is situated on the traditional and unseated territory of the Algonquin Anishinabe people. Thank you for joining us for our webinar on, what the next US administration means for Canadian businesses. As we face significant political shifts in both Canada and the US, understanding the implications for our business landscape is crucial. With Canada's prorogation of Parliament and a potential federal election as early as March, 2025 being called, alongside Donald Trump's return to the White House, the future of trade and economic relations is definitely uncertain. Today we'll explore how these changes could affect trade, policies, economic recovery, and how Canadian businesses can adapt to succeed in a rapidly evolving North American market. Before we dive in, I'd like to pass the stage to our panel for their quick personal introductions. Let's start with you Mike.
Mike Abbott: Alright, thank you Catherine. Mike Abbott, I'm the Managing Partner of Markets and Industry. I would normally be in Ottawa with you today, but I'm actually in Toronto. And so thank you everyone for attending this. In my role, I have the privilege of seeing market issues and opportunities from our clients and our partners. The turmoil and noise coming from global trade and the tariffs coupled with what I would describe as our Canadian political reality TV show, where we're likely to see three prime ministers in this calendar year. Right, really makes this an interesting time. And I think one of the things that's important is it's time where there's gonna be challenges, but there's going to be opportunities. And I know, well right now there's a lot of angst and uncertainty in the marketplace. Just as we go through this. I think it's really important to remember that there is opportunity along the way. Catherine, you're on mute.
[Mike laughing]
Catherine Fortin LeFaivre: Well you have to start the year with one of those.
[all laughing]
Catherine Fortin LeFaivre: Thank you, so Brian, you're up next.
[Brian laughing]
Brian Morcombe: Thanks, so my name's Brian Morcombe. I lead BDO Canada's National Indirect Tax Service Line, as well as BDO Global's Indirect Tax Service Line. And we handle all things non-income tax if you will. So the GST, HST, QST, PSTs, the issues of that nature, as well as luxury tax, digital services tax. Those types of things and of course top of mind today, customs and international trades. So I'm looking forward to providing some comments in terms of how participants can potentially look at their supply chain and take advantage of some of those opportunities Mike was just referring to.
Catherine Fortin LeFaivre: Thank you very much Brian, Charmaine.
Charmaine Goddeeris: Hello everyone. My name is Charmaine Goddeeris and I lead the Customs International Trade Practice here at BDO Canada. I'm actually part of a larger global group here at BDO and we have customs consultants in almost every major trading company or country around the globe. I've been consulting in the customs international trade space for, let's just go with 25 plus years. I've worked in both the public accounting firms and in mid-size customs brokerage. And my job is to partner with companies who sell and source around the world to ensure that they're complying with the various customs laws and legislation while mitigating costs.
Catherine Fortin LeFaivre: Thank you Charmaine. Scott, I'll invite you to provide a brief intro, but if you don't mind going into a little bit of some remarks based on the situation after that would be appreciated, thank you.
Scott Reid: Super, thanks Catherine. I'll do just that, try to be quick. So my name's Scott Reid, I'm not from BDO, so I'm the odd man out here along with Catherine, but I had the privilege of doing a little bit of work with Mike and the team over the past couple of years. As you see on the board here, a couple of things about my background. One side gig is with CTV and Bell Media as their lead political analyst. So if you enjoy politics, you may sometimes see me on Question Period or other CTV, Bell Media, radio platforms, chatting about news of the day, politics of the day, and public policy implications, obviously both in Canada and the US. With the incoming Trump administration and what's happening here domestically, there’s absolutely nothing to talk about these days. I am bored stiff, obviously.
Maybe of more relevance, I also, along with a partner in Ottawa for the last 15-16 years, have run an issues management strategic communications and executive communications firm called Feschuk.Reid. But long before that, I worked as a Senior Advisor to Paul Martin, both when he was Finance Minister and then when he was Prime Minister. So lots of experience on the inside during those interesting years—deficit battles, managing massive tax reforms (at that point the largest tax reductions in the history of the country), and obviously a lot of ongoing back and forth with the United States and other trade partners, including the creation of the G20 under Mr. Martin.
I'll kick things off, as Catherine asked, and I lack the depth of expertise of the others on the panel, but I'll try to talk to a couple of things about the political landscape and some of what I think the implications are with respect to the incoming US administration, and how the government and governments here on our side of the board are trying to respond. So the first thing I would say is that if you like politics, you are going to love the next six months because you are going to get a belly full of politics. We are going to have—and Catherine sort of touched on this, but it is startling to say it all in a row—a federal Liberal leadership contest that will choose not just their next leader, but the next Prime Minister. Mark Carney's kicking this thing off. Soon as we get off here, I'm hopping on CTV to talk about Mark Carney's launch. So this thing's getting real, and it's going to be done by early March, so it's happening fast. Second, we've got obviously Trump coming in, and I think we all expect him to take swift action with respect to trade policy, tariffs Monday or Tuesday of next week. Third, we’re going to have an Ontario election. Doug Ford has put on literally the Captain Canada hat—if you saw him yesterday at his news conference with "Canada Ain't For Sale"—and he's going to springboard off of this and probably call an election sometime at the end of this month or beginning of February, probably for early March, right in and around the time that the Liberals will be picking their new leader. Ontario will be going to the polls. And then, as a couple of folks have mentioned, we’re probably going to have a federal election sometime in May. So it’s going to be busy, and the implications are going to be vast for business and for everyone.
I'll just make four points, and lots of people here know more than me, so they may contradict me. I'm going to give you four observations that I would make. The first observation is with respect to managing the challenge that is the Trump administration, the threat of tariffs, all of that. What worked before will not work this time. A lot of people tried to take comfort from saying, "Well, you know, look, there are certain rules of gravity here politically that will impose themselves on Trump. There are certain expectations and norms that we can probably rely upon. There’s a mutuality of interest and we've been through this before with this guy seven, eight years ago." I don’t think any of that counts for squat, and I don’t mean to be alarming, but I really don’t. In particular, last time, what we did was what you might call an S&T strategy—surround and target. So we surrounded Trump as an incoming president, got to governors, got to senators, got to influencers in the business world, and all that sort of stuff. Tried to show him at that elite level that taking strong and sustained action against Canada would backfire. And I think what was interesting is it was coupled with a bunch of targeted tariffs and retaliatory tariffs, things like Kentucky Bourbon, to try to get the Senate leader, Mitch McConnell, who is from Kentucky. All of those sorts of surround-and-target strategies worked by and large. It sort of moved things around, kept talks moving. That isn’t going to work this time. And it isn’t going to work for the very simple reason that Donald Trump is not going to be influenced by any of those voices. And those voices will not pipe up. They are afraid of him. He looms so large over the domestic political scene right now that no one is marching into the White House—no senator, no governor, no leader in business—and saying, "This is a big mistake. You're hurting us, you're hurting your country, you're hurting voters." They won’t say that. They do not have the courage. That will not happen. They are afraid that he will retaliate against them.
So that takes me to my second point, which is this is going to happen, it’s going to hurt, and it probably is going to last. One of the things that I’ve been most taken by—I guess I’m a dummy—I worked on this assumption, this I think foolish assumption, that you know, he’ll impose some stuff, maybe he’ll set a date certain, we’ll react, there will be back and forth. Yes, it will hurt, but maybe six months, eight months, nine months—it’ll pass. Talking with people who are working on that federal-provincial table, supporting premiers, the prime minister, and others in the federal government, they’re now reasonably convinced that this thing could last two years. And it’s because of the point I just made. If business leaders and other political leaders don’t have the power to influence and back Trump off, the only thing that will do it is the negative reaction from the American public and voters themselves. So that raises the risk that we may have to plan for this to be in place until the midterms. That it may take the punch to the stomach and head of those midterms, of that vocal, visible political expression of distaste, before Trump might back off.
So that’s, I think, a massive implication that may speak to. Third thing, we're going to see, I think, as a consequence of that, really large policy responses in Canada. For one thing, I tremble to think about what the dollar is going to have to do. It just seems to me that thing’s going to float below 60% almost as a necessary shock absorber so that we can stay even somewhat price competitive on a variety of fronts. However, that’s going to have a bunch of negative implications for a whole pile of people and a whole pile of sectors in addition. But I worry that that’s going to happen. I think this may be the most undiscussed aspect of all of what’s coming. And that is, I think we might see COVID-sized federal public policy and fiscal intervention. Because if the only thing that’s going to work is to make the people of the United States feel it sufficiently, so that they make their president feel it, well, then we are almost certainly going to have to deny them the things they value most, and it will be our resources.
In order to avoid a brewing national unity conflict, like we saw with Daniel Smith even just yesterday, I think what’s going to happen is you’re going to see the federal government have to take massive, inventive public policy steps to effectively pay producers, pay industry, and pay workers to not deliver those resources to the United States. To help underwrite and cushion it. So a combination of monetary policy with a lower dollar and fiscal policy where we spend on massive packages to say we’re going to try to sustain you.
So, if rather than an export tax, perhaps you’ll see that they’re just going to say to oil and energy producers, "We’re going to underwrite 25% of this." I’m making up a number, but I think we’re going to see large, startling tens, hundreds of billions of dollars possibly committed in order to try to manage ourselves through that, and it’s going to have huge, huge policy and political implications. Because when you do that for those large resource sectors, other sectors are going to say, "Wait a second, the precedent is set." Catherine’s going to be torn in a million directions with members saying, "Wait a minute, why are those guys getting it and we’re not getting it? If they’re getting it this much, we want it that much." It’s a hornet’s nest, but I think it’s one we’re going to be forced to step on.
Last thing I’ll say is obvious as hell—this is all going to happen in the midst of enormous political disruption. I personally think that this leadership race for the Liberals is almost setting up to be something of a squib. I think that Mark Carney, unless he literally falls on his face, is probably going to run away with this thing. You already see that as much as he would like to maintain his position that this is going to be a carbon tax election, even today, Pierre Poilievre is being forced to tack into the wind. He’s announcing tax policies today. He’s talking about, in the days to come, that he’ll be announcing his own set of policies and approach to Trump. Chrystia Freeland, when she kicks off her campaign, will do likewise. Mark will do that later today as well. And so we’re going to have all kinds of disruption. It may still very well be a change election, it probably will be. The Liberals are behind by 27 points. They’re set for a smashing, historic beating. But I’m not convinced that this thing can sustain itself six months from now, four months from now in May as a carbon tax election.
Trump and the impact of all this on all of us is going to be so enormous that it is certain to become a Trump tariff election. I don’t think that resets the table necessarily in the Liberals’ favor, but I think it’s going to cause a lot of disruption and change, and already we are seeing evidence of that in the way Poilievre is having to attack into the wind.
Last thing I’ll say after all that big, big ocean and misery and bad news and predictions I’m making. One thing’s pretty obvious, and I know this matters to the likes of Brian and others enormously, and probably lots of folks here: it sure appears as though the capital gains exemption is gone. That inclusion rate hike is gonzo. I’ll be interested to see if even Chrystia Freeland, when she launches her campaign, will hang on to it. Carney’s going to punt it today. Earlier today, we saw Poilievre come down definitively that he won’t support it.
So, the CRA is collecting all that money, and they’ve screwed up all the ways in which people had to plan and manage their money and investments. But it ain’t gonna happen—it’s over. So maybe that’s a small smile to the face of some of these folks. Yeah, now we gotta figure out where in hell the $20 million is going to come from, but that’s a problem for other people on another day.
Catherine Fortin LeFaivre: Thanks Scott. That was that incredibly insightful on so many levels. I'd like to drill down a little bit more on the issue, the crux of the matter, the tariffs themselves. We're getting a lot of questions about this from our end. Can you walk through by maybe what we know, what we don't know about what's coming this week in terms of the imposition of the tariffs, what that looks like, the timing potentially and that what possible retaliation measures that the government is considering. What do we know about that?
Scott Reid: Well, I'll go first and then I don't know if others have better insights. I think we know a handful of things or we suspect. And certainly those planning around the table federally, they've shared some things public. I know for strategic negotiating purposes, I don't think they say everything. I think one, we assume that he will move swiftly. So that is, if not on day one, then day two. So I think Tuesday, Wednesday this time next week we're gonna know what we're facing and it probably will be executed by way of some sort of national security declaration which will grant the president the authority to take widespread action. I don't really fully understand, maybe others here do, how all that is enabled. I don't know how you have an across the board security claim. Maybe it'll be a variety of them because obviously Canada is not China. So how are you gonna impose tariffs on a whole wide variety of nations who have a wide variety of relationships, including ourselves where it's so integrated and so friendly and yet we'll be treated as though we're a garden variety enemy now. So I think that's how it's gonna happen on the national security exemption.
I think there's a question mark as to whether they're imposed right away or he sets a deadline and says, four months hence or something like that. These will come into effect as a negotiating tool to scare the bejesus out of us, maybe make things change. But I think most people at that table now believe it will happen. And I think we're doing two things. We're readying a long list and if you look in the papers today, they're talking about billions and billions of dollars across wide variety of sectors and products and services of retaliatory tariffs with an understanding that we may have to almost try to orchestrate a list that goes dollar for dollar, which is hard and has massive implications and really feels like we're all dragging ourselves to the bottom of the lake. And then I think we're gonna see one big fight over how we manage energy and natural resources, which I think are really the things that will make the American squeal and give us some leverage. And that's where you get into the kind of packages I was talking about earlier.
Mike Abbott: Catherine, I might jump in and just add something on that, Scott. I mean, number one, it's nice to see you're passionate about something Scott. It is a nice change but what I would say, the other effect on tariffs for us to keep in mind, we're just talking Canada-US. Right, US is gonna make other tariffs changes around the globe and that's gonna set off some chain reactions that we can't fully predict. You know, what does China then do? Does it impact Canada? How does it impact Canada? So I think that's the other piece for us, all of us here in Canada to keep our eyes open on and what that looks like. Charmaine, I know you had a couple of thoughts on that as well.
Charmaine Goddeeris: Yeah, yeah, no, I just wanted to pick up from Scott there, 'cause he mentioned how is Trump going to implement these tariffs and it's likely using the Section 232, National Security clause which is exactly what you've said. We saw him use it back in 2018 and 2019 when they steel and aluminum tariff tiff came up. But what we also saw in that period of time, it takes him a while to go through all of the hoops to actually get it implemented. So, can he do it on, are they gonna be 25% on on day one? Likely not, but we'll see likely quick movement over the next few weeks because this is pretty important to him. I mean, he came out in his official capacity. We'll put aside what he says on Truth social and X and look at what he's saying in his official capacity as president elect and he came out, and has spoken on this topic a few times.
Catherine Fortin LeFaivre: So perhaps this is a good segue to a question for Brian. For those businesses attending today that are manufacturers, retailers, maybe from the tech sector and they purchase from China and they sell into the US and Canada. What can they do to limit their exposure in these circumstances?
Brian Morcombe: Yeah thanks Catherine I agree. So I think you're right on point. You know, there's gonna be a lot of additional costs. The China component is an interesting one. I'll come back to that. I wanna tie back to what Scott was saying a moment ago. In addition to increased potential costs on outbound goods going into the US to the extent that these tariffs are imposed, you do have to weigh in other factors like for example, a sinking dollar and other concerns. There's gonna be a lot of financial pressure on a lot of businesses very quickly. And manufacturers are gonna feel it, retailers are gonna feel it, technology's gonna feel it. But truthfully, this is industry agnostic. This is going to affect any business that has outbound. So anybody that's exporting to the US that also purchases from other countries, China's a good example when we're seeing things like potential 60% tariffs that could be imposed on that country. So, we start thinking a little bit more about supply chain engineering. We're supply chain is the buzzword at the moment. And two supply chain recommendations that come to mind for me would be, one, taking control of your imports and exports. And there's ways you can do that I'll get into that in a second. And the second would be evaluate the vendors that you have, in particular non-resident vendors using more of a total cost of imported goods model as opposed to just focusing on, they can do it at the right price and they meet my quality expectations. So I'll build out that thought in a second too.
So focusing in on taking control of imports and exports. And maybe I'll use a quick example here and I'll come at it from the purchasing scenario. So this is, you are a business and you're gonna be buying from, we'll use China as the example. Very, very common to purchase those goods and import them, deliver GDP, DDP, it's an illegal term that's used. Most people be familiar with it in the business world if they're purchasing abroad. And instantly, if you've done that, you've lost control, okay? You've lost control of the value that's being reported to customs. You've lost control of the classification of those goods with customs. You've lost control over whether there's any trade agreements being applied to those goods. And that's kind of the main customs, triangle considerations. Charmaine and I love the term customs triangle. Now, in addition to that though, even thinking more logistically, more simplistically, what about volume discounts of brokers might be providing to those vendors? Are those being passed along? You're certainly not taking advantage of them. So looking at all of that, and the reason that becomes so important is if you can't see those amounts, they're built into the, for example, the cost of goods sold or they are hitting a shipping and handling line.
In fact, Charmaine and I were joking earlier. We had a case recently where even recoverable VAT taxes were buried in that shipping and handling line. And this is something we see fairly regularly. It became a cost to the Canadian business of something that should have otherwise been recoverable through some registrations. We ended up being able to help the client. We reflected back over a number of periods. We recovered some significant funds for them, but they bore the cost of losing that money. Now that becomes critical. You can't just play with those things anymore. You're going to really need to bring down those costs because there's also a multiplier effect on anything that you're then selling outbound. So that's the inbound consideration, okay? Then you've got your outbound consideration. This is your sales to your customers. Now again, this is where you really have to consider, what's your value proposition to your clients, to your customers? Is it price? And I think for a lot of us going into this next stage, we just heard Scott say, "This could be two years." right? This isn't going to, this isn't a flash in the pan. This is worthy and warrants your investment of time to understand what you can do differently, how you can change things. This is an opportunity to revisit the way you've been doing things for a while and improve them. And when you're looking on your exports and you're looking at the way your customers are viewing your pricing, perhaps you wanna strip out anything that doesn't actually relate to your price, to the cost of your good that you're selling south of the border so that the customer gets the true image of that. Now, that's great if you've got savvy customers because they can handle the delivery.
They can handle the export from Canada, the import from US, and they can manage all those other things I was talking about before, tariffs, classifying goods, valuing those goods, et cetera. However, if you don't have sophisticated customers and many, many don't. Like they're selling, there's eight. They might be selling to the version of Brian Morken in Texas, okay? And that would be a funny looking guy. He'd probably have a mustache and all sorts of weird stuff going on. But the consideration there is that I wouldn't be a sophisticated purchaser. I wouldn't know how to manage all those things. I wouldn't have a customs broker. So that's where you do need to potentially take the reins and help your customers and navigate those concerns. So that's the take control of the import export consideration that I wanted to talk about. The other point, as I said was evaluate based on, the total imported cost pricing model. So this is really... Now you're going past that just focusing on price and quality that I mentioned earlier, okay. And you're really, you're expanding beyond that. You're looking at the country of origin of the goods where you're purchasing. This is a purchasing thought process. This is the inbound tariffs you're gonna be paying. This is what the content requirements are required for trade agreements like the USMCA, or customers refer to it in Canada. Delivery costs, forced labor, okay? This is a very, very real consideration. Something that you have to take into account that you could get stung with if you're not handling it correctly when you're bringing goods in.
So identify those countries now that are less vulnerable to the tariff volatility that we're seeing. Again, it's not going away anytime soon we don't think. And with all of this, I wanna come back to the fantastic point. Catherine kind of slid into that question, which is around, bringing those goods in from China. We're seeing that that 60% tariff, there's gonna be a lot of people that are going to think, one strategy I can take advantage of I'm gonna win fast. I can backdoor those goods in from China through Canada into the US. No, no, no, no, no. Do not do this. This is a very, very significant problem for anybody who attempts to do it. You're going to be caught up in all sorts of issues, financial penalties, public shaming, you name it. So be very, very conscious of making sure that you're taking advantage of trade agreements properly. Make sure that you have control over those valuation classification and country of origin and trade agreement considerations. And that's really the point I wanted to make there. Charmaine, I don't know if you wanna build off that.
Charmaine Goddeeris: Yeah, I totally wanna pick up on your comments about free trade agreements. 'Cause it's certainly an area that's been and will continue to be one of the key areas that businesses can explore to mitigate customs costs. So Canada currently is party to 16 active FTAs, and many others are in the discussion phases. Some of those FTAs, like CPTPP or TPP-11, I think it was originally coined, the US isn't party to. So when Canadian companies sell to or purchase from those countries that are party to the CPTPP, they have an advantage and certainly have an advantage over the US. You know what, there's a lot of noise out there right now, everyone, and a lot feels very much out of control. So what I'm saying to my clients right now, let's take a deep breath and let's think about what we can control in the international trade space. Things like who your suppliers are, where you distribute goods to and from, what your duty and tax spend is. So at BDO, what we did is we created a tool called TOVA. And TOVA is an acronym for Tariff Origin Valuation Analytics. And what TOVA does is help you or help a company obtain information and then analyze it so you can make informed decisions.
So bear with me, I have a little bit of a story time. I have a client who is a large global company who sells into Canada, US, EU, et cetera. They came to me post-COVID and said, "Charmaine, we fared okay, but can you help us get a handle on the customs side of our business so we're better prepared for disruptions in the future?" So we did, we gathered their import data, we ran it through TOVA, we were able to do different types of pressure testing on their current situation. And then we were able to build out contingency plans for them. And it wasn't just one contingency plan, it was contingency plan A, contingency plan B, and C. The kind of cool thing was, along the way, we also found millions of dollars in duty recovery for them. We identified that they weren't using some FTAs in certain areas. So they were pretty happy. They were really happy too when that same company was able to use that supplier data that we had gathered and analyzed in their Bill S-211 reporting requirements.
So as a refresher for everyone in Canada, Bill S-211 is Canada's Forced and Child Labor Prevention legislation. In Canada, it requires that certain companies file a report with the federal government. Side note, the next one is due on May 31st, 2025. And remember, the penalties for not filing, if you have to, are pretty steep. That report details how their company is addressing and stopping the use of forced and child labor in their supply chains. Many countries around the globe actually have similar legislation in place, but it's wise to check with each country. I can go on forever about this. But at the end of the project, they felt more in control. They could sleep easier at night knowing their company was disaster-proof—or as much as they could be—and they had more money in their pocket, which everybody loves.
Catherine Fortin LeFaivre: Thank you, Charmaine. Mike, did you wanna add anything on that point about agreements or shall we move on?
Mike Abbott: Oh, move on we're good.
Catherine Fortin LeFaivre: Okay, so in your role, where do you see business issues across the country and across industries? What practical advice would you give Canadian companies as they get ready for the next four years?
Mike Abbott: Yeah, I'll jump in, and is that, I think Charmaine I'll-
Charmaine Goddeeris: Yeah, that's cool.
Mike Abbott: To start. And I think I'll build off what Brian and Charmaine just said, right? Like, industries are gonna get hit differently. And I did like, Brian how you said it, it's gonna hit every industry and there's gonna be the direct and the indirect. And we're not gonna a 100% know what that looks like. And so a couple of things, right? I think number one is make sure you have access to different perspectives of what's going on, right? Your competitors, service providers, your friends, right? Like understand what's going on out there, because I think there's gonna be a lot of opinions and a lot of perspectives, but make sure you know how it impacts you. When you look at some of the industries and manufacturing, I think is gonna be front and center, whether it be the tariffs, whether it be the Canadian election. There's an ongoing productivity gap that has been there for years. It's been building for 40 years. Manufacturing is gonna be I think a really a central industry to watch. And when they get hit in a negative way on tariffs, they're gonna have to look at it and say, how can they change how they're operating? How do they deploy innovation? How do they change the cost structure? It will be more than just responding of, "Hey, I get a tariff, nothing I can do. How do I deploy AI? How do I take advantage of these things?" So that would be one example in one industry. What Brian mentioned of your supply chain, if you don't know your supply chain, you don't know what options you have, now's the time to do that. And Charmaine I think you called it pressure testing. I've seen it in different ways. I've seen it as stress testing.
Charmaine Goddeeris: Yep.
Mike Abbott: Make sure that you're doing that. And not only just from a trade perspective, but a lot of organizations would've done this in COVID. And if they didn't, they did a postmortem and probably decided they should have. Dust that off. Make sure that you're going back and testing your management capabilities. What other options do you have when the cost structure changes? Are you ready for that turmoil? Does your management team, does your board, does your executives and focus on what you can control? Don't try to come up with the perfect scenario. You'll never figure it, you'll never come out with the perfect scenario, so make some assumptions and then respond to it and make sure that you're testing that. And the goal there is to make your overall business more resilient. And so that one would be there.
Now I'd be remiss, those of you out there who know me and I have a cyber background where we used to do cybersecurity testing and test not only your technical capabilities, but your management capabilities. I would be remiss if I didn't highlight a threat that will be on the horizon. History tells us that in elevated times of trade tensions, cybersecurity incidents and events will go up. And there's at least a couple of state sponsored actors out there that have the capability and I won't say them specific, but I think everyone knows who they are. The main message there, and I have to add it in there is be ready. This will be an elevated time in the cyberspace. And just one other thing to think about and worry and so do testing. Test yourself, make sure you as a management group, if you're an owner, you're a board, make sure that you've thought about how you're going to respond. So you're not completely caught off guard. You'll never pick the exact scenario, but make sure you're not caught off entirely off guard.
Charmaine Goddeeris: So Catherine, oh Sorry. Nope, if Mike's not done, I can wait. I liked everyone. I like to talk so my turn.
Catherine Fortin LeFaivre: That's okay, I was gonna ask another question Charmaine. So you go ahead and jump in.
Charmaine Goddeeris: Oh, no, I was just gonna go through my three things. So continue on with Mike please.
Catherine Fortin LeFaivre: Okay, well I was gonna talk about unfortunately the possibility of heavy job losses. Different modeling has shown the potential impact of the 25% tariffs. We know that there's close to three million jobs across the US and Canada that are related to exporting. There's estimates that this could impact a million and a half jobs quite significantly just in Canada. What strategies or what recommendations would you make to CFOs of companies that could be impacted in terms of preparing for contingency plans?
Mike Abbott: Yeah, I think it's back to scenario testing. Figuring out what levers you have. I do think, and I've heard this in the past few weeks. Innovation and changing how you're doing business. Not only you know who your customers are, it's like any other tough potential economic time. Make sure that you are looking at all of your leavers within the organization. So you're not just going to one and saying, okay, well we're gonna, it's automatically gonna be job loss. Is there other things you can do? Can you deploy AI in a way that makes it a little more, a little bit better? Is there things that Brian mentioned or you look at your trade position, things you can do differently there. So I think it's much of the same on that Catherine is, is organizations need to go through some different scenarios, pick some different scenarios, what's the best case, what's the worst case? And then ask yourself how will you respond and how maneuver through that. I think it's all about becoming resilient.
Catherine Fortin LeFaivre: At the risk of sounding like this is obvious. It sounds like what we're saying is, this merits a pause, a serious pause in reevaluating how every business moves forward. It's that big of a shock that we're looking at.
Mike Abbott: I don't know if it's a pause. I think it's, you have to keep doing your day to day-
Catherine Fortin LeFaivre: In terms of planning. Sorry, in terms of like, yeah, in terms of business.
Mike Abbott: Yeah, you gotta have different scenarios which I think that prudent organizations need to think about different scenarios. You know what happens and if scenario A happens, what happens if scenario B.
Catherine Fortin LeFaivre: Proper planning.
Mike Abbott: Yeah.
Catherine Fortin LeFaivre: As much as possible, right.
Scott Reid: Can I throw in one other thought there Catherine, just quickly. I think you're going to see a period of extraordinary fluidity, real policy wind sprints coming from governments. Because if you think about it, whoever leads the federal Liberals as the incumbent government in a month or so, is gonna have every incentive in the world to go to businesses that are feeling threatened or that might be busted, and saying, here's what we're gonna do to protect you and your customers. You're gonna have an opportunity to feed into that. You've got an official opposition that is gonna be doing likewise, maybe from a different perspective, thinking about different policy approaches. I think there's gonna be a hell of a competition for policy ideas. And I think that different organizations, different businesses, different sectors should be thinking, well, how do I make certain that I add my voice to that conversation so that if there's an opportunity to shape it in a way that's more beneficial for me, not just in the short term, but in the medium term in the long term that you're getting in there. Because I do think because of the political vulnerability of everybody here, and because of the enormous threat which gives governments license to try things that are bigger, like COVID making policy. I'll spend a ton of cash. I think there's gonna be an opportunity to really exert some influence, but it will only be a three month window. And so it requires organizations to have an understanding of how public policy is developed, have an understanding of what it might mean for them being able to scenario wise, and you gotta go like wicked rocket fast and that's a bit intimidating. 'Cause if suddenly you're going to the Minister of Finance and asking for A, B, and C as they consider putting together these massive policy changes and you've gotta be sure that you're asking for things that you actually want and that there isn't a set of unintended consequences that are gonna bite you back. So I would just throw that out. There's gonna be, there'll be a lot of open doors for policy makers uniquely and widely open as compared to status quo.
Catherine Fortin LeFaivre: Scott, if I could just-
Brian Morcombe: Sorry, can I add one point to that too? Thanks Catherine. You know, there's also the consideration, there's gonna be vacuums created in all of this. And let's face it, nature of boards of vacuum, right? There's going to be other countries that are going to have needs and there's going to be opportunities that are going to pop up globally for businesses that are agile enough that can pivot the way Scott's talking about that can move rocket fast and can and fill those voids. So I think it becomes very, it's incumbent upon all businesses, Canadian businesses to really watch for those opportunities. Pay attention to where the tariffs are being imposed, where they're not being imposed, collaborate, work together, sell to each other, and find ways to win through this. We've experienced some real worry going into COVID. There was a lot of concern and look at the outcome of that economically. And so there's certainly some lessons to be learned and carried forward into this time as well.
Catherine Fortin LeFaivre: Maybe on that in terms of diversifying markets. Charmaine, you talked about free trade agreements. Can you maybe opine on the opportunity that exists in working more closely with our European partners, for example?
Charmaine Goddeeris: Oh yeah, for sure. You know, we have the free trade agreement between us and many of the EU trading partners and it's referred to a CETA, that's the acronym everyone is familiar with. And I really, I have to admit that as I talk to my clients and go about talking about strategies for duty mitigation, et cetera, that seems to be the one, the one trade agreement that is really in the background. It's the ugly cousin in the background. It's there and they kind of know about it, but they don't really invite it in or them into everything. So I really suggest that if you are doing business with our European partners, that you explore the opportunities under CETA. and then the other one, sort of just circling back to the beginning of my conversation is where I talked about CPTPP. So Canada and Mexico are part of CPTPP, the US isn't. So let's start looking if you've got some business in either of those two countries, let's start looking at how we can make that particular free trade agreement work better for everyone. And if you don't mind, I just wanted to talk a little bit more about the three things that I am suggesting right now for my clients. And Mike touched on it and Scott touched on it and Brian touched on it.
So number one for me is information is power. So the international trade landscape has been changing so quickly over the past few years and really it appears to be picking up speed. I know I was talking to Brian earlier today, I'm like, are the days moving faster for you? Like, is time just really picking up? 'cause it really feels like it time's picking up, everything is picking up and international trade landscape is not outside of that. So as Brian said, customs tends to be a black hole for many companies, especially in Canada. I have to admit, we have benefited from NAFTA, the pre USMCA CUSMA, and there was just this almost a false sense of security. Goods were crossing across the border, there was no duty implications. Charlie in Texas was throwing goods on the truck, they were crossing into Canada. All was good. And then what happened back in 2018 is the tariff spat happened. And then, I mean, I literally got a call in late July of 2018 and said, "Charmaine, we just got a $600,000 punitive duty." They were in the aerospace landing on our desk. "What the heck? What the heck can we do?" So this is big stuff. It blew them away because all of their stuff had been duty free until that point in time. So we've just, again, we've fallen into this sense of security and that's not there anymore. So customs definitely is a black hole, but now is the time to get the flashlight out and look at what you've done in the past, see who your vendors are, where they're located, what your duty spend is. What possible conflicts could disrupt your supply chain. And then use that information to build financial models, to forecast tariff impacts, identify areas to cut costs, improve efficiencies, join advocacy groups. There is so many out there. Almost every manufacturing distribution groups have these advocacy groups and they're great. They're great for a source of current information and they're also great when you have to bring things forward to the federal government or any government agency. I always say a group voice is definitely louder than an individual.
Number two, you gotta have supply chain flexibility right now. Businesses who are flexible in their supply chains, we're better able to adapt to whatever happened in 2018 and beyond. So definitely invest in flexible supply chain models so that you can pivot as quickly as you need to. And finally, and Mike said this, create a resilient disaster proof company. At the end of the day, businesses that keep themselves informed have contingency plans and are proactive will weather these tariff disputes and everything else thrown at them more effectively. Before I stop talking, I have one more thing to say. Everyone needs to be mindful. In the custom space, almost every decision that a company makes will impact their duty and tax outlay either positively or negatively. For example, if a Canadian company pivots to sourcing a key component that they originally were sourcing from the United States and decided to go to China and source that component because it was cheaper, et cetera, that particular component from China might affect their CUSMA or USMCA qualification. So let's look at it this way. If president-elect Trump goes ahead with his 25% tariffs on goods coming from Canada, a company might then be paying whatever the regular duty rate is plus the 25% punitive tariff. that could be absolutely devastating for their business. So be informed, stay in touch with your advocacy groups, whatever, and invest in being able to pivot your supply chain as quickly as you can.
Catherine Fortin LeFaivre: Thanks Charmaine.
Charmaine Goddeeris: Thank you.
Catherine Fortin LeFaivre: Mike, Brian, Scott, did you wanna weigh in? We're gonna get to some audience questions. We're getting a lot of really great questions and I wanna get to a few of those.
Brian Morcombe: You know what, I just want to, I want to comment on the fact it was a point that Scott made very early in the conversation about the fact that what worked before won't work this time. And if we recall what happened, Scott cited some excellent examples of the activities that took place in prior years in the previous Trump administration and retaliatory tariffs on, remind me. If I remember correctly, there was liquorish, I think there might have been bourbon.
(Brian laughing)
Brian Morcombe: There were all sorts of things that there were all sorts of things that there-
Charmaine Goddeeris: There was Coffee, Brian, there was Coffee.
Brian Morcombe: Coffee was a big one, coffee was a big one. Retaliatory tariffs were used. I think what were Scott's going with his comments about looking at pressure on resources, it may be something to pay close attention to because that would be different and it would not be treating it the way we treated it last time. So I think that's, I think I just thought that was a very valuable comment. I kind of wanted add additional voice to it.
Catherine Fortin LeFaivre: Thanks Brian. So maybe I'll move to some audience questions if that's okay unless Mike and Scott add anything else. Great. So at the Canadian Chamber, one thing that we've been advocating for is the removal of interprovincial trade barriers. And that's come up as a possible means to mitigate the impact. Do you see that as being as partial solution and what are your thoughts on that actually being possible? Perhaps it's more of a political question for Scott.
Scott Reid: Yeah, let me go first and answer it with typical pessimism. On the one hand, if you look at it, you say, look, we're facing a crisis and crisis often generate creativity and solutions to things that we kind of vexing for a long, long time. So maybe in that sense people will see opportunity here. But I think there's a subtext to what we saw in yesterday's meeting. There's a subtext of the conversation Brian and I are just raising about resources and that is there's a lot of inter-regional tension. And I think that it's gonna make the environment probably just as difficult, if not even more difficult to try to mount internal trade barriers, the complexity of all of that at the same time that we're managing tariffs with Trump trying to figure about how to diversify our market. So I think it's... I think for a bunch of those reasons that are specific to this moment, it's unlikely. In addition to that, it is literally like hoping that Oasis will tour together and the Gallagher brothers will finally get along. Internal trade barriers, I was in Ottawa in the 1990s and people were saying, "Why can't we get internal trade barriers? How I can't ship wine for BC." This is an eternal issue. I'm just saying that Gallaghers don't get along and I don't think I'm gonna bet my buck on internal trade barriers falling in any comprehensive way.
(Mike laughing)
Catherine Fortin LeFaivre: So no optimism for that, but we'll keep asking. Mike, Brian, Charmaine, any thoughts on that?
Charmaine Goddeeris: I'm leaving that one.
Brian Morcombe: I don't wanna follow that, it's too good.
Mike Abbott: I didn't have an oasis comparison on my bingo card today, so.
(all laughing)
Brian Morcombe: That was brilliant.
Catherine Fortin LeFaivre: So in a more macro level, somebody's asking a brilliant question. Is there any value in negotiating trade agreements with the US given that they can simply circumvent by claiming national security concerns? So maybe that's a question for Charmaine, but-
Charmaine Goddeeris: Actually I'll let Scott. I think I'll let Scott weigh in on that one and then I'll go after him.
Scott Reid: I kind of had the same question, you know.
(Charmaine laughing)
Scott Reid: I honest to Pete like I'm sort of... I feel like I'm a dummy. I'm like, well I don't know. I operated... I remember working for Mr. Martin, we had the Asian financial crisis and the remedy always was we're gonna have a rules based order for trade and for the flow of capital. And once we get that in, then we'll have security and rationality and predictability and we don't. So I don't know, like obviously you wanna maintain and and negotiate those, but when you have such an unpredictable actor as this president, this incoming president, I don't think that means you give up on broad agreements. I just think that it's a reminder that if somebody wishes to ignore the rules, you have to deal with them.
Mike Abbott: It's another lever in how they're gonna negotiate, right? It's one more variable of something that's at the disposal. And I think that's gonna be part of the ongoing negotiation is making sure you understand, what are the gifts and the takes. And we've talked a lot about the tariffs and I know, I saw a comment come up about what do we do going the other way, right? These are all things that will be part of the negotiation of understanding what are the points, where are they gonna go? How do you ultimately get that deal done? And Scott, you didn't mention this earlier, but negotiations and you've seen it. I think you've seen it in the past week of people saying, "Look, these are some of the negotiation tactics." And you put some distractions out there and what's real and what's fact and fiction. My earlier view and Charmaine you said information is gonna be power, having your friends that you can rely on of getting the information and the data will be key to that ongoing negotiations for what that means. And then what does that mean for all Canadian businesses? 'Cause some businesses aren't gonna get impacted directly. I think every business in Canada will get indirectly impacted. 'Cause it's gonna impact our dollar, it potentially impacts interest rate and all of that will then have a trickle down impact so.
Charmaine Goddeeris: Yeah, so you know what, I have to say that was a great question that whoever asked that question, it was great. We are coming up to. Or we're gonna be starting probably mid-year looking at CUSMA and USMCA. So when it was signed back in 2020 and this was a little different, we had a sunset clause built into USMCA or CUSMA. I'm Canadian so I'm gonna use CUSMA as the acronym, right? This time the old NAFTA and we're coming up to that six year period. So they will start negotiating. You know, we talk about how can Trump implement these tariffs? I mean he did it under NAFTA using Section 232. There's really nothing in the USMCA CUSMA, if he goes down that road again, that stops him, using that agreement to protect his national security. You know, I hear this often, one of the fears is what happens if the US decides to ultimately pull out? 'Cause honestly, Trump's not a big fan of multilateral trade agreements. He prefers one-on-one bilateral agreements. And this is really one of the places where we have to say, we have to wait and see. Right now he can proceed and we saw him proceed back in 2018 and 2019. Will that affect the upcoming CUSMA negotiations? Yeah, it will just be another big stick that he can use to keep everybody in line and get what he wants.
Catherine Fortin LeFaivre: And on that point, Charmaine, I should note that at the Canadian Chamber we've been doing a lot of work on US-Canada, and speaking about the upcoming review of CUSMA or USMCA. And I should note very carefully that it is supposed to be a review and not a renegotiation. And Ambassador Hillman had stressed that to us when she spoke to us last year.
Charmaine Goddeeris: Yes.
Catherine Fortin LeFaivre: This goes to show how things have evolved quite a bit. And of course now, I mean the reviews out the door, it's definitely a renegotiation as, I mean it's-
Charmaine Goddeeris: Agree
Catherine Fortin LeFaivre: Anything is up for grads at this point. So the importance of keeping up for what's going on, is extremely important.
Charmaine Goddeeris: Information is power keep yourself informed,
Catherine Fortin LeFaivre: Changing very quickly and it's very complex and there's a lot happening at the same time. Hence why experts like you are invaluable. We only have a couple minutes left, so I wanna see if any of you have some parting comments and then I'll be wrapping up.
Mike Abbott: I would just add maybe a couple of quick things. Scott, I've added a couple of your predictions to my list of other things I've heard you say. So I'll come back on those at some point-
Scott Reid: If they're wrong, I'll just make more. And then-
(all laughing)
Mike Abbott: So thank you for that. I saw a couple of questions that popped in here that Brian, I think we can circle back on how we come back with some of them lots around transfer pricing. And obviously, how do you do that and what are the impacts? And I think all there's gonna be situations that maybe we dive into that a little bit. But Catherine, I would just say to everyone, who's on here, thank you for coming to this on behalf of the BDO team, for sure. This will be an interesting couple of years. I heard at least two, but maybe four, who knows that I think the interest will be there. So build resilient organizations here and get a lot of friends, right. Get your network out there and get a lot of friends. I think that's important.
Charmaine Goddeeris: Join those advocacy groups.
Catherine Fortin LeFaivre: Charmaine, that's such a good point. I mean we need that information from the businesses themselves. What are they facing? What are the examples? How can we share that with our US counterparts and what do they think they need to be successful? Getting that information directly. And so having all the different sectors involved in that advocacy is very key. So we welcome that Canadian chamber very much.
Scott Reid:Okay, I'll add one quick final note on that, which is often I think organizations say, "I wanna be working with BDO, I want to be working with the chamber. I want to be working with individual experts so that I can advocate as strongly as possible the things that I think I need in my business." But in a turbulent situation like this, you've also gotta be even more. So you have to be alert to what else might happen, unintended consequences. Somebody was talking about, well what if I'm working in the mining industry and I'm not actually relying on, a bunch of imported labor or anything like, so I don't feel vulnerable to it. And the challenge is that if there get, if we see rapid policy change in the sector, you may get affected. So it's not even enough to be thinking about what you want, you have to be constantly thinking about what you don't, because if a policy change gets made that could absolutely upend you. That's a distressing thing like that. Things are gonna move at light speed, I think. And that's something that's gonna be an ongoing challenge.
Catherine Fortin LeFaivre: Well, thank you Scott. It sounds like we might need a part two or part three to this. 'Cause there's a lot more to discuss. Just throwing that out there. Maybe it could be a weekly series at this rate.
(all chuckling)
Charmaine Goddeeris: Sign me up Catherine, sign me up.
(all chuckling)
Catherine Fortin LeFaivre: I mean, maybe. So maybe on the last note I will just plug our business data. Lab, BDO has put out a platform to look at the impacts of trade between the provinces and the states. It's called the Business Development Lab Trade tracker. You can find it on our Canadian Chamber website, very neat. You can see exactly what the trade relationship is like, and it's quite significant as you can imagine. Thank you very much for joining us and hopefully we'll talk to you all again. Best of luck.