Canadian enterprises brace for economic disruption

As the prospect of US tariffs looms, Canadian small and medium-sized enterprises are bracing for significant economic disruption, with an expert warning of job losses, diminished competitiveness, and the possibility of a recession within months.

Mahmood Nanji, a policy fellow at the Ivey Business School and a former associate deputy minister of finance for Ontario, underscored the gravity of the situation in an interview.

"Small and medium-sized enterprises make up the majority of businesses in Canada. When many of them say they're going to be impacted, the consequences are going to be significant," he told China Daily.

Nanji highlighted that many Canadian SMEs are still recovering from the economic fallout of the pandemic and lack the financial cushion to withstand another shock.

"In such a competitive market, most SMEs operate on thin margins, leaving them ill-prepared for additional economic pressure," he said.

The Canadian Federation of Independent Business figures show that 82 percent of Canadian businesses trading with the US anticipate significant impacts. Many fear rising costs, potential loss of US clients, and a pressing need to seek alternative suppliers.

"It's very difficult for SMEs to shift to another supplier in a matter of weeks. You worry about the cost, reliability, and whether a new supplier can meet delivery timelines," Nanji said.

Beyond general supply chain challenges, Nanji noted the risk of losing specialized industries and talent.

"Some of these outfits may be very specialized in the kind of products they produce.

"If those companies are severely impacted by the tariffs and can't sell their products to the US, we risk losing specialized labor that is incredibly difficult to replace," he said.

Nanji noted that tariffs could force some Canadian SMEs to lay off employees or even shut down, especially those heavily reliant on US markets.

A recent report by the Canadian Chamber of Commerce showed 2.3 million Canadian jobs tied to US exports, while 1.4 million US jobs tied to Canadian exports.

The Canadian government, according to Nanji, has adopted a three-pronged strategy in response: diplomatic engagement with US policymakers, preparing strategic retaliatory measures, and encouraging trade diversification.

"But diversification is a long-term strategy. Even though Canada has numerous free trade agreements, we haven't fully leveraged them yet," he said.

If the tariffs are implemented at the levels being discussed, Nanji predicted severe consequences: a recession in Canada could occur within six months.

Canadian Chamber of Commerce's analysis indicates that a 25 percent tariff could shrink Canada's GDP by 2.6 percent, costing Canadian households an average of $1,900 annually.

For the US, this would mean a 1.6 percent GDP drop, with families losing $1,300 per year.

Nanji urged Canadian businesses to prepare for the possibility of prolonged disruption.

"You need to prepare for anywhere from six to 18 months of disruption, at least", he said.

Despite the challenges, Nanji remains optimistic about Canada's resilience.

Canada has a highly educated workforce and abundant natural resources, he said.

"While these tariffs could cause serious damage, I believe Canadian businesses and policymakers will rise to the challenge," he said.

gaoyang@chinadailyusa.com

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