In our last blog post, we spoke about the domestic events in Canada that will affect the Canadian economic outlook for business owners. However, it’s not just changes that our own policy makers make that have implications for Canadian businesses: international political battles often play out on the economic landscape, and with the tensions between China, the United States, and Canada, this is certainly how it’s playing out.
Events such as Meng Wanzhou’s arrest and Trump’s tariffs on China may inform how Canadian business strategies will have to shift.
Tension between Canada and China
In case you missed it, Canada and China are in the middle of a diplomatic row. After the RCMP arrested Huawei Technologies CFO Meng Wanzhou in Vancouver last year, on request from the United States for her extradition to face charges of fraud and violating international sanctions against Iran, China retaliated by detaining two Canadians, businessman Michael Spavor and former diplomat Michael Kovrig.
Chinese authorities didn’t take the detainment of a Chinese national lightly (especially one of Wanzhou’s stature), and since then, the relations between our two nations have chilled. The relationship has taken such a tailspin that the Chinese government rejected Prime Minister Trudeau’s personal invitation for talks.
So what does this mean for Canadian business owners? You should note that China has placed trade limits on Canadian products, such as canola, pork, and beef. This not only affects Canadian producers of these items, but also those who are within the supply chain, from packagers to shipping companies. This may cause for concern, but it has at least served to inform Canadian producers and exporters that China may not be a reliable trade partner – we always suggest clients to diversify their own client base to not rely on just one customer or market, and in this case, we suggest the same. If you mainly export to China, you’ll want to reconsider your strategy to widen your customer base.
As well, if you sell your products or services overseas, your business may feel a chill from Chinese buyers reluctant to purchase from Canadian sellers for fear of offending their own customers, as “Chinese consumers often take cues from the country’s leadership about how to behave toward certain countries and their goods.” As an exporter of Canadian goods to China, you may have seen sales drop in the past few months, but as we’ve advised above, your business shouldn’t be dependent on one client or market.
The United States and China Trade War
You may be wondering how a trade war between China and our neighbour down south will affect us Canadians. Since President Trump decided that he doesn’t like China’s trading practices, the two countries have been embroiled in a trade war, with tariffs doled out from both sides. As the top two largest economies in the world, it’s no surprise that economists are predicting a considerably worsening global economic slowdown. Weakness in China, due partially to the trade war, has already impacted other nations, “raising supply chain costs, chilling exports and worrying political and economic leaders.” While Trump may be glad to hear of China’s economic slowdown, Canadian businesses will not be: as we’ve alluded to earlier, China is one of our biggest trade partners – if China slows down, their trade network will come to a grinding halt as well, and in turn, slowing down Canadian businesses.
Trade with the US and Mexico
You’ll have heard of NAFTA, but are you caught up on its replacement, USMCA? The United States-Mexico-Canada Agreement, or USMCA, will have implications for Canadian business owners – good ones! Like NAFTA, the USMCA supports Canadian small businesses in their exporting efforts. “The United States and Mexico are Canada’s first- and third-largest merchandise trading partners in the world, respectively,” so if your business conducts trade with these countries, you’ll be interested in the fate of the USMCA. While Mexico has ratified the deal, Canada and the US have still yet to do so, as Trudeau is still waiting to see if Trump can manage to get Congress on board with the deal. As of just last month, it appears Canada and Mexico are open to limited renegotiation of certain aspects of the deal to satisfy U.S. lawmakers’ concerns. Keep an eye on how USMCA proceeds: this could mean further changes which will affect Canadian businesses.
Tensions, tariffs, and trade wars
You may have no control over international disputes and trade deals, but you can position your business accordingly.
The economic outlook for Canada for the latter half of 2019 will be informed by the escalating tensions between China and Canada, as well as the U.S. and China, and ratification of the USMCA.
It may not always be explicit how international political events will affect your business, but when the global economy is impacted, you’re safe to bet your business will be, too. When we provide consultation on how to plan your business’ finances, we always keep in mind international economic and political changes to properly strategize for your success. Give us a call at 647-476-2145 or schedule an appointment if you want to learn more about how we can develop a roadmap for your business.