Navigating U.S. Tariffs: A Strategic Response to Managing Volatility

The policy platform of the new U.S. Administration has created a precarious new operational landscape for Canadian businesses. The current tariff agenda threatens to drive up costs, distort supply chains, and diminish competitiveness in a historically crucial export market. If unaddressed, these developments have the potential to erode profit margins, dent growth strategies, and undermine long-term operational stability. Apart from the immediate financial implications, heightened trade tensions underscore a need for organizations to be proactive and resilient in the face of global uncertainties.

In this point of view, we share some practical steps and strategies – ranging from an immediate “crisis mindset” pivot to long-term resilience building – that can help lessen economic exposure, protect stakeholder confidence, and preserve Canadian jobs and profitability.

Phase 1: Stabilization (recognize the new reality)

One of the biggest obstacles to providing an effective response is failure to identify a crisis while it is unfolding. The imposition of tariffs on Canadian products destined for the U.S. market signals a condition of acute financial and operational stress. Many organizations may feel that these challenges will pass or that a rapid political resolution will negate the need for an urgent response. A "wait-and-see" approach is risky and can expose companies to months of structural inefficiencies and potential damages.

Immediate crisis recognition can help propel leadership alignment, timely resource deployment, and continuity of crucial business functions. With this, we recommend to:

• Formally declare a tariff-induced crisis at the executive level. This will help to ensure dedicated resources and management attention.
• Establish a tariff response team with cross-functional expertise, including finance, operations, legal, and communication leads.
• Quantify exposure by pinpointing the direct and indirect cost impacts of tariffs on various product lines or components across your enterprise.
• Set clear goals by prioritizing rapid cost containment, stakeholder communications, and workforce stability issues.

For companies that have previously invested in Business Continuity Planning (BCP) or emergency response strategies, we recommend to fully leverage these frameworks. If a formal plan was never established, this serves as a great case for building one up and putting it into practice. Critical steps here include:

1. Review your BCP plan for trade disruptions/financial stress. Modify if tariffs were not a specific risk.
2. Setup and run weekly executive debriefings to help ensure timely decision making.
3. Leadership should clearly define who is leading the crisis response, communications, and scenario planning.
4. Partner with an experienced crisis management consultant or agency that can provide real-time guidance if extra support or counsel is needed.

Phase 2: Adaptation (30 - 120 Days)

Once the initial stabilization process is underway, we suggest examining near-term structural reforms to reduce vulnerabilities and risk exposures. The first critical area is workforce preservation. Retaining and supporting the workforce is vital when external factors disrupt production schedules, profit forecasts, or strategic roadmaps. Skilled employees are difficult to replace; losing them during a downturn results in expensive re-hiring. Key areas for consideration include:

• Flexible scheduling: Introduce reduced work weeks or job-sharing to contain labor costs.
• Temporary furloughs: Provide continued benefits and maintain contact with furloughed staff.
• Voluntary sabbaticals and early retirement: Allow employees to step away temporarily while preserving the employment relationship, or for others closer to retirement, consider incentive packages.
• Specialized wage protection coverage: Some insurers offer products that partially subsidize payroll.
• Work-sharing programs: Partner with government programs to offset wages for employees on reduced hours.

The second important area to ‘adaptation’ is around price and product strategies. Tariffs can dramatically alter the price sensitivity of your target market, while companies likely face reduced U.S. demand. A realignment is critical to help preserve margins and revenue opportunities. Some key considerations include:

• Temporary price adjustments: If a product remains profitable, consider reducing margins to maintain market share.
• Diversify product lines: Reorient production towards goods exempt from tariffs or facing a smaller burden.
• Collaborate with suppliers: Proactively negotiate multi-tier supply deals, volume discounts, or contingency clauses.
• Explore local sourcing: Investigate if some suppliers can be replaced domestically to reduce exposure.

Phase 3: Fortification (6 - 12 months)

While immediate responses help manage volatility, tariffs can be used as a catalyst for deeper reinvention. Long-term resilience engineering in operations and supply chain is an important investment consideration to create strength and stability that can lessen the impact of a future crisis.

First, supply chain diversity is critical to not be over reliant on a single geographic corridor. We recommend a program to identify alternate suppliers outside the direct line of tariffs. Another approach is to optimize nearshoring/offshoring by investigating production opportunities in regions with trade stability. Finally, consider trade agreement exploitation. Here we suggest to best leverage existing free trade arrangements, such as CETA.

Second, create a strong business continuity and resilience culture to be able to manage volatility. Elevated tariffs can spark substantial operational changes and enterprises may encounter increased costs, scheduling setbacks, and cash flow constraints. To fortify operational stability, we recommend to:

• Establish governance: Allocate financial, human, and technological assets to reinforce critical functions.
• Stakeholder impact assessment and risk profiling: Identify vulnerabilities, explore threats, and quantify impacts.
• Scenario analysis: Formulate detailed scenarios, conduct simulations to gauge readiness, and refine processes.
• Strategy development and implementation: Develop and execute targeted strategies to counter pressing scenarios including at the strategic, tactical, and operational levels.

Turn crisis into opportunity

U.S. tariffs present an immediate challenge but also expose deeper systemic gaps in supply chain agility, operations, and workforce resilience. With careful planning and integrated risk management, companies can convert today's pressures into tomorrow's strategic pivots. Resilience isn't just about weathering tariffs – it's about preparing your people and operations to emerge stronger on the other side.