By January 19, 2017 Read More →

Canadian exporters, fearing Trump border tax, scramble to shift production

Trump border tax

U.S. President-elect Donald Trump promised to impose a 10 per cent import tax during his campaign. Reuters photo by Mike Segar.

10 per cent Trump border tax could cause Canada’s total goods exports to the US to drop by about 9 per cent

By Andrea Hopkins

OTTAWA, Jan 19 (Reuters) – Canadian exporters are scrambling to find ways to avoid a potential 10 percent import tax promised by U.S. President-elect Donald Trump, including the possible shifting of production or supply lines south of the border.

Amid warnings from the Bank of Canada on Wednesday that protectionist policies brought in by Trump could drive companies to invest in the United States rather than Canada, executives said their search for options has already begun.

Canadian exporters are not alone, with global business leaders talking up the benefits of local production to shield themselves from criticism from Trump, who will be sworn in as president on Friday.

“We’re a Canadian company, we like to build things in Canada and export them … but you can’t sell stuff and not make money,” said Jim Rakievich, chief executive of Edmonton-based McCoy Global, which makes oil and gas industry equipment.

“We could move our production down into the U.S. fairly quickly, we could absorb that production (in our U.S. plants) if we had to.”

National Bank Financial estimated a 10 per cent border tax could cause Canada’s total goods exports to the United States to drop by about 9 per cent, with non-petroleum goods sinking almost 11 per cent.

Exports are expected to drive about a third of Canada’s economic growth in 2017, behind only consumption and government spending, according to the Bank of Canada’s forecast this week. The United States is Canada’s largest export market with about 74 per cent of all goods heading south.

Canadian companies with U.S. affiliates may be best placed to weather a shift in tariffs, if they can shift production or investment to their U.S. plants to avoid an import tax.

Foreign affiliate sales to the United States rose to C$298.4 billion in 2014, the latest year for which data is available, from C$285.8 billion in 2013, according to Export Development Canada.

Some exporters without U.S. subsidiaries have already begun to search for new investments.

One such company is Mehadrin Group, which includes Canada’s biggest kosher meat processor.

Mehadrin had planned to sell Canadian-certified kosher meat in the United States but is now moving quickly to find U.S. sources of kosher meat as well as wholesale space in New York and Massachusetts to warehouse it rather than try to import it from Canada and then raise prices to cover the cost of a tariff.

Now, the company is “looking at a couple of places,” including a slaughterhouse in California, “that can produce some volume for us,” according to Vladimir Budker, chief executive of Mehadrin Group.

“Plan B is to look at a couple of local (U.S.) producers – we’ve looked but didn’t approach them yet — to see if there is any change in policy, in NAFTA or taxes. We’d be looking at this avenue pretty fast,” Budker said.

For others, their cross-border business is far too integrated and specialized to easily separate U.S.-bound goods to avoid a tax.

Veso Sobot, director of corporate affairs at plastic pipe maker IPEX Inc, said products can cross the border between IPEX’s 18 plants in Canada and seven in the United States before they are even ready for market, making a shift in production to make products in the United States for U.S. customers impossible.

Instead, he’s hoping Trump will come to see that Canada is not a low-cost competitor that needs to be targeted.

“We feel very hopeful that … we will have an exemption to Trump’s Buy American policy. We believe Canada is not America’s problem.”

(Reporting by Andrea Hopkins; Editing by Alan Crosby)

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