A Black Swan Event: Preparing for Potential U.S. Tariffs

Imagine waking up to find your core business model disrupted overnight. That’s the reality Canadian businesses may soon face if new U.S. tariffs take effect. A black swan event is “an unpredictable event that is beyond what is normally expected from a situation and that has potentially severe consequences.” While Canada received a 30-day delay on new tariffs as of February 3rd, the risk stays.

The imposition of across-the-board tariffs on Canadian goods entering the U.S. will have profound impacts on all businesses in Canada, particularly small and medium-sized enterprises (SMEs). Preparing for what comes next is vital, and the steps to take depend on your industry and exposure to the U.S. market.

Steps to Prepare for the Impact of Tariffs:

1. Assess Your U.S. Market Exposure
   Review your company’s dependency on the U.S. market. Do you have extensive sales or operations there? Find vulnerabilities and areas where you can pivot.

2. Diversify Your Market Reach
   Explore opportunities to expand sales outside of the U.S. to reduce reliance on American customers. Investigate alternative international markets and domestic opportunities.

3. Optimize Costs and Operations
   Prepare for potential downturns by reviewing operational costs. This may include streamlining expenses, adjusting workforce levels, or renegotiating supplier agreements.

4. Strengthen Financial Resilience
   Secure added financing from banks or external lenders to ensure your business has the liquidity to withstand economic uncertainty.

5. Stay Informed on Government Support
   When government aid programs become available, be ready to apply. Understanding eligibility criteria and application processes in advance can give you a competitive advantage.

6. Develop a Contingency Plan
   In the worst-case scenario, consider creating a plan for temporarily shutting down operations while keeping the ability to restart when conditions improve.

7. Seek Professional Guidance
   Engage financial and business advisors to develop a strategic survival plan tailored to your specific needs.

There’s an old saying: “Hope for the best but prepare for the worst.” Taking proactive steps now can help insulate your business from potential disruptions. At this stage, no one knows how these tariffs will unfold or whether they will increase over time. What we do know is that preparation is key.

Having helped companies navigate national and regional recessions throughout my career, I understand the challenges ahead. While we may not yet be in a recession, the specter of one looms with these potential tariffs. The businesses that take action now will be the ones best positioned to weather the storm.

Reference:
B.J. Block, Black Swan Events and Their Impact on Investments, Investopedia, May 22, 2024: Investopedia