With a trade war prompted by U.S. President Donald Trump on pause — for at least another 26 days — Mandie Murphy breathed a sigh of relief.
But with the prospect of tariffs still on the horizon, the co-founder of Leslieville’s Left Field Brewery is still worried.
“We get about 60 per cent of our hops from the U.S.,” said Murphy.
Even though the tap room and bottle shop’s biggest seller, Ice Cold Beer, uses all-Ontario ingredients, other brews count on a steady supply of aromatic Citra and Simcoe hops from Washington state’s Yakima Valley. Even if she wanted to find another supplier, their Greenwood IPA just wouldn’t be the same.
“We’d have to change our recipe to use either Canadian or European hops,” said Murphy, “which would create a different flavour and aroma profile.”
For small businesses trying to find alternative, non-U.S. suppliers, it’s a stressful time.
Earlier this week, Trump delayed implementation of 25 per cent tariffs on Canadian and Mexican imports for 30 days. Canada also held off on implementing its own counter-tariffs, which were set to come in two stages. Small business advocates and supply chain experts say small companies face a particularly challenging time finding new suppliers.
Bigger companies have more purchasing clout to negotiate better deals with new suppliers. They also have entire purchasing departments who usually have at least some kind of plan for mitigating disruptions, said Fraser Johnson, a supply chain expert and business professor at Western University’s Ivey Business School. Small businesses? Not so much.
“If I’m a family-owned company who sells consumer products,” said Johnson, “the opportunities for me to be able to explore and identify potential suppliers and negotiate competitive supply agreements, it becomes expensive, time-consuming, and in a lot of cases, not very practical.”
Even if small businesses find an alternative, non-U. S. supplier, they may find themselves squeezed out of the new supply, amidst competition from bigger companies, said Ryan Mallough, vice president of legislative affairs for the Canadian Federation of Independent Business.
“If there are three companies looking to get this one item from Brazil or France, odds are the larger business, because of the volumes they’re doing are probably going to get the business there,” said Mallough. “So it becomes a competition challenge on that front too,”
And, he adds, bigger companies are better able to handle the increased costs from dealing with alternative suppliers.
“A larger business can absorb the cost of doing something like that,” said Mallough. “Or can pass them through a little bit easier than the smaller guys can.”
The prospect of a trade war couldn’t come at a worse time, either, said Mallough. Most small businesses are still digging out from under the financial havoc wreaked by the pandemic.
“We’re coming off of the last five years. That small business liquidity just is not there. Thirty per cent of small businesses in Canada are still carrying pandemic debt,” said Mallough, who estimates the average pandemic debt still carried by small businesses at $65,000.
Another issue for small businesses trying to find non-U. S. suppliers is that shipping goods from overseas takes time, said Ivey’s Johnson. And shippers prefer to deal in quantities that easily fill up massive containers.
“If I’m a local retailer in southwestern Ontario and I’m buying product from the Midwestern U.S., I can probably get it delivered in reasonable lot sizes,” said Johnson. “If I’m buying from Europe or Asia, it’s container loads of product, or getting involved in partial container loads, which becomes more complicated and more expensive.”
For businesses of any size, even if there’s a potential new supplier, they might not have extra production capacity right now. And few would be willing to add capacity for just a few months, said Karl Littler, of the Retail Council of Canada.
“They’re not going to put in the investment because there might be a month or two of U.S. tariffs,” said Littler. “They’re going to want some sort of longer-term certainty.”
And a trade war would make almost everything more expensive to import, he added, even if it’s not on Canada’s counter-tariff list. That’s because the Canadian dollar would almost certainly take a battering.
“A lot of contracts are in U.S. dollars,” said Littler. “But even if it’s priced in other currencies, if Canada’s economy is taking the heaviest hit from the tariffs, the loonie will be down across those other currencies too.”
For now, though, businesses worry and wait. Even if the product they’re getting is from a Canadian source, said Left Field’s Murphy.
“We source our cans locally, but a lot of the aluminum goes back and forth across the border,” said Murphy. “Even if our cans are produced here, I’d expect we’d see increases on aluminum, but it’s all a grey area right now. We’re not getting those answers from our suppliers yet.”
And that uncertainty, said the CFIB’s Mallough, is only beginning, thanks to the White House’s current occupant.
“We’re two weeks in. We’ve got four years of this. CUSMA’s up for renegotiation no matter what happens here. It’s so much uncertainty and that’s the anxiety we’re hearing from our members,” said Mallough. “Our partners to the south just are not reliable in a way that they might have been a year ago.”
