Nearly six in 10 Canadian business leaders are diverting goods from China, but switching suppliers poses new risks
TORONTO, Feb. 6, 2025 /CNW/ - Although U.S. President Donald Trump pushed a 30-day pause button on tariffs on Canadian goods, nearly two-thirds of Canadian businesses still face a hit from newly imposed 10 per cent tariffs on China, new KPMG research shows. Chinese tariffs and uncertainty from the looming threat of 25 per cent tariffs on Canadian goods should prompt Canadian businesses to build more resiliency and agility into their supply chains, KPMG practitioners say.
KPMG in Canada recently surveyed 250 business leaders across Canada to gauge their reaction to U.S. President Donald Trump's tariff threats and what actions, if any, they had already taken or were planning to take.
In anticipation of tariffs, most (88 per cent) Canadian businesses said they had diverted or are considering diverting goods to countries not facing tariffs. Nearly half (44 per cent) said they are already reconfiguring their supply chains to divert U.S.-destined exports to these third-party countries, with another 44 per cent exploring that option.
Furthermore, more than half (57 per cent) of respondents said they are taking steps to move production out of China due to U.S. tariffs on Chinese goods and/or forced labour concerns, and 63 per cent said their organizations will be negatively affected by U.S. tariffs on Chinese goods.
"The uncertainty caused by potential tariffs on Canadian goods and newly-imposed tariffs on China has made it very difficult for Canadian companies to plan, operate and stay competitive," says Alain Sawaya, National Leader of KPMG in Canada's Supply Chain practice.
Key poll highlights:
- 44 per cent of respondents said they are reconfiguring their supply chains to divert U.S.-destined exports to countries not affected by tariffs.
- 44 per cent of respondents are exploring reconfiguring their supply chain to divert goods from the U.S.
- 57 per cent of respondents said they are taking steps to move production out of China due to U.S. tariffs on Chinese goods and/or forced labour concerns.
- 63 per cent said their organizations will be negatively affected by U.S. tariffs on Chinese goods.
- 83 per cent said they need make their supply chains more resilient.
- 79 per cent expect the U.S. to impose tariffs on the European Union.
"With Canada caught in the trade crosshairs of the U.S. and China, industries that depend on suppliers and customers - such as manufacturing – are especially vulnerable to increased costs, delayed shipments, and disrupted production and planning schedules," adds Mr. Sawaya. "Smaller suppliers with fewer options may struggle to absorb added costs, leading to a heightened risk of insolvency," he adds.
"Every Canadian organization affected needs to be building resiliency and agility right now that includes looking holistically at their supply chain strategy and assessing their operating risks and contractual obligations – and alternatives – in this new trade environment."
"Reconfiguring supply chains can be a complex and lengthy process, especially for businesses with large, interconnected supply chains or smaller companies with limited resources. That's why it's so crucial to make supply chains flexible and adaptable for any situation and have alternative supplier sources at the ready. That kind of resilience can help insulate organizations from tariffs and other potential crises down the road," he adds.
Taking action on supply chains
The KPMG survey found that nearly two-thirds (65 per cent) of Canadian businesses had already taken pre-emptive action and prepared for tariffs by shipping goods or products to the U.S. before President Trump's inauguration.
Over eight in 10 (83 per cent) respondents agreed they need to make their supply chains more resilient, including seeking alternatives such as but not limited to: alternative materials sourcing and procurement, predicting demand and managing supply streams, altering inventory deployment strategies, revisiting contracts, and ultimately implementing technology to mitigate disruptions, optimizing logistics, and monitoring for risks via what-if scenarios, among other solutions.
To further build resiliency, Mr. Sawaya recommends organizations leverage their supply chain data to build AI-enabled digital models of their supply chain that can continually run inventory supply network scenarios for unexpected shocks and test various scenarios and solutions.
"Organizations that digitally map out their supply chains for probable scenarios have a competitive advantage when new risks arise," he says. "Whether it's tariffs or other unexpected disruptions, having a digital representation of the supply chain can help organizations optimize their transportation network and pro-actively review alternatives for inventory deployment. If the digital map is a real-time model that's part of the decision-making process, the supply chain and the business will ultimately be more resilient," he says.
Enterprise risk management strategies
Nearly eight in 10 (79 per cent) respondents also expect the U.S. to impose tariffs on the European Union, and they believe few countries will be spared by the trade war. The U.S. President has suggested he will impose tariffs on goods from the EU soon.
Nancy Chase, KPMG in Canada's National Risk Services Leader says modifying supply chains and moving production to countries not affected by tariffs could help businesses avoid additional costs, but it could also unleash new risks.
"Reconfiguring supply chains could help businesses avoid the hit from tariffs on affected countries, but it also creates a whole new set of risks because they're turning to new, third-party suppliers that are relatively unknown. In some cases, organizations are so eager to switch suppliers that they don't have time to properly vet new ones," she says.
"Businesses thinking of switching third-party suppliers need to ensure their contractual obligations are properly reviewed and revised, and they also need to have effective risks and controls in place. For example, how will they manage fraud or cybersecurity risks – both of which tend to rise when businesses engage new suppliers with an unproven track record," she says.
"In this new era of Canada-U.S. trade tensions, where developments are shifting very quickly, Canadian businesses need to bolster their risk management across the enterprise in order to stay agile and resilient," Ms. Chase says.
She recommends businesses do a critical assessment of their enterprise risk - including operational, strategic, financial, technological, organizational and reputational risks. This includes:
- Conducting a dynamic enterprise risk assessment, including auditing the effectiveness of enterprise risk controls on supply chains, cash flow, and profitability.
- Assessing third-party risk trigger points and dependencies and performing a scenario or "what-if" analysis of different variables.
- Reviewing and refreshing contract obligations and assessing compliance with term renegotiations and price adjustments.
- Performing rigorous and continuous contingency planning.
- Using data and analytics and AI-powered platforms and tools to monitor key or new risks and support financial modelling to provide critical inputs to scenario options and decision making.
About the KPMG Canada tariffs survey:
KPMG in Canada surveyed 250 business leaders across Canada between January 21 to January 27, 2025 on Sago's premier business panel, using Methodify's online research platform. Eighty-eight per cent of the 250 respondents export or sell to the U.S. Twenty-seven per cent of the respondents helm companies with annual revenue of $100 million to $499 million, 24 per cent, between $10 million and $49 million, 20 per cent, between $500 million and $1 billion, 19 per cent, between $50 million and $99 million, and 10 per cent, over $1 billion.
About KPMG in Canada
KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs more than 10,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada's top employers and one of the best places to work in the country.
The firm is established under the laws of Ontario and is a member of KPMG's global organization of independent member firms affiliated with KPMG International, a private English company limited by guarantee. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, see kpmg.com/ca
For media inquiries:
Roula Meditskos
National Communications and Media Relations
KPMG in Canada
416-549-7982
[email protected]
SOURCE KPMG LLP
Share this article