Bracing for impacts

Canadian lawyers and their clients are bracing for the impact of American and reciprocal Canadian tariffs that some say could plunge this country into a recession.

Greg Kanargelidis, who has been practicing international trade law for more than 30 years, says the past few weeks since the Trump administration announced tariffs on Canadian goods and plans for more of them have “been an incredibly busy time within an existing practice that’s already busy.”

He practices with Kanargelidis Global Trade and Customs Law in Toronto and says many of his clients have internal compliance expertise and have been planning for the tariffs.

“They have been reaching out to me, but they already have plans in place, or at least they have some idea of how to restructure,” he says.

“But I’ve been inundated with calls from new clients — companies I’ve never advised before, and they’re telling me, ‘We don’t have any expertise with this area, with customs, and we don’t have an in-house person, and we have no idea what to do.’”

Kanargelidis says the uncertainty of the American tariffs and the reciprocal Canadian surtaxes is challenging for many Canadian businesses.

“There is a fair amount of ambiguity in the rules that are announced. And they have been announced with increasing frequency,” he says.

“You’ve got to follow it regularly to know at any one time what the current status is.”

Robert G. Kreklewetz, who also has 30 years of experience in international trade law, says the tariffs pose a new and difficult challenge for Canadian businesses.

“We’re in the Wild West right now. I say that because my entire practice, we’ve been in a largely free trade zone with the U.S. Canada has enjoyed largely free trade with its largest global trading partner,” he says.

“Now, that’s been totally upended by the Trump administration and this new tariff environment. So it’s been a bit of a shell shock for Canadian and U.S. businesses involved in cross-border trade.”

Like Kanargelidis, Kreklewetz, a partner with Millar Kreklewetz LLP in Toronto, says his firm has seen an uptick in inquiries about how to deal with the tariffs.

“If you’re involved in cross-border trade, it’s generally not just one-way trade,” he says, noting many companies import goods and raw materials from the U.S. to produce products in Canada and then export them back to the U.S.

“So they’ve got both potential Trump tariffs on the Canadian export and Canadian retaliatory tariffs on the Canadian import. No matter which side of the border, these businesses are being affected.”

Kanargelidis says many of his clients are in the same boat, and it’s “affecting them in a big way.” They’re looking for ways to minimize the impact.

“For example, some are thinking of changing sourcing. Where some might import components into Canada, produce their final product, and ship it to the United States, perhaps they’ll switch to importing the source materials directly into the U.S. and process or manufacture in the States right now,” he says.

“In other words, not having the final product come from Canada to the U.S., but having components come from third countries directly into the U.S., to avoid the current U.S. tariff on Canada.”

However, Kanargelidis says that’s not a feasible option for companies with capital-intensive manufacturing operations.

Max Reed, who works at Polaris Tax Counsel in Vancouver, agrees. He specializes in cross-border tax law and says a lot depends on how difficult moving the manufacturing capacity would be.

“For an expensive plant in Canada, moving the manufacturing capacity would not be possible.”

If the tariffs continue, Reed expects his practice to become even busier as Canadian businesses consider moving manufacturing, processing, and other operations across the border. His office does not advise on the substance of the tariffs but on the changes in the tax burden if companies change their place of manufacturing and operations.

“If you’re a company and you’re moving assembly across the border, then you have to figure out all the tax consequences of doing that,” he says.

Bradley Thompson, a cross-border tax lawyer and partner at Altro LLP, says “the concern is real” for clients and law firms alike.

"Everyone is bracing for a recession or particular impacts to their industry,” he says.

“I think our concern is that if this results in a recession, it will definitely impact our business. There's just less interest in doing cross-border business due to the tariffs.”

In the meantime, depending on where his clients own real estate in the United States, they’re reporting other difficulties.

“Their neighbour might mention something about the 51st state, or what have you. They feel the hostility,” Thompson says.

“So whether it’s the downturn in housing prices or feeling a bit of prickliness, we are seeing a lot of clients looking to sell U.S. real estate.”

A possible recession also weighs heavily on Kreklewetz’s mind. While the tariffs have made him more busy in the short term, he’s worried he’ll be far less busy in the long term.

“If these tariffs persist, I think there’s going to be a shell shock economically that most Canadians have not really faced in their lifetimes,” he says.