Business hates uncertainty, threat of tariffs piles it on

Opinion

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This article was published 29/11/2024 (311 days ago), so information in it may no longer be current.

Manitoba’s economy is famously diversified, but what’s not diversified is the destination of provincial exports.

Not unlike the rest of the country, the vast majority is heading to the United States.

The $15.5 billion in products exported to the U.S. from Manitoba in 2023 was almost double what it was 10 years ago. Were there to be a 25 per cent tariff on Canadian exports to the U.S. — recently threatened by president-elect Donald Trump — it is obvious it would cause mayhem to the provincial economy.

Many Manitoba companies that export do so only to the U.S. Many of the manufacturing companies in the province that don’t export likely sell to other Manitoba companies that do.

The province’s largest exports to the U.S. are resource-based, either agricultural commodities or processed agri-food: $1.4 billion worth of canola oil was shipped from Manitoba producers last year, hundreds of millions of dollars worth of oil, pharmaceuticals (from plants in Steinbach and Brandon) and $400 million worth of meat.

The point is there is not a segment of the economy that would go unscathed by such tariffs.

Business owners are not inclined to public displays of panic, but such a sentiment is bubbling below the surface.

Michael Mikulak, CEO of Food & Beverage Manitoba, said a 25 per cent tariff would be a disaster.

“A lot of our members will export to the U.S. before they export to other Canadian provinces,” he said. “People in the industry are very, very worried about what this will mean.”

Manitoba’s pork sector produces about eight million pigs per year and more than two million of them are shipped live to the U.S.

“It would be debilitating,” he said. “It would effectively close our largest market. I agree with the premier. If this were to happen it would be an instant recession in the province.”

Perhaps more so than the more populous provinces, Manitoba’s economy is overwhelmingly dominated by small- and medium-sized enterprises, many of whom do not have the resources to pivot to alternative international clients.

Even larger companies (like a number of agri-food conglomerates) who have production facilities in Manitoba and the U.S. can’t just transfer production south of the border to protect that business.

As a senior executive from one such company told the Free Press: “The reason you do things on both sides of the border is because there are some synergies. You’re not running them as completely independent operations.”

Price Industries, a company whose annual revenue is more than $1 billion, has built production capacity in the U.S. of similar size, if not greater than its sprawling Winnipeg operation. However, its cross-border operations rely on each other.

Marty Maytuk, senior vice-president at Price Industries, said it can build about 80 per cent of its products on both sides of the border. But specialized engineered products come out of its main Winnipeg plant.

“We can’t just take a $2 million piece of equipment that makes printed circuit boards and move it south.”

Meantime, Maytuk said he is not panicking and there is no Plan B.

Many industry leaders in the province are confident reasonableness will prevail and this is just another way to signal the start of a new round of Canada-U.S. trade negotiations (that were already scheduled to begin in 2026).

Andre Brin, CEO of World Trade Centre Winnipeg, recalled the first Trump administration included the threat of walking away from NAFTA.

“He did not pull out, he renamed it with modest alterations,” said Brin. “We still have an agreement and Trump called it the greatest trade agreement in the history of the world.”

There are not many local companies with the size and history of dealing with the U.S. markets as NFI Group. Its bus business has been overtly protectionist for a long time, requiring more than 70 per cent of the manufacturing inputs be from the U.S.

NFI has grown its American presence to the point where it may be tariff-proof. Even if countervailing tariffs were to be imposed by Canada, it recently started building out production so its Canadian orders can be finished in Winnipeg without having to go back and forth across the border, as has been the case.

Whether or not the incoming U.S. administration actually imposes such tariffs, it’s already created an atmosphere abhorrent to business: uncertainty.

Among other things, it puts a chill on investments.

“If you’re thinking about building a flour mill, for example, that works well when there is an open border. But if you have something like a tariff layered on top you realize you have been disadvantaged, relative to your U.S. competitors. The economics of it changes very quickly,” said the agri-food executive who requested his comments not be attributed to him by name.

Price Industries is the rare Manitoba company that has strength of its convictions and can afford to forge ahead without worrying about quarterly results.

Maytuk said the company is 90 per cent through the process of leasing another 65,000 square feet of space nears its Winnipeg campus in East Kildonan. He said there were discussions about whether the threat of a 25 per cent tariff should put that process on pause.

“No. The decision is it will go ahead,” Maytuk said.

martin.cash@freepress.mb.ca