Canada’s Biggest Customer Just Went Month-to-Month
Daryl Ching, CFA
Managing Partner at Vistance Accounting, as seen on BNN Bloomberg, Globe and Mail and Financial Post
A Business Commentary by: Daryl Ching
When a client’s largest customer refuses to renew a long-term contract and offers month-to-month terms instead, I give the same advice every time.
Nothing has changed on paper. Same prices. Same orders. But everything about how you run the business just changed. You stop building capacity for that customer. You stop making investments that only pay off if they stay. And you start hunting for new customers that same week.
On July 1, that happened to Canada.
At the first mandated review of the Canada-United States-Mexico Agreement, the United States declined to confirm a 16-year extension. The deal did not lapse. Preferential tariffs, rules of origin and dispute mechanisms all run until 2036. But the refusal triggered a new structure. The agreement now gets reviewed every year until the parties extend it or it expires.
Our largest trading relationship just went month-to-month.
The numbers show what that does. A KPMG Canada survey of 275 manufacturers released this month found that 42 per cent have moved production to the United States or are considering it. Fifty-seven per cent have paused, cut or cancelled capital projects. More than half describe themselves as operating in endurance mode.
Here is the detail the coverage missed. Ninety-six per cent of the exporters surveyed say their products are CUSMA-compliant.
They are not paying the tariffs.
They are fleeing the possibility of them.
The respondents said so themselves. Ongoing trade uncertainty ranked second among their reasons for moving, right behind tariffs most of them do not pay.
This is worth saying plainly. The strategy is working for Donald Trump. The declared purpose of the tariff pressure was to pull production into the United States. By that scoreboard it is succeeding, and mostly without a tariff ever being collected. The uncertainty is doing the work for free.
Which is exactly why I part ways with the four in ten.
Relocating production is one of the most irreversible decisions a business can make, and it is being made in response to a problem that now resets every twelve months.
I advise small and medium-sized businesses on decisions like this one, and the costs of moving south are chronically underestimated. Payroll converts to US dollars. So do the contractors. Tax compliance is a different world. In Canada, a business files one corporate return and one federal sales tax system, with a few provincial add-ons. In the United States, cross a sales threshold in a state and you register and file sales tax in that state, and a growing business crosses those thresholds fast. The accounting fees alone typically run two to three times the Canadian bill. Banking is harder to set up. Health insurance quotes shock every Canadian owner who sees one.
And moving a corporation out of Canada is itself a taxable event. Departure can trigger tax on accrued gains before a single US dollar is earned, and losing Canadian status can put the lifetime capital gains exemption at risk on an eventual sale. The owner who relocates to dodge a tariff may have quietly taxed his own exit.
Then there is the cost nobody prices.
You have surrendered your flexibility.
CUSMA’s 16-year extension can be reinstated at any time with the written agreement of the three heads of government. Three signatures. Spend two years and a small fortune relocating to escape uncertainty, and you may wake up to find the uncertainty resolved, the access confirmed, and your old cost structure gone for good.
To be fair, for some businesses the move is right. If nearly all of your revenue is American, if your products sit outside CUSMA protection, or if new US customs rules requiring foreign companies to hold tangible American assets threaten your ability to import under your own name, the math can genuinely work. This is not an argument that nobody should move.
It is an argument about which analysis to run. The owners who get this right run the numbers a buyer would run. Full transition costs. Both cost structures side by side. A hard look at what the move does to the company’s value and its options. The owners who get it wrong run the analysis fear runs, where the only line on the page is the tariff.
Every company that relocates on fear rather than analysis hands over, voluntarily, the exact concession the pressure was designed to extract.
I argued in these pages in February that credible alternatives are what shift a negotiation. The same is true inside a business. When your biggest customer puts you on month-to-month terms, you do not move into their building. You go find more customers.
Canada is doing that at the national level, with new agreements and deepening partnerships from Southeast Asia to South America. The businesses worth the most in ten years will be the ones that did the same at theirs.
A month-to-month customer is not a reason to panic. It is a reason to diversify.
Canada’s Biggest Customer Just Went Month-to-Month
Managing Partner at Vistance Accounting, as seen on BNN Bloomberg, Globe and Mail and Financial Post
A Business Commentary by: Daryl Ching
When a client’s largest customer refuses to renew a long-term contract and offers month-to-month terms instead, I give the same advice every time.
Nothing has changed on paper. Same prices. Same orders. But everything about how you run the business just changed. You stop building capacity for that customer. You stop making investments that only pay off if they stay. And you start hunting for new customers that same week.
On July 1, that happened to Canada.
At the first mandated review of the Canada-United States-Mexico Agreement, the United States declined to confirm a 16-year extension. The deal did not lapse. Preferential tariffs, rules of origin and dispute mechanisms all run until 2036. But the refusal triggered a new structure. The agreement now gets reviewed every year until the parties extend it or it expires.
Our largest trading relationship just went month-to-month.
The numbers show what that does. A KPMG Canada survey of 275 manufacturers released this month found that 42 per cent have moved production to the United States or are considering it. Fifty-seven per cent have paused, cut or cancelled capital projects. More than half describe themselves as operating in endurance mode.
Here is the detail the coverage missed. Ninety-six per cent of the exporters surveyed say their products are CUSMA-compliant.
They are not paying the tariffs.
They are fleeing the possibility of them.
The respondents said so themselves. Ongoing trade uncertainty ranked second among their reasons for moving, right behind tariffs most of them do not pay.
This is worth saying plainly. The strategy is working for Donald Trump. The declared purpose of the tariff pressure was to pull production into the United States. By that scoreboard it is succeeding, and mostly without a tariff ever being collected. The uncertainty is doing the work for free.
Which is exactly why I part ways with the four in ten.
Relocating production is one of the most irreversible decisions a business can make, and it is being made in response to a problem that now resets every twelve months.
I advise small and medium-sized businesses on decisions like this one, and the costs of moving south are chronically underestimated. Payroll converts to US dollars. So do the contractors. Tax compliance is a different world. In Canada, a business files one corporate return and one federal sales tax system, with a few provincial add-ons. In the United States, cross a sales threshold in a state and you register and file sales tax in that state, and a growing business crosses those thresholds fast. The accounting fees alone typically run two to three times the Canadian bill. Banking is harder to set up. Health insurance quotes shock every Canadian owner who sees one.
And moving a corporation out of Canada is itself a taxable event. Departure can trigger tax on accrued gains before a single US dollar is earned, and losing Canadian status can put the lifetime capital gains exemption at risk on an eventual sale. The owner who relocates to dodge a tariff may have quietly taxed his own exit.
Then there is the cost nobody prices.
You have surrendered your flexibility.
CUSMA’s 16-year extension can be reinstated at any time with the written agreement of the three heads of government. Three signatures. Spend two years and a small fortune relocating to escape uncertainty, and you may wake up to find the uncertainty resolved, the access confirmed, and your old cost structure gone for good.
To be fair, for some businesses the move is right. If nearly all of your revenue is American, if your products sit outside CUSMA protection, or if new US customs rules requiring foreign companies to hold tangible American assets threaten your ability to import under your own name, the math can genuinely work. This is not an argument that nobody should move.
It is an argument about which analysis to run. The owners who get this right run the numbers a buyer would run. Full transition costs. Both cost structures side by side. A hard look at what the move does to the company’s value and its options. The owners who get it wrong run the analysis fear runs, where the only line on the page is the tariff.
Every company that relocates on fear rather than analysis hands over, voluntarily, the exact concession the pressure was designed to extract.
I argued in these pages in February that credible alternatives are what shift a negotiation. The same is true inside a business. When your biggest customer puts you on month-to-month terms, you do not move into their building. You go find more customers.
Canada is doing that at the national level, with new agreements and deepening partnerships from Southeast Asia to South America. The businesses worth the most in ten years will be the ones that did the same at theirs.
A month-to-month customer is not a reason to panic. It is a reason to diversify.
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