How to advise Canadian mid-market clients following Trump’s threatened tariffs

Recent tariff discussions between the U.S., Canada and Mexico have raised concerns about trade imbalances, and that could impact mid-market insurance clients’ coverage.  

U.S. president-elect Donald Trump has threatened to impose 25% tariffs on all goods from Canada and Mexico, effective upon his return to the White House in January 2025. The move aims to put pressure on Canada and Mexico to curb cross-border drug trafficking and migration into the U.S., while also strengthening the U.S. economy through his “America first” agenda.

Mid-market clients in Canada with cross-border operations could experience fallout from this U.S. trade policy, panellists explained at Canadian Underwriter’s ‘Mastering the middle market’ webinar. Higher tariffs could result in higher exchange rates and more economic exposure, meaning mid-market commercial clients would require higher policy limits and supply change redundancies.   

Chief among the considerations for mid-market clients should be the risk of exchange rate fluctuations caused by any trade imbalance triggered by higher tariffs, says Eric Osborne, chief growth officer at Navacord. 

“When you’re advising your client, and you think about the difference in the currency or the exchange rate, that could mean that you need higher limits of coverage in the U.S., because, for example, the limit shown of the Canadian dollar on your policy might not be adequate enough to respond in the U.S.”   

Canadian businesses with U.S. operations may face losses that need to be paid in U.S. dollars. But a policy written in Canadian dollars might not offer enough coverage to pay out a claim in U.S. dollars, due to the comparative lower value of the Canadian currency.  

So, if the value of the Canadian dollar falls any further below the value of U.S. dollar (as of press time, one Canadian dollar equals 71 cents in US currency), Canadian clients could risk being underinsured.  

Already, Trump’s tariff announcement has affected currency values. The US Dollar Index surged by more than 1% following the announcement, while the Mexican peso and Canadian dollar “weakened sharply,” according to Business Insider. 

And that’s before any tariffs have been imposed. A long-tail trade imbalance caused by increased tariffs could weaken demand for Canadian goods further, leading to lower demand for Canadian dollars.  

To account for fluctuating currency exchanges, clients may need to purchase higher policy limits in Canadian dollars to ensure they meet their potential liabilities in U.S. dollars. 

Plus, mid-market brokers should monitor currency fluctuations and consider reassessing their clients’ coverage to avoid being underinsured. 

“We have a lot of clients that are in the transportation industry, and they’ll have to be thoughtful [and] maybe do some testing,” says Osborne. “What does that mean for your fleet size, and potentially parking units, if you have to adjust or looking for more business in Canada as that comes more expensive?” 

Other industries impacted by tariffs could include auto, energy, and manufacturing sectors such as chemical, plastic and rubbers, since between 80% and 95% of exports in their sectors go to the U.S., as CU previously reported.  

Canadian businesses will have to start getting a little more creative about how they’re going to reduce or mitigate their exposures, says Falak Kothari, senior vice president and national corporate leader of manufacturing at Marsh McLennan. 

“That means going back to just-in-time or real-time and trying to kind of save some costs there that are associated with supply chain,” he says. 

Just-in-time is a strategy is when supply chain partners order and receive material as close as possible to the time it is needed, which reduces storage costs. Real-time supply chains refer to the strategy of having up-to-date knowledge and understanding of what is happening in your supply chain. 

“We’re also at a time where we’re seeing a lot of geopolitical risk and disruptions. So how do you build some form of redundancies in your supply chain that makes you resilient?” says Kothari.  

 

Feature image by iStock.com/DoraDalton