American storm: What you need to know about the Ryan Plan

When considering the ramifications of protectionist measures being suggested and taken by the Trump Administration, Canadian companies should revisit their market-access strategies, said Rick Tachuk, Chairman of the Board for the American Chamber of Commerce in Canada, an organization that aims to advance U.S.-Canada cross-border business.

“Direct investment in the U.S. is probably one of the most secure means to establishing an operational platform in the U.S.,” Tachuk said. “Clearly Canadian companies are very good at exporting to the U.S. and when they get to a certain level of export, they decide to make investments to support those products in the U.S.”

Asked for an example of a company that has successfully run with that strategy, Tachuk chose Calgary’s Champion Pet Food.

“Champion had always done an amazing job of accessing the U.S. market, but it was starting to run into local and state restrictions around the distribution of their products,” Tachuk said. “So it recently set up a plant in Kentucky and, ever since, U.S. sales have skyrocketed. It partnered with a U.S.-based biotechnology company, put together a collaborative research effort and sales could double in the U.S. in the next 12 months. It’s an example of how an investment in the U.S. can really help a Canadian company succeed there.”

achuk warned that, as with any investment in a foreign market, exporters need to learn about the market and what restrictions apply.

“The best advice I would have for Canadian companies is to make sure you seek tax and accounting advice because it’s not as simple as just going and incorporating in the U.S. The tax implications can vary significantly. You really need informed expertise from accountants, lawyers and immigration consultants.”

Asked what Canadian market sectors are the most competitive when it comes to the U.S., Tachuk said the ones that succeed most often are those that seek out niches.

“When we think of technology, there are certain innovations that are leading-edge,” he said. “I think Canadian manufacturers tend to suffer a little more because we have a competitiveness challenge here, but those that are more engaged in research and development and the implementation of new technologies will be extremely competitive if they’re filling a niche that’s in demand.”

Tachuk, who took part in an EDC webinar on the top three concerns of Canadian exporters when it comes to doing business in the U.S., also answered questions about the best and worse case scenarios with respect to Congressman Paul Ryan’s tax plan, which would change the way imports and exports are taxed in the U.S.

“The worse case would be for the Ryan plan to be fully implemented as proposed,” Tachuk said. “That plan was developed prior to the presidential election and really represents the most restrictive border tax scenario we could possibly see. The Trump plan that is not being advanced didn’t address a border tax at all so it’s more favourable to Canada.”

That said, he noted that the Ryan plan does call for significant tax reform in the U.S., specifically corporate tax reform, which would be an overall benefit to the U.S. economy and which should create increased demand for goods and services and potentially more exports for Canadian companies. “So there’s good and bad that we have to measure when we look at that proposal and where it may end up,” he said.

He said the border tax would mean that every U.S. retailer will have to pay more for consumer goods that are imported from low-cost centres such as China and other places in Asia.

“When you do the math, it’s about a 4.8 per cent increase,” he said. “The U.S. retail lobby has a very strong voice in Washington so it’s really up in the air, but I’d be surprised if we see it affecting retailers in that respect.”