On August 22, trade negotiations between Canada and the U.S. broke down, culminating with the U.S. imposing 50% tariffs on certain Canadian goods. Canada subsequently announced retaliatory tariffs ranging from 15% to 50% on certain U.S. products, scheduled to take effect September 8.

Since then, businesses have been waiting for clarity. Many business leaders are asking the same question: what's going to happen next? But the better question is: what are the strongest businesses doing today to turn current uncertainty into an advantage? 

I recently moderated a discussion with Pam Denton, Head of Strategic Markets & Client Solutions, Global Markets, BMO Capital Markets, and Shelly Kaushik, Senior Economist, Economic Research, BMO Capital Markets. Our discussion cut through the headlines to understand the actions that Canadian businesses can take to successfully navigate this volatile environment. 

Below is a summary of our conversation. 

The U.S. and Canada were already engaged in a tariff skirmish. The big difference now involves the scope and scale of the tariffs. "The latest round puts us firmly in a world of 50% tariff rates," Shelly Kaushik said. Another big change involves exemptions under CUSMA. “Before, 85% to 90% of what Canadian businesses were sending to the U.S. was tariff-free. It's still the vast majority of products, but the concern is that the dam of the protection of the CUSMA has broken." 

How the trade war's impact shows up in the economic data is yet to be determined, which adds to the uncertainty. Kaushik noted that Canada's second-quarter GDP showed signs that the economy was gathering momentum. The backdrop has significantly changed, however. The impact is particularly noticeable in sectors like steel, aluminum, and autos—and primarily felt in Quebec and Ontario, followed by BC.  

Exports showed a slight decline in July, before the U.S. tariff announcement. "We estimate about 0.5% of growth being chopped off due to these tariffs," Kaushik said. "But there's just so much up in the air right now." 

No one can win at the forecasting game. Particularly in a period of heightened uncertainty, it's difficult to predict where currencies, commodities, or interest rates are going. I asked Pam Denton how the top leaders approach volatility. 

"The first thing is to look at a budgeted rate," she said. "We're trying to help our clients forecast volatility and uncertainty, not forecast where the underlying price is going. The main concern is to define the protection that you need. Some companies have a lot of exposure that needs to be managed, others are going to have a core component that needs some sort of protection to forecast cash flows." 

Denton added that indicators such as margin flexibility and price elasticity inform how businesses manage their exposure.  

"If you have healthy margins, then you have more flexibility and more ability to move in these volatile times," Denton said.  

Hedging 100% is seldom the right answer. But if you've just completed a major acquisition, for example, you'll want to mitigate your interest rate risk significantly more.  

Denton said that in this type of environment, the most experienced CFOs reach out for advice. "They acknowledge that this is not their area of expertise and they would like advice, whether that's M&A or interest rate hedging or foreign exchange, or energy."  

As I pointed out during our discussion, the strongest operators, those who have navigated multiple economic cycles, tend to have a playbook for managing the current environment. While that playbook is different for every company, there are certain fundamental considerations, including:  

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  How much volatility can you afford?  

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  What is your proper debt level for the current environment?  

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  How much liquidity do you need? 

The strongest operators are also scanning the environment for potential opportunities. These businesses understand that although conditions are uncertain, they can't sit still. They're exploring opportunities in M&A, supply chain diversification, and expanding into new markets. 

We're seeing that buyers are willing to pay a premium for certain businesses that are insulated from the current trade situation. For a business owner who's planning to sell within the next five years, the situation may accelerate those conversations.  

It seems as if uncertainty keeps growing, and there's no way of predicting when a measure of certainty will return. The key for business owners and senior leaders is to be aware of when the context of a given situation provides you with a potential tailwind, and to put your business in a position to capitalize on it.