This article may be updated to reflect ongoing developments.
On March 4, 2025, the U.S. government reaffirmed the enforcement of tariffs on Canadian exports, tough with some subsequent temporary exceptions. This is an evolving situation.
February 1, 2025, U.S. President Donald Trump officially signed an executive order imposing new tariffs on Canada, Mexico, and China. These protectionist measures include a 25% tariff on most Canadian goods and a 10% tariff on Canadian energy imports. Originally set to come into effect on February 4, 2025, the implementation of these new tariffs was delayed by 30 days. In response, the Canadian government has announced retaliatory tariffs on U.S. goods.
For many Québec businesses, the uncertainty of these tariffs presents a major challenge, as 75% of the province’s international exports go to the U.S. Companies with existing commercial agreements or those negotiating new deals with U.S. counterparts must act quickly to mitigate risks. Additionally, businesses engaged in M&A transactions or financing agreements should reassess potential financial and contractual exposure.
This article outlines the key legal and business implications of the new tariffs and provides practical strategies to navigate the evolving trade landscape.
Review existing contracts: Identify exposure
The sudden increase in tariffs will disrupt supply chains and pricing agreements, potentially straining relationships with U.S. buyers. Common risks include:
- Clients negotiating (or imposing) lower prices due to increased costs.
- Delays or cancellations as U.S. buyers attempt to “wait out” trade tensions.
- Distributors temporarily suspending distribution or shifting to alternative suppliers, reducing demand for Québec-made products.
Action Steps
- Conduct a detailed contract review to identify exposure in key agreements.
- Pay particular attention to minimum purchase commitments, pricing adjustment clauses, and termination rights. For instance, if a contract lacks minimum purchase requirements, a U.S. client could legally reduce orders without penalty. Even where such clauses exist, enforcement depends on governing law and dispute resolution mechanisms—elements that should be carefully analyzed before taking legal action.
Negotiate new stronger contracts: Mitigate future risk
Québec businesses have historically relied on a stable and predictable trade relationship with the U.S. That reality has changed. Moving forward, more precise and tailored agreements are essential to mitigate volatility and protect profitability.
Key negotiation priorities for new contracts
- Price Adjustment Clauses: Ensure pricing automatically adjusts if tariffs or trade policies change.
- Minimum Purchase Commitments: Lock in buyer obligations to ensure revenue stability.
- Payment Terms: Consider shorter payment terms or upfront deposits to improve cash flow.
- Incoterms & Customs Responsibilities: Shift tariff and import duties to the U.S. buyer when possible.
- Shipping & Delivery Flexibility: Allow for alternative routes or suppliers in case of disruptions.
- Regulatory Compliance Liability: Protect yourself from penalties due to misclassification of goods or customs disputes.
Businesses that successfully negotiate these provisions will be in a stronger position to weather ongoing trade uncertainties.
Impact on M&A transactions: Valuation and risk allocation
Companies engaged in mergers and acquisitions (M&A) must now reassess valuation models and risk exposure related to U.S. sales.
Key considerations for M&A buyers and sellers
- Valuation Adjustments: Buyers will scrutinize how tariffs impact profitability and customer retention, which could significantly affect the purchase price.
- Earnouts & Price Adjustments: Sellers may need to accept performance-based payouts linked to post-closing revenue.
- Enhanced Due Diligence: Buyers should conduct a detailed review of U.S. contracts, pricing flexibility, and tariff pass-through mechanisms.
- Regulatory Risks: If the target company misclassifies products or fails to comply with U.S. customs laws, buyers could inherit unexpected liabilities.
By proactively addressing these risks, parties can preserve deal value and minimize post-closing disputes.
Financing considerations: Credit facilities and debt covenants
Tariffs can reduce profitability, affecting financial covenants and access to credit. Companies with existing loans or those seeking new financing must:
- Monitor financial ratios such as debt-to-EBITDA to avoid covenant breaches.
- Engage with lenders early to negotiate waivers or flexibility if tariffs impact revenue.
- Review Material Adverse Effect (MAE) clauses to ensure that lenders cannot declare a default solely due to tariff-related financial fluctuations.
- Ensure cross-border cash flow flexibility, particularly if your company operates through a U.S. subsidiary.
A proactive approach in renegotiating financing terms will help businesses maintain liquidity and avoid unexpected lender-imposed restrictions.
Diversification: Reducing dependence on the U.S. market
To mitigate risks associated with U.S. trade volatility, Québec businesses should explore alternative markets and supply chain strategies:
- Expand into new markets (e.g., Europe or Asia) with more favourable trade agreements.
- Form partnerships with companies that have preferential access to tariff-free zones.
- Diversify suppliers to reduce dependency on U.S. imports and minimize tariff exposure.
Conclusion
Without question, the new U.S. tariffs imposed by the Trump administration present significant challenges for Québec businesses, disrupting costs, supply chains, and profitability significantly. However, by taking proactive legal and financial steps, companies can adapt to these trade disruptions and maintain their market position.
If you are concerned about how these tariffs will affect your business, now is the time to seek legal advice. Our multidisciplinary business law group is ready to offer you personalized support.
The authors wish to thank law student Emmanuelle Atongfor for her valuable contribution to this article.