OTTAWA — Some U.S. companies selling Chinese goods have been diverting their wares to Canadian warehouses, hoping to wait out the sky-high tariffs from President Donald Trump.

Jesse Mitchell, director of business development at Strader-Ferris International, a cross-border customs brokerage, shipping and logistics company based in Prescott, Ont., is trying to convince them to stay.

“Importing product from China to the U.S. to pay tariffs to then ship it to Canada doesn’t make any sense,” Mitchell said in an interview with The Logic. “It makes sense to import inventory to Canada and sell to the Canadian market, where that product has no U.S. tariffs on it.”

Many U.S. online retailers import goods from China and then store them in U.S. warehouses known as fulfillment centres until they are bought and delivered to consumers. This includes Seattle-based Amazon, where third-party vendors account for more than 60 per cent of sales.

Many have Canadian customers too, but the smaller scale of the market here made it more efficient to import goods to the U.S., then ship a limited number to a Canadian warehouse, or even use a courier to deliver it straight to doorsteps. Then Trump imposed 145 per cent tariffs on all Chinese goods—including 20 per cent duties linked to fentanyl. That changed the math.

Mitchell, whose firm has locations in Prescott and Brockville, Ont., as well as just across the border in Ogdensburg, N.Y., said he speaks to several companies every day that are interested in importing goods from China into Canada instead of into the U.S. Some plan to move that inventory back to the U.S. if and when Trump lifts or lowers his tariffs on China; others are looking to fulfill online orders in the Canadian market from that new location over the long term.

They are also looking to grow.

“Most of these companies, for a wide variety of reasons, are not actively selling in Canada at any scale,” said Mitchell, noting that many rely on search engines to push Canadian consumers to their main websites instead of setting up a separate one for this market. Many businesses are also bracing for a decline in sales this year due to the trade war, which Mitchell said they can offset by opening up a new market. Some are wondering why they have not been selling in Canada for years, he added. “It just seems kind of ludicrous.”

Setting up shop in Canada is not a way to avoid the U.S. tariffs on China and pay the lower 25 rate for Canadian goods, since duties are determined by country of origin. This also applies to the “de minimis” exemption that lets goods worth under US$800 enter the U.S. duty-free, which was eliminated for China on Friday. 

Still, Mitchell said companies selling goods from China could send those products to Canada, then ship smaller amounts to the U.S., as needed, until the tariffs are reduced or lifted. Even if those modest shipments face the 145 per cent tariff, he noted, that’s preferable to paying it on a large shipment that arrives in the U.S. one day, only to have Trump lift the tariffs the next.

It is too early to tell how significant, or lasting, this movement of goods to Canadian warehouses could be, but there are signs of a shift. Nathan Strang, a Los Angeles-based ocean freight director at supply-chain logistics company Flexport, told The Logic the company saw a 50 per cent increase in planned shipments headed to Canada in the weeks after the tariffs took effect, at the same time as cancellations from Asia.

Existing warehousing and distribution networks make Canada a popular choice, Strang said, although it could end up being a costly bet. The companies are paying for that storage space in Canada without knowing how long they will need it. If Trump does not lift or reduce the duties on China, then the plan would actually increase their expenses over the long term.

Some do not have a choice. “They simply don’t either have the cash flow or the ability to sell the goods at the current tariff level,” Strang said. “They’re going to try and wait it out as best they can.”

Some clients are shifting their sales strategies in an effort to capture a greater share of Canada’s market, or those of other countries where consumers have similar buying habits to the U.S., such as Australia. Strang said that is more likely to happen if they already have a foothold in those places. 

New markets can require the added costs of new product lines, advertising campaigns, regulations and, especially now, competing with popular homegrown brands. “Will an American brand be well-received right now in Canada is another question,” Strang said.