Secret Life of Inventory
A show where we delve deep into the unseen world of inventory management, revealing the hidden mysteries that help small businesses (like you) optimize their workflow and succeed!
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Secret Life of Inventory
How to Navigate U.S.-Canada Tariffs (ft. BDC's Director of Economic Research)
Trade policies and tariffs can be overwhelming, but they have a real impact on your bottom line. BDC’s Director of Economic Research, Arnaud Franco, breaks down exactly what SMBs (small to medium-sized businesses) need to know to navigate U.S.-Canada trade with confidence.
Arnaud walks us through why tariffs exist, how they impact different industries, and what compliance really looks like. Plus, he shares practical strategies for managing inventory, optimizing supply chains, and running daily operations more smoothly.
Whether you’re running your first small business or looking to refine your operations, this episode of the Secret Life of Inventory is packed with actionable insights to help you make smarter, more informed decisions in today’s economic landscape.
🇨🇦 Resources:
• How to Tackle Tariffs: https://www.bdc.ca/tariffs
• Consulting: https://www.bdc.ca/en/consulting
• Export Development Canada: https://www.edc.ca/
0:00 - Teaser
0:15 - Intro
1:35 - How did you get into economics?
3:21 - What is the definition of economics?
4:11 - What does economic research look like?
5:37 - Why would governments implement tariffs?
7:59 - What’s the current situation between the U.S. and Canada?
12:49 - What tariff trends should business owners pay attention to?
14:10 - Is the paperwork compliance process difficult?
14:56 - What are the common misconceptions about tariffs or trade policies?
15:53 - How should businesses navigate tariffs?
18:51 - Which industries are impacted the most?
20:34 - What inventory techniques do you recommend?
22:00 - What professionals should you consult?
23:11 - How is the Canadian economy right now?
26:11 - What is the U.S. strategy?
28:10 - BDC’s Buy 5 High 5 Campaign
30:04 - What is micro vs. macroeconomics?
32:18 - What macroeconomics should business owners be aware of?
37:03 - What microeconomics should business owners look for in their daily operations?
40:32 - What challenges are SMBs facing?
43:46 - Arnaud’s past professional life
45:11 - How should SMBs think about their supply chain differently?
47:35 - What one advice would you give to entrepreneurs?
50:23 - What are some helpful concepts or frameworks business owners should lean into?
52:06 - Outro
52:19 - What’s next for Arnaud and BDC?
53:36 - Connect with us and share!
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When the good would get to the border and the client said, are you aware that your good is subject to a 25% tariff? And the producer would say, well, no, I'm U.S.M.C. compliant, at least I think so. And it turns out that they hadn't filled out the paperwork to become compliant. So there's been a lot of that. Yeah. So this year. Hello everybody I'm Jared. Hi, I'm Melinda. And welcome back to The Secret Life of Inventory. This is a show where we dive deep into the hidden mysteries of inventory management. And we uncover the hidden mysteries that help businesses like yours optimize their workflow and succeed. Today, we're joined by a special guest, Arnaud Franco, who's the director of economics at the Bank of Canadian Entrepreneurs, better known as BDC. He's here to help us explore the evolving landscape of tariffs and how they're impacting the Canadian business and the economy. Yep. And Arnaud actually brings 20 years of analytical experience as well as 15 years of management and leadership training. He currently manages a team of economists that bring actionable insights to small to medium sized enterprises, so he is like the perfect person to talk to when it comes to all this craziness that's going on with tariffs. And this is important because tariffs aren't just political headlines. They have real effects on how inventory moves, what it costs and how sustainable businesses can be. And it's not just about the businesses, but the people behind the scenes who are doing their best to stay afloat, manage rising costs and support their teams and families. So we really appreciate you, Arnaud, for coming on to the pod, and we can't wait to dive into your insights. Yes. Thank you so much. Welcome. Thank you. Thank you for having me. Okay, so Arnaud, before we get into the tariffs and all the meat of it, why don't you maybe for our audience, let us, you know, let them know who you are, kind of how you got into, uh, into economics. Sure. Thanks. So my name is Arnaud Franco. I'm director of economic research at BDC. So I manage the team of economists there. And our mandate is to serve the small and medium business community of Canada and to encourage growth and development. So I've been at the bank for about a year and a half. It's been a great journey, a great a great challenge and a great opportunity. But before then, I spent 17 years working in the forest products industry. As of. 17. Years, 17 years. So a long, long time. Looking more in on the commodity side of things. And that's actually where I got quite exposed to supply chain. But going way back, I economics is kind of in my blood. I come from a family of economists. Well, my father was an economist. My older brother is an economist as well. So he. Runs in the. Family. I was I was born in Washington, D.C., in the US, and my family actually moved to Africa, to Senegal when I was two years old in 1984. My dad worked for the International Monetary Fund, so he was an economist there, and he got deployed through various African countries. So we lived in Senegal, we lived in Zimbabwe, and then my family lived in Burkina Faso as well. And I did an internship there, actually. A lot of different places. Yeah. So I've had that really wide exposure, which is really given me the chance to to see the world and also to to understand that people are very different in one place depending. Where you grow up. Yeah. Yeah. And that can really be applied to businesses as well. You know, businesses come in all different shapes and sizes. And nowadays, especially in Canada, business owners are also from all different walks of life. So that global exposure has really given me, you know, a good knowledge of of of that adaptability and flexibility that helps with aiding Canadian businesses today. That's a really good perspective, I guess, having all that. Yeah, that was great. So for those who don't know, can you break down what is the definition of economics and why is it important? So economics is the study of of money and markets and how governments and consumers work together in a sense to, you know, create and produce wealth for a country. So economics will track, you know, a whole bunch of different ways that that people contribute to the economy. You know, either through spending or through job creation and running businesses. But it also looks at what all of this means when you put it all together. So if you sum up all of the activity that's going on, financial activity that's going on in the country, you get an idea of what that the value of that that country is. And then you can compare it from one country to another. So I mean, obviously it gets a lot more complex than that, but it's basically the study of money and behavior around. How money moves. Very cool. So when you're working at BDC, what does your day to day actually look like when you're doing economic research? So I'd say our mandate is really separated into two sides. So we have the mandate to, of course, keep the bank and all of its different departments up to date with macro and micro economic developments. So as much on the research side as on the news and media side, everything that's going on on the economics side, we need to inform all of our different departments so that we're all on the same page. We understand what's happening, we understand how, for example, interest rates are going and how that will affect the operations of the bank. So there's a really big internal, you know, mandate there. But then the part that I really, really enjoy is the external mandate is interfacing with not only our customers but also our non customers, basically the businesses in Canada and B.C. has a strong focus on small and medium businesses. So me and other members of my team, we do a lot of presentations, a lot of roadshows. We'll go out and meet with associations, chambers of commerce, and we'll present on the economy, talk to our clients about the kind of research that we're doing, the kind of developments on the macroeconomic level that will affect their businesses. And as you can, well, expect and the reason that I'm here today is that tariffs has brought a lot for us to talk about. This. Year. You know, both on the on the good and on the bad as well. So we've played a very important role this year in particular on keeping the community up to date with what's going on on the tariff. Awesome. Well, you can add podcast now to the roadshow as well. Yeah. That's yeah. That's awesome. So I mean you just mentioned it, it's kind of the topic that's on everyone's mind right now is um, you know tariffs. So is there like for any for the uninitiated I'm sure everyone kind of has gathered what tariffs are. But for the uninitiated tariffs essentially for TLDR is they are just, you know, taxes that are like implemented on imports essentially. So. But can you give us more of an insight on like why a government would actually implement tariffs and why, you know, businesses should care? Sure. So I'd say first of all, tariffs are a really normal economic tool that governments deploy across the world. And this is definitely not the first time that Canada has been in a trade war like scenario with with major trading partners. But what makes things different this time is the scope at which these tariffs are being put into place, because generally speaking, a tariff of 5 to 10% can be actually a really effective tool for a government to basically try to limit the incoming goods from the outside so that it can prioritize or focus on its domestic industry. So often a government will impose a tariff in order to slow imports and give a chance to domestic producers to take a bigger market share. And that can be for political reasons, or it can be for economic reasons as well. So tariffs are a really a normal thing. It's just the tariffs to this scope are a little bit difficult. They're more disruptive than they are because generally a 5 to 10% tariff will get worked out. Down the supply chain, you know, the producer of the good will take a little bit of a hit. The buyer will take a little bit of a hit and like it'll it'll even out. But when tariffs are as big as the numbers that we're hearing being thrown around now. Yeah they can actually be very very disruptive. Yeah I. Think 35 to 100% or. Something like. 135%. For a. Certain how does they do they stack like or is it just like a blanket tariff over everything or. They can it depends on the type of tariff okay. For example, right now China is facing, I believe, a 55% tariff. All all ink. And it's three different tariffs that are added on onto one another. There's a a general 10% tariff on China. There's a 25% tariff because of of the Fentanyl Act on the Emergency Tariff Act and everything. And then there's another 20% tariff that's from the Trump era China tariffs from his first term. Yeah. So those things do stack. However, the US administration has said that all of their new tariff announcements recently are not supposed to stack, but it's not entirely clear. Yeah, unfortunately, it hasn't always been clear what they plan on actually implementing versus what they say. That they're. Doing. So what's the current situation like with the US and Canada now? I feel like it's just constantly. Changing to keep up because. It's the I think the hardest thing to wrap your mind around of is, do I really need to believe everything. That I hear. In the media? And the answer is a little bit of yes and a little bit of no. What I'll say is that, and this is sort of precautionary, is when you hear about a tariff, there's always an implementation in an implementation date, unless they say it's effective immediately. And more and more this year, that date has been kind of wielded as a as a negotiation mechanism. So it's important to read read between the lines, read the media, be informed about the tariff announcement. Is so the current state of tariffs between the US and Canada is that the US announced their intent to tariff Canada in January, after the inauguration for a second term of President Trump, and they quoted a emergency act due to all of the fentanyl flowing into the US to tariff all goods coming from Mexico and Canada by 25% or 10% for potash and energy. But one important thing that they didn't specify when they made the original agreement is, is that those goods produced in Canada and Mexico who are compliant to the Usmca, which is the current free trade agreement which exists between the three countries, are exempt from that tariff because the Usmca supersedes that sort of provision. So it sounded like they wanted to tariff absolutely everyone. And there was a big panic because of that. But the reality is, is that it's a smaller portion of the total which is eligible for tariffs. And we'll talk a little bit more about that. That 25%. Now has the US administration has announced that they will increase that 25% to 35% as of August 1st. So that's the general tariff announcements. And it's important to understand that the majority of goods that are shipped from Canada to the US are Usmca compliant. In fact, there was analysis that was done recently or earlier this year that said that about 95, 94 to 95% of Canada's goods can be Usmca compliant, but they aren't necessarily. And that's a paperwork issue. Okay. Yeah. And I think we can talk about that later on. We talk about the challenges and what people need to in businesses need to keep aware of. But there is a compliance issue there that's been developing. Okay. That's interesting. Yeah. Yeah. So that's in terms of the the broad tariffs. But then the US followed these tariffs up with targeted tariffs. And these are the ones that are hurting Canada's economy more. So these are tariffs on steel and aluminum which initially in March were 25% but now have been increased to 50%. And then there's tariffs on cars as well of 25%, which were also put into effect in March. That 25% tariff is it excludes they take away from that 25%. The US made content of those Canadian made cars. So the actual tariff rate that a car manufacturer would be paying is probably around 12.5. It's about half of that. Okay. And then there's one more tariff, which as recently announced as the tariff on copper, which would be put into place again also on August 1st, which would be a 50% tariff, 50%. So important to understand, the tariffs on steel and aluminum and copper apply to all countries of the world, but the tariffs on autos apply just to Canada. So that's kind of where we sit right now on the tariff scope from US tariff being Canadian products, but we also have tariffs of American goods that are coming into Canada. So initially when tariffs were put into place by the US administration, the Canadian administration said that they would respond in kind and they kind of matched line for line. The US announcements. They initially announced 25% tariffs on about $40 billion of US goods coming in. They followed up with 25% tariffs on steel and aluminum products and a 25% tariffs on cars as well. However, the impact of these tariffs, what we're calling them, is actually larger for the Canadian population than the US tariffs. And that's because when we bring in goods and we're tariffs, you know, we pay that money, it increases costs and it's inflationary. The final consumer, the Canadian consumer is the one who's going to have to pay that extra. So in light of the impact that this would have on our economy, the new government in April announced a special provision that would allow manufacturers to import products from the US tariff free for a certain amount of time, a six month period, and we're currently in that. So the new Canadian government has basically taken a step back and said, we understand that this is going to have an impact on our population, so we need to take a little step to mitigate this. So the tariff situation right now with the US, it's largely a one way thing. It's mostly the US tariff in Canadian goods and not much tariffs going back the other way. And I don't want to downplay the effect of the tariffs coming back, because I know that there are some businesses who feel it very acutely. But on the in the large scale of things, it's mostly on the other side that the tariffs are currently okay. So are there any like I know this is probably a hard thing to answer, but are there any kind of like trends that businesses should kind of be looking out for as far as the tariffs? Yeah. So I mean, I would say that the most important thing is to understand your business. You're good, your customers and your suppliers. And I think we'll talk a good amount about what the strategies there are. But it's really, really understanding the important to understand what you are producing and if it's subject to a tariff. And what's happened actually is after the initial imposition of tariffs and this, this understanding that Usmca compliant goods would not be tariffs, there were a lot of Canadian producers who were selling to their U.S. clients, and then they'd get a call when the client when the when the good would get to the border and the client said, are you aware that your good is subject to a 25% tariff? And the producer would say, well, no, I'm Usmca compliant, at least I think so. And it turns out that they hadn't filled out the paperwork. To. Become compliant. So there's been a. Lot of that. Yeah. So this year we've had a trend in this increasing Compliance. So it's really, really good. We're increasing the compliance levels, but we're still below the level that we need to be at. So the estimates are in April, roughly 60% of our trade with the US went under Usmca. We still have some room. To. Go. So that's one of their big trends, is that businesses are signing up professionals, you know, cross border professionals in order to say, hey, what kind of paperwork do I need to fill out? What do I need to do so that I can become compliant and then, you know, get into free trade and not have to pay this or that. My customer doesn't have to pay. Is it a relatively complex process to do that or is it somewhat similar? Like simple? It's somewhat simple. But let's be honest, business owners are overwhelmed. Yeah, very, very busy people, right? Hard to keep up with what you need to do sometimes. Yeah. And, you know, it's just simply finding out what you need to do because sometimes take days or even weeks. So one of the things that we, we suggest to our small businesses to do is to build a task force within your within your company, your, your firm. Say, okay, let me find a 2 or 3 people who I know are in the news, who are plugged in or great at researching, who can leverage AI, maybe and say, guys, yeah, tell me, tell me what it is. You know, let's find out what's going on and then, you know, ask for help. Get them to figure out, okay, look, this is what we need to do. Become USMC. Compliance. That's something that we're seeing more and more in companies. And are there any, like, common misconceptions people have about tariffs or even just like trade policies in general? Yeah. So I'd say one common misconception, I think I'm really glad that you looked at the camera and you told them exactly what tariffs. Are, because there. Are certain sources that say that, you know, the buyer doesn't pay the. Tariff. Right. It is absolutely the case that the buyer is on the hook for the tariffs. So I think that's really needs to be clear. But I would say that within that it doesn't mean that the buyer has to bear the full burden of the tariff. In fact, that's often not the case because there can be some arrangement between the buyer and the seller of saying, look, if there's a 25% tariff, how about you absorb some of it and I absorb another. So this, this idea that, yeah, that person is going to have to pay the tariff when they take possession of the good at the border. But there is ways to manipulate your price in order to make sure you know that, that that burden of the tariff is shared and you know, that can enable you to continue your, you know, your business relatively uninterrupted. Okay. Can you share more advice on how businesses should navigate the situation right now? Are there any resources or strategies they should be leveraging more? Yeah, sure. I mean, I, I would be remiss if I didn't mention BDC, but. Not because. Not because I have. To. But because it's we have really. Great resources. So WW for tariffs. Perfect. We'll have a link to that link below. Like it really. It's a it's a tremendous resource. Yeah I have. A lot of articles that that really cater to supply chain to managing your finances, to resiliency, how to position yourself in this sort of situation. We also have a tool there, which we've developed with the Canadian government and with Export Development Canada, called the Tariff Tracker, that can allow you to to type in your good and figure out my subject. Oh, that's super useful. Yeah. And it works really well. So there are a lot of, of, of online resources, but the BDC website really does a good job at bringing it all together. And you can find a lot of the articles, and I'll talk about some of the advice that we have in there. But of course, you know, I can't I can't go as in-depth in this. You can. Look into us and then we'll put it down in the description. Box. Yeah. Okay. So I'd say. That. Probably one of the things I'd really like to highlight is this, this idea that the planning horizon has changed. So traditionally, you know, in a, in a stable business landscape, short term is one year medium terms like 2 to 3 years long term is three plus. But with all of these disruptions, and also as the pace of technology accelerates and media attention and news disclosures accelerate, we're seeing that that planning horizon is being condensed. You know, months become weeks, years become months. So now our experts in supply chain are telling us that short term is really 30 days. It's up to 30. Days, Maybe. Maybe two months. Yeah. Medium term is like three months to six months, and then long term is six months plus. So in the short term, what you need to do is, is control everything that's at arm's length. You know, anything that's around knowing your customers needs, knowing your suppliers, understanding where your inputs are coming from and how subject you might be to tariffs, knowing the customers that you're selling to if they're worried about the current situation. Um, understanding your finances. So we talk about the L's and the P's. So talk about liquidity, which is your cash leverage, which is your debt. And then on the other side we talk about productivity, which is you're controlling your costs and profits, which is how to maximize your revenues. So those are four things to really keep an eye out on. Because right now, even if your business is not directly affected by the tariffs because you're not an exporter or you're not importing a good, there are knock on effects. There are a lot of people who are second degree affected by tariffs, and they might not even know it until they get a bill from their new supplier that says, hey, my, my cost has gone up by this amount of percent because I'm paying a tariff. They might not even be aware of that. So understanding, you know, your your exposure throughout different supply chains is probably the number one piece of advice that I'd give you. Can you give us an example of maybe of some kind of company who's actually been doing really well navigating these tariffs? And I guess on the flip side, maybe a company who's not doing so well and like, are there industries that are more impacted than others? Yeah, absolutely. I mean, in terms of those more impacted on the manufacturing side, that's what we're seeing. The really big slowdown in the Canadian economy, especially in Ontario, unfortunately, you know, it's the engine of the Canadian economy, but there's a lot of manufacturing that's concentrated there. And the tariffs, the targeted tariffs are really targeted towards manufacturing industries. So steel, aluminum. And soon to be copper and auto. So those are the markets that are feeling it the most, especially on the steel and aluminum side. And the reason for this is because we produce a lot of the natural resources in Canada, but we sell those resources to other countries, and then we generally rely on on other countries for imported intermediate products. So structures and machines made from steel, for example. And even if there isn't a counter tariff on our imports, the fact that the steel that we sold to the US was tariff in the first place, they're going to take that cost that they paid extra for that steel and aluminum and then add it to their own product. Before they ship. It back to. Canada. Okay. So even if. We're tariff exempt to. Bring it back, you know, that that cost ends up getting getting included and passed on. So, you know, we have a few small medium businesses that are involved in steel or in importing like aluminum cans, for example, those sorts of things. Right. And they've been hit. Really, really. Hard because, you know, contracts with suppliers are generally for a year or even more than that. It's really hard to pivot away when all of a sudden there's a new cost, right. That's put into. Place. Yeah. That makes sense. Yeah. So that's and especially with the increase of that tariff to 50% in in early June, that's going to hit those kinds of businesses really, really hard. Do you have any like, inventory management techniques that you would maybe recommend during this time that businesses should try to implement? Yeah. So I'd say that the fact that we're very close to the US is a really good thing, from the standpoint that it's it's easier to pivot quickly, right. And actually, we saw this in a very big fashion early in the year because once the tariffs were announced, the exports of steel and aluminum products and other things from Canada to the US searched. They went really, really high in March, in February, March, actually, January, February and March, because already tariff talk had happened after the the initial US election. Right. So we saw people basically front loading us, customers, building inventory of those steel aluminum products. Before that, they became tariff imposed. So that was a good strategy for them to, to, to, to take on. And then now that the tariff has been put into place, we've seen the exports of those products drop significantly. One strategy I'll say is very interesting, and this applies to to businesses who have operations on both sides of the border is the notion of transfer pricing is when you sell a good from your Canadian branch to the US branch, you can control the price at which you sell. In order to limit your exposure to that tariff, you have to make sure that everything is above board. And for that, I would definitely recommend hiring a professional to help you with that. But using transfer pricing to your advantage can be an absolutely huge tool to limit the impacts of tariff. On your business. Okay. That's great. I've actually never heard of that. So that's a good that's a good one for our audience for sure. What kind of professional would you recommend hiring. To. Someone that's involved in trade. So like customs. Brokers for. Example, are there they're consultants on that side? Yeah. If you're a small business also and you're just looking you have questions. Contact BDC. We have advisory services. We have specialists who can hook you up with consultants that can then address your specific needs. We also have programs that help develop trade resiliency, that help customers look at diversifying their business, seeking out other markets. We have a consultant network at BDC that can. That's definitely one good tool, but I would say also just talk to your, uh, your friends, associates, other business owners, ask them what they're doing. You know, one of the things that I can't stress enough, and I'm very lucky because I get to spend a lot of time in the field with business owners, is that that network is a very valuable. Resource. Relying on community. Absolutely. And entrepreneurs love giving advice to other entrepreneurs. You know, they live and. Breathe. The business. So asking around and finding out, you know, what other people are doing is also a really, really good way to get ideas. It might not apply to your business directly, but you talk to ten people. One of those people might have. A really. Good solution. For you. Perfect. And so you should always be sharing as well. As making of a. Symbiotic relationship. So since you work with the Bank of Canadian Entrepreneurs, you have a front row seat to how Canadian businesses are doing and the economy. So can you give us a sense of where things stand right now? Yeah. So actually there's light, uh, that's that's emerging in the Canadian economy. And I'll say that in the last couple of months, I'd say the outlook for the Canadian economy is improving, and you've seen a lot of financial institutions and banks, BDC included. We're increasing our forecasts, what we expected for the year. What I'll start, though, by saying is, is that the thing that's hurting our economy the most this year is not necessarily the tariffs themselves, and I don't want to take away. You know, I know that they're businesses that are struggling again because of the tariffs. But at the macro level, the impact of the tariffs is actually not that strong, all things considered. And one of the major reasons for that is that tariffs applied to goods they don't apply to services and developing countries or developed countries. Sorry. Are more and more service producers right. So there's a very big portion of our economy which is basically tariff free or at least indirect impact. So that's continuing to go well. And then if you look at the last couple of years, we've undergone an economic slowdown. Interest rates went really high. And now and now that they've coming down inflation, which was really high in 2021, 2022 has now been tamed and over the last few years, labour markets actually did quite well. Despite the fact that the economy was slowing, labor continued to increase, improve. We didn't see a recession, we didn't see mass layoffs. So because of that, the job market in Canada has been going well and wages have actually increased faster than inflation over the last couple of years. So the financial standing of Canadian households is actually pretty good. So wages have been good and their savings levels as well are actually quite high. They're higher than pre-pandemic levels. So on a personal finance side, Canadian households are doing alright. But what's really kicked us this year has been uncertainty. So to talk about tariffs, what's going on, people don't know. And uncertainty is paralyzing for businesses. So imagine that you're a business owner and you have a plan in 2025 to expand your operations. And all of a sudden you hear about tariffs. You hear about the US possibly going into recession, which it's it's most likely not, at least not as we currently see it, but all of these these things come to you and you say, wow, this is not the time for me to be spending a whole whack load of money to expand my operations. So a lot of people have been pressing pause on their investments this year, and that's economic activity which could have been generated, which is no longer being generated. So it slows the economy. And until people start to regain confidence that, you know, this thing is not going to happen and we're not going to have a recession, they're not going to start to go back into that investing mode. So that uncertainty, it's pervasive. It's been tough for the Canadian economy to to to understand and to grapple with. But in the last few months, it feels like there's some sort of crystallization of this uncertainty. We're starting to realize that maybe things aren't as bad as what we thought that they would. And it's also because we've had so many tariff announcements. We're also starting to cut through, you know, that announcement and say, okay, what's what is the US really trying to do here? Yeah. And I'll segue. Right into that. That inevitable question. Is. What is. The US strategy? It's clear that the US administration is trying to materially change the US economy in a certain way. They don't want to have 50% tariffs on everything, but they do want to have some targeted tariffs in order to encourage their domestic industry. And that's been very clear by the US administration. They want to support the auto production in the US. They want to support the steel market. I can't say aluminum because the US doesn't really make any aluminum. It mostly comes from Canada, but those sorts of markets. Those tariffs are going to stay, I think even when the US and Canada eventually do reach a new trade agreement, it's very likely that tariffs will be a part of that agreement. In fact, the Prime Minister yesterday said as much to the media, saying, you know, any any relationship with the US is probably going to include some level of tariffs in the future. And that's because they want to change their economy. But the measures to which they're saying or they're announcing, they're more negotiation tactics, right. 50% tariff, 135% tariff on China. Nobody wants that to be the case. But it's a way for the US administration to bring people to the bargaining table with haste, and in maybe a position of disadvantage, to try to make a hasty trade agreement that could then benefit. Right. So it's all just posturing at the end of the day. I mean, not all of it. There is a part that's. Really. A desire to structurally bring some manufacturing back. But I would say a lot of it is posturing. And we've seen it with the on again off again. Let's do this. And then finally, let's not do that. Um, you know, sort of of rhetoric that we've had over the last, last little while. So all this to say that, that the Canadian economy, our consumers doing really well, we've also seen a really nice boost from the Buy Canada movement. So unfortunately, because of the rhetoric with the 51st state that that was, you know, inflammatory and negative for, for a lot of people, um, there's been this blossoming of Canadian pride of prioritizing Canadian businesses. And I'm really proud that BDC, we launched a campaign called B5 High Five. Which is all over the house. Which is, uh, you know, by five, uh, Canadian goods. So that domestic turn towards local products is really great for our economy. And actually we're starting to see some of the effects in the statistics now. And retail spending is actually holding up relatively well. The job market in June rebounded really nicely. So all of this, these positive developments is making us improve our our outlook for for Canadian GDP. So currently we expect an increase of 1.2% in real GDP this year, which is still relatively weak. But it's not like those recessionary doomsday scenarios that we could have thought. Like. What happened when tariffs. Were first announced. So we're doing well but could be doing better had not been for the tariffs. Yeah, there's a lot of there's a lot of road. To go down. Canada is lacking strategic investments. For example you know we need to continue to develop our economy. We need more targeted and focused investments in particular sectors. But the new government seems to be putting that as their top priority. So infrastructure investments, investments also into defense. That's been a big topic. Recently. About how we've been lagging on defense spending. So the government seems very keen to do this. The problem is, is we're a little bit light on the details for now because there hasn't been a budget. So we're waiting for that federal budget to come out to see, okay, what's going to be the impact of these policies. And then there's also the idea that it's great that we want to spend money, but, you know, we have a debt scenario situation that's increasing. It's not nearly as bad as what we see in the US, but we have to be mindful as well that that spending, you know, there's there's two sides to the decision to spend. I can imagine the people at BBC are just salivating, waiting for that budget to come out. Yeah, yeah. In order. To help us to. Place our. Priorities. But honestly, we're. Already doing it in the background, like trying to anticipate, you know, where that's going to be so that we can be ready to to support those, those small and medium businesses that will be able to, to participate in those those projects. All right. Very cool. So before we dive any deeper, I know you mentioned that you're comfortable speaking on macro development and microeconomic trends before, but for those who don't have an economics background like myself, can you break down? What do those terms actually mean? Yeah for sure. So microeconomics is basically the study of anything at the micro level. And there were basically mean we mean like people and businesses. So anything that looks at how a business manages its finances, how they manage their supply chain, logistics, etc., that would be micro looking at market structures like the difference between an open competition versus one where you have a fairly small amount of producers. That's again microeconomics. If you look at the behavior of consumers, for example, again, that's a microeconomic behavior. So in terms of microeconomic trends, it's a lot around productivity understanding how businesses are operating their profitability revenue. The two P's you mentioned earlier. Exactly, exactly. And then on the the macro side, that's everything that's from the top. So the classic macro look is GDP. For example. It's measuring the total value of an economy by summing up the different components. And let's go to econ 101. If you don't mind. I think for everybody. Would find this interesting. There's a formula for GDP. It's consumption plus investment plus government spending plus exports minus imports. So for those who don't know what GDP stands for. Can you break down what does GDP stand for. Gross domestic. Product. And the indicator that you're constantly hear about is real GDP. So real gross domestic product it takes all of that value and it removes the effect of inflation. So because inflation is price growth and price growth can change from one year to the other. And if prices increase by 2% in one year, the total value of the of your economy will also increase by. Growth. Of that 2%. So factoring that out allows you to compare from one year to the other. And that's why it's the number one economic indicator that you hear. And that's compared. Through. Three different countries. So macroeconomics is really the study of all of those pieces and how they move and how economies compare to each other, like through exchange rates for example, inflation, interest rates, those sorts of movements are generally In the the macroeconomic conversation. So when it comes to macro economics, like what are some things that people should be looking out for right now? Like what are the most important things to watch for? Is it like interest rates, unemployment? Uh, yeah. Inflation. Inflation? Yeah. Those are topics that are really top of mind. And I think that they're all important. Business owners tend to be sometimes singularly focused on interest rates, because it affects how expensive loans. Are and how. Expensive their credit is. And I think it's very important to understand the interest rate environment, um, especially where it's going. You know, right now we're in a little bit of a more stable position because interest rates have come down a lot. So maybe people will start focusing on other things. Inflation is another very important one. But again, we're in a situation right now where inflation has cooled a lot since the beginning of last year. However, there's a bit of doubt right now about where inflation is going because of the tariffs, right. So if you think about the tariffs on on the metals that exist currently, that's an upward increase across the world in those commodities, because the US is paying those tariffs to every country that's sending metals to the US. And because of that, the costs get pushed down to the consumers. You know, slowly but surely. And it should as long as somebody's paying the tariff and the government is collecting that tariff revenue, someone needs to pay for it. So eventually it will show up in inflation somewhere, somehow. So that's the worry right now. Is even Canada without counter tariffs, if we're importing products from the US that they include an implicit increase in their cost because of the tariffs of sending those goods to those metals to the US, it can generate inflation. And that's what the government and the Bank of Canada in particular is looking at very closely right now. The latest inflation number came in at 1.9%, which was good. It's within the range of where the Bank of Canada wants it. But when you exclude the effect of of energy in there, it's more around the 2.7% range. So we're getting a little bit higher. The Bank of Canada wants to keep inflation between 1 and percent. Okay. So when you get a little bit higher there, you start to worry. And the reason that the Bank of Canada is very worried about this is because if they cut their interest rate again, it Spurs spending, its Spurs borrowing which itself is inflationary. So it can push inflation a little bit higher. So that's why the Bank of Canada is just taking a pause right now. There's going to be an interest rate announcement. You know pretty soon. It's our belief that they're likely to pause. If you're watching this episode after the announcement, you know we'll be able to see if you can. Place your bets in the comments. Yeah. That's great, I think I think we'll be right. Um, but it's really because of this, this inflation. So that's important to keep an eye out. But then unemployment is also super important. And it's a topic that's really timely in Canada because over the last couple of years, in 2023 and 2024, Canada experienced population growth much, much higher than the averages of the previous years. It was it was wanted. It was, you know, a self self-imposed. In fact, it was the strongest population growth that any developed country has seen in over 60 years. 60. Years. And that's saying something. And, you know, for better or for worse, it's a good thing because developed countries have demographic issues. We have aging populations. We have more and more people in the baby boomer cohort who are leaving the employment market. We have less and less people coming in. Our birth rates are lower. So immigration is a very important tool in order for us to continue to, to to have economic prosperity. Interesting. Never thought about birth rates too and all that, but it makes sense. Yeah. Canada has one of the lowest birth rates of the G7 countries, actually. Oh, wow. I did not know that. That's crazy. So for better or for worse, you know, it's important to have population growth. The downside is of course is more people means more strain on our services. So health care and education and also housing, which is a really, really big conversation in Canada right now. So after strong population growth in 2023 and 2024, the Canadian government said, okay, it's a bit too much. We have to slow this down. And they imposed caps on temporary immigrants coming into Canada for 2025 and 2026, and the initial expectations were that population could actually decline this year in Canada, which would be the first time ever. Only by small amount. But it's never happened before, though the reality of it is, while we're tracking population figures now, it's actually up. But we'll see slower population growth this year, more of around 1%. And why I mention all of this is because it's important to understand the employment rate, or the unemployment rate is directly affected by the new arrivals into the workforce in Canada. Right, right. Sorry. So we've seen an increase in the unemployment rate a lot over the last year or so, but it's more about, you know, the number of available workers is outpacing the number of jobs that's being created. So this year we're likely to see a little bit of a reversal in that if the job markets hold up because there are less people coming into Canada this year than have been in previous years. So that's a very important nuance to understand when you're interpreting what the unemployment rate means. Okay. So what about like microeconomic trends? What are some things that kind of like businesses you can look out for in their everyday operations. Yeah. So productivity is a topic that's been I'd say it's been really important for Canada in particular for the last few years, I'd say since Covid, because our productivity situation has really not been good. And government officials have been desperately trying to refire productivity in Canada. Now, it's a very complicated issue. There's no one solution, but that's something that that a lot of businesses are taking a look at now, especially in this sort of situation where the uncertainty means that you don't know where to go to grow your business, but it's also an opportunity to take a step back and look inside your business and see what can I do better? How can I, you know, manage my costs? One of the big costs that's not often talked about is waste. Every business has waste. Every household has waste, too. And minimizing waste can actually save you quite a bit of money. But it takes that mindset to say today, you know, or this month or this year or, you know we're going to tackle waste. Let's try to figure out in our business what's what's wasteful, you know, how much paper do we consume? Uh, you know, how do we how do we manage our orders to make sure that we're not over ordering, you know, those sorts of things. So the productivity and the research around productivity and the tools to help improve productivity are a really, really big topic. And that kind of segues well into a topic which I'm sure that that's inevitable that we talk about. It's artificial intelligence, right? Every episode we have to mention it. I think it's like I think it was written in the fine print. Some of you. Know, but, you know, it's it's we kind of sound like a broken record for AI. You know, we say you have to be ahead of the curve. You've got to embrace it. It's absolutely true. And in fact, if you haven't embraced it, you're already behind. But what I'd say what's changed a lot with the discussion around AI is, is initially we're talking about AI is easy. There are so many free tools out there. You know, that you can get into AI without spending a lot, which is it's still true. You know, there's a lot of low hanging fruit in the translation world. And I'm not saying, you know, it doesn't replace translators. Professional translators still very, very important. But, you know, if I'm writing an email and I need to write it in French and English, you know, I could throw it into AI or something like that. That helps me save a lot of time for summarizing things. You know, there's a lot of low hanging fruit with with AI, but that's not where the real value of AI lies. That lies in the second step approach is when you start looking at models to to interpret data, right. So the use of data for better forecasting, for your revenues, for your costs, helping you use AI to leverage and using your own data to tell you where you need to do more marketing, tell you where you need to do more business developments, where those opportunities lie. Those are the huge benefits that I can bring. There's one problem, though, is that, well, there's two problems. Let's say one of them is that this can be costly because they're, you know, to develop a custom model, uh, can, can take a certain amount of time and a certain amount of money. And then the second thing is that to do that, you need really good data quality, and a lot of businesses don't have that, especially small businesses. You're again super busy. You're just trying to to get by to, you know, to, to to to survive and to give a good life to your staff and, you know, stay afloat, especially in a time like this, it's hard to also concentrate on making sure you're getting the best data so that you can then leverage AI. But that's definitely something that those who want to invest into AI need to understand. Your data quality is absolutely pivotal because if you don't have good data, you can't get. Yeah, I can't really help you, I guess. Right? Perfect. So can you kind of get into some specific challenges or maybe even opportunities that small to medium sized enterprises kind of, you know, are facing right now or especially in regards to like, you know, cross-border sourcing. Yeah. So I think that the challenges right now is that, um, you know, logistics is kind of like an elastic band. You know, it's logistics. And from my previous experience, you know, I was exposed a lot to shipping in like on the international level in commodities and logistics and shipping. It's really unique in the sense that it's extremely capital intensive, but it's a service that's offered. And whenever there's a demand, an increased demand for something for that service, it seems like a lot of the attention all of a sudden goes there in order to satisfy that demand. But then when you unwind that demand, it's hard to then reorganize and get all those containers back into the places in the world that they need to be in. Right. And what tariffs have done if they've created immediate needs for goods. So like I mentioned earlier, when tariffs were imposed in March or when they said that tariffs would begin to be imposed in March, shipments of those tariff goods increased astronomically in the first few months of the year because people said, I got to get in, build my inventory before those tariffs. Yeah, exactly. So all the logistics support rushes towards those first couple of months satisfying demand. And then all of a sudden tariffs are in and demand declines because people now have their inventory. Then they're not they're not interested. So. Logistics has to. All of a sudden rush out and then find the next thing. And between USA and Canada again it's relatively easy. And I'll say that in quotes because we have direct access to the border along, you know, 9000 kilometer border. But if you consider, like the US and China and what's happening there, uh, ocean freight shippers are having an absolute nightmare time because the tariff has been changing a lot. And, you know, there's a certain lead time in shipping from one continent to the other. So as US buyers rush to stock up on Chinese goods ahead of those tariffs going up, it brings all the containers to North America. And as we saw during Covid, when you have a lot of containers arriving at a certain area, you have huge delays, huge traffics, increased costs for not only the shipping companies, but also for the people importing. And then when that demand again gets unwind, which is what's happening now, all the buildup has happened. Now you have all these containers in North America that have to go back to China, and they have to figure out, okay, what goods am I going to carry. So some of them come to Canada and pick up natural resources and go and go there. But it can make for a lot of uneven, you know, shipping rates, for example, a lot shipping rates go really high when there's a big demand, and then all of a sudden demand becomes very slack, and then shipping rates all of a sudden become slack. So navigating that can be very, very challenging. So that's why managing your supply chain and understanding as much as possible is really, really important in this sort of circumstances. Because these these tariffs shocks, they really they can come out of nowhere. It can be an announcement all of a sudden. And then we need demand. We need demand. And everything rushes to to one side. So I'd say that that's a key challenge for anyone who's on the supply chain side is trying to to navigate these, these peaks and valleys that that tariffs are generating. Yeah that makes sense. A lot of the mirroring it seems like from the Covid supply chain disruption. You know so from your perspective like how should small businesses be thinking about their supply chain differently now than they were, say, 5 or 10 years ago? Yeah, I think the important part is, is you have to be flexible and adaptable. And of course, you have to have a certain amount of clairvoyance. Not panic when you make decisions, but still make good decisions based on on what's coming. So inventory building is a good example of that. If tariffs are coming, it's a good time for you to stock up on inventory. And we've seen a lot of Canadian businesses do just that. Some of them with more success than others. But it's understanding, you know what I need, what I consume and where it comes from. It's really, really important because there are a lot of businesses that, I'll be honest, that I've spoken to, that that didn't even know that they would be tariffs from from their imports, they didn't build up inventory. And all of a sudden they're facing a strong price increase from their customer. And they just don't know how to how to deal with that or the other way around is also true. You know, exporters who buy a particular good to then transform it and then export, you know, you really need to understand where those things you're buying come from and what your risks of exposure to the current market is. And it's not only about knowing what it is now, but it's also about trying to anticipate what is going to happen. Obviously, that's a big challenge, but in that that medium term horizon, something we encourage a lot of, of businesses to do, is plan as much as possible scenarios, for example, not to to to say that you should build a bunch of scenarios and then pick one and align with that. But building scenarios gives you a really good understanding of what could happen. And often those extreme scenarios, the very good or the very bad, they'll never happen. But knowing what happens to my business, should the very bad scenario develop, is a really good way of understanding. Okay, what are the limits of my playing field here and how am I potentially exposed to that? And there's some a way that you can leverage data and leverage analytics, you know, and programming in order to try to build models to say, okay, let's let me set my input costs and say they're going to go up by 20% by the end of the year, and my demand is going to shrink by 10%. What happens to my business? You know, that sort of understanding means, okay, when costs go up by 10% and your demand goes down by 5%, you're like, okay, I know where it could go, but I'm going to be a little bit better than that, right? So it helps really orient yourself in the reality that you're living awesome. And if you can give entrepreneurs just one piece of advice that they can use to kind of take away to help with their inventory planning and their, you know, just their operations planning this year, what would it be? I'd say honestly, stay connected. Don't be afraid to ask for advice. Don't be afraid to pick up the phone. Call your banker. Uh, call your consultants. The people who you work with. Call your partners. Call your competitors. Um. Don't be afraid to to get up and go and attend meetings, association events, things like that. Stay out there. Stay informed, because you'll be you're you'll be amazed to hear the stories of entrepreneurs across the across Canada. You know, this is a tough situation. It's led to a lot of difficulty for some firms, but it's led to an amazing amount of opportunities for others as well. There are firms out there, businesses who have been able to capitalize from this market. And I'll give you just a quick not a concrete example, but but why that's the case is that the US is currently fielding tariffs from all over the world. You know, they want to impose tariffs on I mean Japan South Korea recently but all basically all countries of the world. This could actually put Canadian businesses in an advantageous position because if they're buying things from those countries which then becomes tariffs and you're producing that good but free trade, you know under Usmca you could go then and take market share. Yeah. Right. Right. But you're not necessarily going to know that's the case unless you keep your ear to the ground and you understand your market, you understand your customer and how you know you can then then then, you know, develop that. So I'd say stay connected and don't be afraid to use the resources that are available to you. So BDC again a great resource. EDC Export Development Canada also Crown Corporation that we work a lot with. They do a really great job at helping those who are exposed to tariffs through exports navigate that not only directly but also indirectly. So if you're indirectly exposed to to to to tariffs, you're not even an exporter, but your client is an exporter. EDC can also help you mitigate some of that. And the last one I'll say is there's a great, I guess, organism called the Trade Commissioner's office. And this is a governmental organization that exists in various countries around the world, a lot of countries, more than a hundred. And they're basically staff that are in that country that help foreign businesses. So Canadian business, so they help them get in touch with suppliers, get in touch with clients, know about affairs or expos that are going on in their particular sector. Their job is is fantastic, really, really good. And they're free actually. So they're really are in compliment of Canadian business owners. So there's a lot of people who don't know about that. And I think it's definitely something worth leveraged, especially if you're involved, you know, in exports or if you're looking to diversify your markets. It's an absolutely invaluable. Resource, right. And that's like a Canadian like an organization that is working abroad. It's like a liaison. Yeah, exactly. Perfect. Great. So we're almost reaching the end now. So to wrap it up. Could you share some simple concepts or frameworks for business owners to help improve their daily operations? Um, yeah, I mean, I would again, I would talk really about this idea that your, your decision horizon is more attracted than, than it was before. Nowadays, with everything moving so quickly and, and announcements seemingly coming out of nowhere. So understanding what you can control in your short term horizon, which is again, you know, your your profits and your productivity and then your cash flow and your and your costs and your leverage, how you can control all of that is very, very important in the short term. And then in the medium term, that's when you can kind of look at, you know, the planning horizon okay. Are my costs properly set? Should I be charging more for my products. You know what kind of risks am I exposed to there? And that's where the beauty of of modeling and scenario work can really come and help you because scenarios are really, really important to help you kind of understand what the the possible outcomes are. So, you know, if you build a bunch of scenarios and then you look at the extremes, the extreme good or extreme bad, it's not likely that it's going to happen, but it can let you know what's what could happen to my business if my costs go up X amount and my revenues go down a certain amount. So, you know, when you end up with a middle of the road sort of outcome, you're going to be well positioned to be able to understand where things could have gone. So that's kind of the medium term exercise. And then in the longer term, I'd say, you know, look towards more structural, uh, things that you can do with your business. So reduce your costs, address wastes, increase productivity. Again, establish a task force for productivity. You know, choose some of your employees who are who are driven, motivated, who want to see productivity growth in your in your company and see how you can do that over the longer term horizon. Awesome. And that's a wrap on this episode. Arnaud, thanks so much for joining us today. It's been great getting all these insights from you. I know I learned a lot. I'm sure our audience is going to take away a lot from this as well. Thank you so much. We learned a lot for sure. It's my pleasure. Thank you so much for having me. It's been. Fun. So, Arnaud, we know you're always traveling around the world and speaking at different events. So what's next for you? Oh, so luckily, the summer brings a bit of a pause. Less events during the summer. It's nice. I can spend a little bit more time at home, but things will refire pretty quickly at the end of the summer and heading into October, which is, in case you didn't know, Small Business Month in Canada. It's actually an initiative launched by BDC many, many years ago. We have a small business week, which is the week of October 20th, but a lot of companies and organisms have have picked it up and do a lot of events around that time. Celebrate small business is great for the community. Exactly. It's really good for the community. BDC is very active during that that week and we're pan Canada, so we're doing events, you know, presentations, Chamber of commerce, sort of things across the country. I myself will be in Ontario during that week giving presentations. So look, look us up, look up any events that could be happening during that time, hours or otherwise. Again, get out there. Stay informed. Connect with your peers. Connect with you. Know your business partners to find out what's going on and how to best address the challenges of our time. We'll also be rolling out a new study at the economics Department. We'll be rolling out a study on the state of entrepreneurship in Canada, which is going to highlight some of the successes and challenges that entrepreneurs are facing this year. That'll be really exciting. So stay tuned and we'll be very happy to connect with you guys at any of our events. That's fantastic. Awesome. Definitely go follow BD C and Arnaud to stay connected and updated with the Canadian business landscape. Yes, go do that. And if you like this episode of the Secret Life Inventory, please leave us a comment, a like and subscribe. All those things give us a five star review on Spotify. And if you know someone who's struggling with tariffs, please share this episode with them. Okay. And we'll see everyone in the next one. Bye bye everybody.