The looming threat of U.S. tariffs on all goods from Canada may leave the country’s clean technology sector particularly vulnerable, putting an emphasis on the importance of next steps.

Cleantech, which has been in the spotlight due to its role in the pursuit of government-set climate targets, is largely rooted in hard goods.

As Peter McArthur, chair of Canada Cleantech Alliance (CCA) explained to DOB Energy, “where in a software company, you could have 90 per cent gross margin for a hardware company, your gross margin if you are lucky might be 25 per cent.”

With U.S. President-elect Donald Trump potentially placing a 25 per cent tariff on all goods from Canada, he added, the question becomes “how am I supposed to make any money?”

CCA is a coalition of cleantech industry associations and accelerators.

To McArthur’s point, when it comes to convincing a company to try something new, such as a clean innovation, it’s easier to do so when it’s less expensive, pointed out CCA board advisor Lynn Côté.

Moreover, she noted that in many cases, cleantech firms are “earlier stage,” which can influence financial wherewithal through pressures such as tariffs.

“The companies who may have an easier time of it are those that are maybe a little bit bigger and because they were bigger and they were at revenue, they were able, for example, to have facilities, plants, operations in the U.S. Some of them did that very intentionally and strategically because of other various tariffs.”

According to the Government of Canada, there was $9.8 billion in clean technology products exported globally from Canada in 2022, which is the most recent data available. From that total, 77 per cent were exported to the U.S.

On how to respond, Bryan Watson, managing director, CleanTech North, and founding director, Ontario Clean Technology Industry Association said, “build that war chest as big as you can right now.”

“If you’ve got offers … from venture capital, if you have offers from venture debt, now is the time to probably say ‘yes’ if you were sitting on them, to have that powder in the bank, or access to that dry powder, because you don’t know what’s coming, and we don’t know what the back and forth is going to be and how long it is going to last.”

Touching on the upcoming federal election, Watson continued, “we don’t know if there are going to be programs stepping in to help backfill that trade war if that is where we go. So, having your own capital to survive is the biggest piece of advice I am giving companies right now.”

On the importance of potentially advancing opportunities in the face of tariff threats, Côté agreed.

“If you are working on a partnership, maybe in the U.S., maybe it’s time to get it done,” she said.

Côté, who worked at Export Development Canada for more than 30 years, advised those in the space to “hang on.”

“You cannot grind yourself down on things that haven’t happened yet.”

McArthur highlighted a strategy a segment of clean technology has used in the past.

“This is not a great strategy from a Canadian economic development perspective, but with the Inflation Reduction Act and production tax credits, we saw some of the few manufacturers of solar panels in Canada with tariffs going in place, just move all of their production to the United States,” said the former vice-president, national cleantech lead with RBCx, which is Royal Bank of Canada’s tech banking and innovation arm.

He emphasized this is not a path he’s recommending, “but we have seen people respond that way — saying ‘OK, I am not going to have that tariff.’”

McArthur’s advice is for firms to diversify where they sell. He singled out the U.K. and Australia as being commonwealth jurisdictions with similar legal systems.

“You don’t ever want to have all your eggs in one basket,” he said. “The world is a less friendly place, maybe you need more friends.”