Tariffs, Trade Tensions, and the Struggles of Canadian Hardware Startups

The rise of trade tensions under former U.S. President Donald Trump cast a long shadow over the global economy, and Canadian hardware startups were not immune to the fallout. Ramee Mossa, the founder of FTEX, a Montreal-based company specializing in power hardware for e-bikes, e-scooters, and micro-mobility vehicles, found himself navigating a particularly challenging fundraising environment as Trump’s tariffs loomed large. As soon as Trump took office, U.S.-based investors began expressing unease, questioning how a succession of tariffs would impact Mossa’s company. For hardware startups like FTEX, the tariffs posed a double threat: they made fundraising more difficult and threatened the survival of companies that relied on global supply chains. Mossa acknowledged that while the tariffs might not be catastrophic for FTEX—thanks to its manufacturing operations in Malaysia and its use of Taiwanese components—they could still create significant challenges for the broader industry.

The Ripple Effects of Tariffs on Supply Chains

The tariffs imposed by the U.S. had far-reaching implications for Canadian hardware companies, extending beyond immediate costs to disrupt entire supply chains. Mossa and other leaders in the sector worried that the tariffs could impact their suppliers and manufacturers, creating a ripple effect that would eventually harm the bottom lines of companies that relied on their goods or labor. For instance, FTEX’s clients, who were predominantly Canadian, American, and European brands manufacturing products in China or Vietnam, could potentially avoid some tariffs by routing their products through countries not directly affected by the duties. However, this strategy was not without its challenges. Redesigning supply chains to circumvent tariff-prone countries was a time-consuming process, and it was not a viable solution for all companies.

The Case for Buying Canadian

In the face of these challenges, some Canadian tech leaders argued that the best way to mitigate the impact of tariffs was to look inward. Hamid Arabzadeh, CEO of Ranovus, a Kanata, Ont.-based company that produces advanced silicon chips for AI systems, emphasized the importance of supporting domestic production. “The best thing for Canada would be to buy Canadian stuff,” Arabzadeh said. Ranovus, which designs its chips in Canada but manufactures them in the U.S., faced its own set of challenges as it navigated the complexities of international trade. While some might advocate for the construction of Canadian chip factories as a solution, Arabzadeh and others pointed out that such a strategy was unrealistic in the short term. Building semiconductor factories required significant time and investment, and the tariffs were expected to take effect in a matter of weeks.

The Global Semiconductor Landscape and Canada’s Missing Strategy

The global semiconductor industry is a complex and highly specialized field, with countries like Taiwan, South Korea, China, and Japan dominating the market. Taiwan alone is responsible for 60% of the world’s semiconductor fabrication, a position it has built over decades. Avinash Persaud, vice-president of the Hardware Catalyst Initiative at Markham, Ont.-based tech hub VentureLab, noted that Taiwan’s success in the semiconductor industry was not achieved overnight. “This was started in the late ’70s,” Persaud said. The process of manufacturing silicon chips is painstakingly slow and costly, making it nearly impossible for countries like Canada to quickly establish a competitive semiconductor industry. Despite these challenges, Persaud argued that Canada needed a national semiconductor strategy to provide clarity and direction for the industry. Without such a strategy, Canadian companies would continue to face uncertainty, making it difficult to attract investment and form long-term partnerships.

The High Stakes of Trade Uncertainty

The uncertainty created by Trump’s trade policies had a profound impact on companies like FTEX and Ranovus. Mossa watched as many of FTEX’s clients moved their production operations from China to Vietnam in an attempt to avoid escalating tariffs. However, Mossa remained skeptical that Vietnam would emerge unscathed from the trade tensions, given its own trade imbalance with the U.S. Additionally, the possibility of tariffs being imposed on FTEX’s suppliers added another layer of uncertainty, as any increase in production costs would likely be passed on to clients. If FTEX were forced to raise its prices, it would find itself at a competitive disadvantage compared to Asian companies that sourced their supplies and manufactured their products entirely within the region.

The Need for Government Intervention and a Long-Term Vision

In the face of these challenges, Canadian tech leaders called on the government to take a more active role in supporting the industry. Arabzadeh proposed that the government impose countermeasures to prevent AI hardware that used foreign components from entering the country, provided that a Canadian equivalent was available. This strategy, which Arabzadeh noted was already employed by China, would not only protect Canadian companies but also create opportunities for them to gain a foothold in the global market. However, such a move would require a level of coordination and foresight that Canada had yet to demonstrate. As Persaud pointed out, Canada lacked a national semiconductor strategy, leaving stakeholders without a clear roadmap for navigating the challenges ahead. The absence of such a strategy made it difficult to attract foreign investment, form partnerships, and develop long-term plans. Without a coherent vision for its hardware sector, Canada risked being left behind in an increasingly competitive global economy.

In conclusion, the impact of U.S. tariffs and the broader trade tensions they represented created significant challenges for Canadian hardware startups like FTEX and Ranovus. While some companies were able to mitigate the effects of the tariffs by rerouting their supply chains or relying on foreign manufacturing, others called for a more inward-focused approach, emphasizing the importance of buying Canadian and supporting domestic production. However, the reality of the situation was more complex, and the global nature of the semiconductor industry made it difficult for Canada to quickly establish itself as a major player. The key to navigating this uncertain landscape lay in developing a clear national strategy that would provide direction for the industry, attract investment, and position Canada for long-term success in the global economy. Without such a strategy, Canadian hardware companies would continue to face an uphill battle in an increasingly volatile and competitive world.