Key takeaways • For Canadian organizations, deeply integrated North American supply chains mean financial, operational, contractual, and counterparty risks can quickly move across the Canada-U.S. border. • Tariff-related exposures increasingly stem from supply chain, governance, litigation, and regulatory risks rather than tariffs alone. • Insurance markets remain competitive, but the effects of sourcing and operational changes may emerge over time. • Organizations should reassess exposures, limits, supplier dependencies, governance controls, and potential coverage gaps. |
Last year, we explored how tariffs could influence insurance programs (opens a new window) and corporate governance, presenting risks for businesses and senior leaders (opens a new window). Since then, trade tensions have intensified, particularly between the United States and Canada, bringing litigation, supply chain disruption, and greater scrutiny of management decisions.
Yet the greatest risks may stem not from the tariffs themselves, but from the decisions companies make in response. Changes in suppliers, manufacturing locations, inventory strategies, and contractual arrangements can reshape risk profiles long before a loss occurs.
For organizations on both sides of the border, the takeaway is not to focus on the latest tariff announcement. Instead, it’s to identify new exposures created by tariff-driven operational changes and ensure that risk controls and insurance programs evolve alongside them.
From short-term disruption to long-term uncertainty
After a very eventful 2025, trade uncertainty continued in 2026.
Following a decision by the U.S. Supreme Court striking down earlier tariffs, the U.S. imposed a temporary 10% global tariff and additional measures targeting countries including Canada.
Subsequent negotiations to renew the Canada-United States-Mexico- Agreement (CUSMA) failed, leaving the agreement subject to annual review. Additional measures targeting Canadian imports followed, prompting Canadian retaliation and raising the prospect of further tariffs affecting automobiles, auto parts, and steel.
Beyond Canada, the U.S. has imposed new tariffs on dozens of countries, creating broad operational and financial uncertainty for businesses.
The long-term risks of tariff-driven decisions
While many of the immediate effects of tariffs are visible through higher costs and operational disruption, some of the most significant consequences may take years to emerge. In the long run, supplier changes, sourcing shifts, and production relocations across jurisdictions can result in product liability claims, recalls, quality control concerns, regulatory challenges, or contractual disputes that may not be foreseen today.
The 2018 and 2019 Canada-U.S. steel and aluminum trade dispute (opens a new window) offer a valuable lesson. Canadian exporters responded to those tariffs by restructuring supply chains, diversifying production and logistics partners, and reassessing investment decisions. While these actions helped mitigate immediate tariff pressures, they also reshaped business operations in ways that extended beyond the tariffs themselves. Organizations making similar adjustments today should consider the longer-term operational, contractual, and risk management implications of those decisions.
Risks extending beyond tariffs themselves
Changes, delays, or invalidation of tariff regimes can raise questions about costs passed on to customers and recovered funds, including contractual, disclosure, litigation, reputational, tax, and governance concerns. However, operational changes made to avoid, absorb, or pass on tariffs may create broader risks.
Emerging governance, litigation exposures
Tariff-related exposures have increasingly materialized as securities litigation, derivative actions, and False Claims Act (FCA) enforcement by the U.S. Department of Justice (U.S. DOJ). In July, the U.S. DOJ announced more than $1 billion in civil and criminal recoveries and charged losses (opens a new window) under the FCA since the launch of its Trade Fraud Task Force in August 2025.
While many of the most visible enforcement actions and legal developments are occurring in the United States, Canadian organizations with cross-border operations, customers, suppliers, or reporting obligations should not assume they are insulated from related governance, disclosure, litigation, or regulatory risks.
These risks are also not limited to large or publicly traded companies. Private organizations are equally susceptible to regulatory investigations, enforcement actions, contractual disputes, consumer claims, and allegations tied to tariff-related decisions. Exposures may also arise from impacts on suppliers, service providers, customers, and business partners.
Supply chain adjustments
Since early 2025, organizations have changed suppliers, relocated production, and revised procurement strategies across North America. Although these moves may reduce costs or improve resilience, unfamiliar regions and suppliers can weaken quality controls, traceability, compliance, and contractual protections, increasing product liability, recall, property, and business interruption risks.
As supply chains expand into new markets, organizations may also need to evaluate broader geopolitical risks, including government intervention, restrictions on the movement of funds, license revocation, expropriation, and trade restrictions. Political risk insurance may mitigate some of these exposures, particularly where foreign investments or contractual commitments are involved.
Supplier changes can also create governance exposure. Executives and boards may face scrutiny of selection decisions, due diligence, risk assessments, and disclosures. Future claims may not explicitly reference tariffs but could stem from operational decisions made in response to them.
Inventory strategies
Many companies purposely accumulated inventory ahead of tariffs to control costs or avoid shortages. Larger inventories, temporary warehouses, overflow facilities, and alternative transportation routes can:
Increase concentration risk and the potential severity of a single property or business interruption loss beyond what was originally anticipated when existing property and cargo programs were designed.
Raise financing and working capital needs.
Leave businesses holding expensive stock if tariffs are reduced or eliminated, demand weakens, or trade patterns shift.
Counterparty risk
According to the Office of the Superintendent of Bankruptcy (opens a new window), total Canadian insolvencies increased by 4.9% during the 12-month period ending July 31, 2026. While business insolvencies declined compared with the prior year, insolvency activity remained elevated across parts of the economy and reflected continuing financial pressure on households and businesses.
South of the border, nearly 800 U.S. companies filed for bankruptcy in 2025, the most since 2010, according to S&P Global Market Intelligence. Another 372 filed in the first half of 2026 (opens a new window), the largest first-half total since 2010.
Taken together, these figures underscore how financial strain in either Canada or the United States can create counterparty risk across integrated North American supply chains. Organizations with cross-border customers, suppliers, or distribution networks should closely monitor the financial health of key trading partners.
Tariffs alone are not causing bankruptcies, but they are putting further financial strain on organizations also facing inflation and economic uncertainty by raising costs, compressing margins, and disrupting supply chains.
Trade credit insurance can help protect against losses arising from customer insolvency, bankruptcy, or protracted default, but ongoing monitoring of key customers and suppliers remains key.
Contractual risks
Major trade shifts affect third-party agreements. During earlier conflicts, organizations adopted tariff allocation, force majeure, embargo, and similar clauses to mitigate exposure.
Comparable challenges may arise today for businesses with cross-border supply chains, integrated manufacturing, or multiyear contracts. As Canada-U.S. trade policies continue to evolve, organizations should also consider how trade measures, policy shifts, and future negotiations may affect pricing mechanisms, delivery obligations, sourcing requirements, and other provisions that may have been drafted under different economic assumptions.
Ripple effects through auto
The automotive sector illustrates how interconnected tariff risks can be. Integrated North American supply chains mean tariffs can raise the cost of parts, repairs, replacement vehicles, and maintenance, potentially lengthening repair timelines and increasing rental expenses, fleet downtime, and claims severity. This dynamic is particularly relevant in Canada, where automotive manufacturing and supply chains remain deeply integrated with U.S. operations.
Fleet operators may also extend replacement cycles or defer maintenance to control costs, creating additional operational and risk management challenges amid persistent commercial auto insurance pressures.
What organizations should do now
In light of recent tariffs — and ahead of possible future ones — organizations should assess how tariff-related decisions affect their risk profiles. Among other steps, organizations should revisit valuations, concentration analyses, cargo limits, catastrophe exposures, and insurance policy limits to determine whether current assumptions still reflect reality. For example, a warehouse containing substantially more inventory than originally modeled may present a very different loss scenario than what underwriters and risk managers anticipated and planned for.
Beyond valuations, organizations should:
Identify material operational changes and quantify downside scenarios.
Evaluate supplier dependencies, customer credit exposures, and business interruption assumptions.
Review governance controls.
Review supplier contract language, including clauses related to tariff allocation, force majeure events, and embargoes.
Monitor legal and regulatory developments related to tariffs, particularly across their industry.
Review how new and/or more complex shipping routes may affect accumulation risk and insurance pricing.
Examine how evolving risks interact across insurance programs and where coverage gaps may exist.
For Canadian organizations, assess whether U.S. operations, suppliers, customers, distribution arrangements, or reporting obligations create additional cross-border exposures.
Organizations should ensure that tariff-related operational decisions are subject to clear cross-functional oversight. Legal, operational, risk, and insurance teams should jointly assess shifts in sourcing, inventory, pricing, customer communications, and contracts, documenting the rationale for key decisions as well as escalation, disclosure, and multinational requirements.
Competitive insurance conditions can be beneficial, but they do not make the underlying tariff-related exposures less significant. Organizations should use current market flexibility to confirm that policies will respond as expected, revisit limits and retentions, and close gaps before today’s operational decisions become tomorrow’s claims. For Canadian organizations, that review should account for how interconnected operations and trading relationships can transmit risk across the Canada-U.S. border.