FOCUS-On Canada's tariff frontline, business stalls over US trade deal jitters

By Promit Mukherjee and Wa Lone

WINDSOR, Ontario, March 28 (Reuters) - Windsor-based FASTSIGNS, a Canadian company that designs and installs custom business signs and graphics, last year endured its toughest year since the pandemic as orders from its core automotive clients dried up.

A new project launch this year brought some relief, but the company says customers are demanding longer payment terms, placing smaller orders, and bargaining harder on prices due to uncertainty tied to the United States-Mexico-Canada Agreement, which is up for review this year.

U.S. President Donald Trump has repeatedly said he could scrap the trilateral trade deal he negotiated during his first term, calling it no longer relevant to the United States. U.S. Trade Representative Jamieson Greer has described negotiations with Canada on the agreement - which exempts most Canadian goods from U.S. levies - as challenging.

The impact of the deal - and its uncertain future - is being most acutely felt in places like Windsor, which is among the Canadian cities most dependent on the U.S. for its fortunes and reflects the broader unease facing the country's economy. Its economy contracted 0.6% in the fourth quarter.

"CUSMA is very, very important," said Jackie Raymond, co-owner of FASTSIGNS, referring to how the agreement is called in Canada. "It trickles down to every little business, right down to your barber shop and your nail shop, which will affect all of our customers."

Mexico has started formal negotiations with the U.S. over the deal's renewal, which are due to be completed by July 1. Canada has so far only held informal talks on the deal, which legally does not fall apart even if negotiations are not completed by that deadline.

FEEL IT FIRST, FEEL IT HARDEST

A manufacturing hub teeming with thousands of small and specialized part makers, Windsor caters primarily to car companies and equipment manufacturers locally or across the river from Detroit, America's automotive capital.

In Canada, it is one of the cities most exposed to Trump's tariffs on steel, aluminum and autos. Its economy has been on a roller-coaster ride for the past year as Trump went back and forth on tariffs, though most Canadian goods have ultimately retained tariff-free access under USMCA.

Hundreds of the city's small parts and equipment manufacturers, who thrive on close integration with Detroit's auto industry, faced shrinking demand as order books dried up.

Manufacturing accounts for nearly a quarter of employment in the Windsor-Essex region comprising Windsor and surrounding municipalities. About 90% of the city's exports cross the border, often multiple times during production. Overall, the U.S. accounts for about 68% of Canada's exports.

"When Donald Trump... does make a threat, we feel it first, and we feel it hardest," said Ryan Donally, CEO of the Windsor-Essex Chamber of Commerce.

The chamber, which represents 750 local businesses employing over 40,000 employees, said companies paused investments, delayed production, and cut jobs at the height of the tariff uncertainty last year.

That pushed the region's unemployment rate above 11% in June - the highest among major Canadian cities.

As Trump exempted USMCA-compliant exports from Canada from tariffs in March last year, Windsor partly regained its footing.

Earlier this year, carmaker Stellantis NV STLAM.MI added a third shift at its local plant, and LG Energy Solution 373220.KS said it is building a battery facility, boosting job prospects. But uncertainty still drags on business confidence.

"So long as the CUSMA relationship exists, Windsor is going to be okay," Donally said. "Should that erode somehow ... that's where the challenges come."

LOSS OF CONFIDENCE

Windsor's unemployment level, though lower than that in June, remains one of the highest among major cities in Canada at 8.6%.

Local shops complain of lower traffic, restaurants report thinner crowds, and builders say the housing market is near a standstill - housing is often among the first sectors to show strain from the knock-on effects of tariff uncertainties.

"When people are going to make the biggest investment of their life, they really want confidence in their job, in the longevity of their job, in the economy itself. And people lost that due to the tariffs," said Brent Klundert of BK Cornerstone, a local real estate builder.

Klundert laid off 13 of his 21 staff on his books as sales and prices slumped last year.

Since January he has rehired 10 of his employees, hoping homebuyers waiting on the sidelines for a year would start coming back. So far, only a few have.

Data from the Canadian Real Estate Association showed that in February, Windsor's residential real estate sales fell 15% - almost double the national decline of 8%. Average prices of homes in the region also fell more than the national average, the data showed.

"If we can get through our trade agreements with the U.S., I think that will add a lot of confidence," Klundert said.

Skilled training and apprenticeships have also taken a hit in Windsor, as young people factor in trade uncertainty as they contemplate their future.

Lido Zuccato, chair of the School of Skilled Trades and Apprenticeships at the city's St. Clair College, said that the college suspended one post-secondary manufacturing program due to start in the fall this year because of low demand.

Donally, from the local chamber of commerce, said Windsor's deep economic and social ties with Detroit underscore what is at stake - residents follow Detroit sports teams, listen to U.S. radio stations and cross the border daily for work and business meetings.

"That deep relationship is pretty hard to divorce," he said.