CHICAGO, Nov. 27, 2017 /PRNewswire/ —
1% = $1 billion.
That’s the increase in costs for retailers in Canada if tariffs on US-originating retail goods imported into this country rise by 1%, according to a deep-dive analysis by global management consultancy firm A.T. Kearney, in collaboration with the Retail Council of Canada. And the tariff increase could be much greater than 1%.
“Retailers in Canada import over CAD$100 billion of goods from the United States each year. We are heavily engaged on the NAFTA file because it could have a very significant impact on retailers in this country—domestic and multinationals, large and small,” says Karl Littler, VP Public Affairs for the Retail Council of Canada.
Three scenarios are likely should NAFTA negotiations break down to the point where the trade agreement is dissolved:
Return of Canada–US free trade – Canada and the US return to the bilateral free trade agreement in force before NAFTA End of North American free trade – Tariffs on US imports into Canada change to rates applied on other nations’ exports to Canada under World Trade Organization (WTO) rules Protectionism returns – Rising nationalism and protectionism has the US raise tariffs beyond its WTO commitments, prompting Canada to set retaliatory tariffs
“Scenarios 2 and 3 are becoming increasingly possible as we reflect on the recent NAFTA negotiations and the posturing from the Trump administration,” says Dean Hillier, lead partner behind the study. “Scenario 2 would see a $4 billion increase in costs for retailers in Canada, primarily in automotive and food segments,” according to Hillier, “and if we assume a 20% tariff across the board on key retail import categories under scenario 3, the impact is a devastating $21 billion cost increase for retailers, across automotive, household goods, electronics, food, and appliances. The whole retail sector is hit hard.”
But there’s more. With NAFTA gone, the macroeconomic impact of rising costs and a slowing Canadian GDP on household spending changes further adds to the pain for retailers in Canada. “Scenario 2 also sees a drop in Canadian household spending on retail items by $170 per household, and a $2.6 billion overall drop in 2019 Canadian retail sales,” warns Hillier. “Scenario 3 is much worse: a $1,000 drop in household retail spending and a whopping $17 billion drop in 2019 Canadian retail sales. Retailers get hit on the top and bottom lines.”