U.S. President Donald Trump’s push for higher duty-free limits on cross-border shipments would allow Canadians to save a bundle on U.S. online shopping orders but will cost Canada hundreds of thousands of retail jobs, according to new research from Canadian retailers.
As part of the ongoing NAFTA negotiations, the Trump administration has asked that Ottawa lift the threshold value of goods that Canadians can buy online without paying import duties and taxes to US$800 (C$996), up from the current C$20.
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Doing so would deliver savings of 25 per cent or more for Canadian consumers but comes at the cost of more than 300,000 job losses, according to a new study conducted by consulting firm PWC and conducted by the Retail Council of Canada (RCC).
The report, however, assumes that Canadians retailers would only react to increased U.S. competition with store closures and layoffs instead of upping their own game, said Daniel Schwanen, vice-president of research at the C.D. Howe Institute.
The Institute published a 2016 study that found positive impacts on consumers and businesses from raising the duty-free threshold to $200.
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What the RCC study says
Canada would shed more than 300,000 jobs on net by 2020. The retail sector alone would lose over 400,000 positions, an impact that is only minimally softened by job gains in other areas.
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The flip-side of that, though, would be significantly lower prices for consumers.
Canadians would save 25 per cent on average by being able to order U.S. goods priced under US$800 without paying duty or tax. And the savings could be even higher if increased online orders led to lower shipping costs, according to the report.
The price gap between Canadian and U.S. goods would be even higher in certain cases. Canadians, for example, could buy housewares, appliances and electronics for 28 per cent less, and shoes and home health products for 35 per cent less, if taxes and duties were eliminated, PWC calculates. Those savings would, in turn, leave more money in consumers’ pockets.
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Overall, however, the economic loss from the retail job losses would be twice as large as the gain from higher disposable incomes for consumers, resulting in a net hit to Canada’s gross domestic product of around $12 billion by 2020, according to the research.
The report also says that “any job losses in the retail industry will affect employees with relatively modest incomes and with relatively few options for alternative employment.” On the other hand, the benefits from accessing lower-priced U.S. products would go mostly to wealthier Canadians, who consume more.
“The result would likely be an increase in inequality,” the study concludes.
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Would it really be so bad for Canadian retailers?
Over at the C.D. Howe Institute, Schwanen challenges the notion that Canadian retailers wouldn’t change the way they do business as a reaction to higher sales from the U.S., which he says is an assumption of the RCC study.
“You can close shop and lay off people, or you can invest in better ways to hang on to your customers,” Schwanen told Global News.
Although heightened competition and the introduction of new technologies tend to result in some closures and job losses, companies find ways to adapt, he added.
“Sears didn’t invest in their business and that most definitely negatively affected employees with relatively low income. Walmart does invest in its business and is raising its wages,” Schwanen said.
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He also took issue with the notion that wider access to lower-cost U.S. products would mostly benefit higher-income Canadians.
“That is not necessarily true in terms of share of income,” Schwanen said.
In other words, while richer Canadians could very well see the biggest savings in absolute dollar terms, poorer Canadians could see a larger increase in their disposable income compared to their overall earnings.
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