Will you cross-border shop this summer?
According to a BMO Capital Markets report we will be flocking to the border states as a result of higher duty-free limits that were announced in the federal budget and kicked in on June 1 this year. When these limit increases were announced earlier this year, I commented on how dumb I thought it was that our government was encouraging us to spend our money in America. Sure their economy needs a boost, but is that really our job?
The new duty-free limits go up by 400% for stays of more than 24 hours rising from $50 to $200. Limits for visits longer than 48 hours will double from $400 to $800. That’ll help all the border cities’ local economies crash and burn as residents cross the border for not only for cheaper food and gas but just about everything else. It’s estimated that U.S. prices are about 14% less than Canadian prices, so how will local retailers this side of the border compete?
They don’t stand a chance. Since Canadian retailers face higher tariffs for finished goods from Asia and are charged more by suppliers, higher prices for consumers won’t be able to compete with cheaper, and now duty-free, imports from the U.S.
The last time retailers were faced with huge cross-border shopping numbers was after the GST was brought into effect and the strong Canadian dollar made cheaper U.S. products very appealing. The question now is whether the heightened border regulations will be enough to stop Canadians from spending their hard earned money in the good ol’ U.S. of A, as opposed to in their own local economies.
According to the Bank of Canada, cross-border shopping accounts for less than 2% consumer spending, and thus isn’t a big macroeconomic issue. Tell that to the communities around the border where real people will see even more real jobs disappear as we honk and lurch our way through the long line-ups to save 20-30% on a name-brand handbag or a new computer. And, since the Bank of Canada’s numbers are based on declared goods purchased, it actually has no idea how much Canadians are really spending (and will continue to spend) across the border.
This carrot was thrown at us as a distraction from the fact that they were increasing the age at which Old Age Security would be going out. So young’uns, feel free to shop your brains out in the U.S. to save money. Just remember to stash your savings in a retirement account because you’re going to need it later.