By Bruce Winder, retail analyst.
In Canada, we find ourselves in a peculiar situation. Our largest trading partner is not happy with us. As the US has implemented numerous tariffs on Canadian made goods, Canada has responded with counter-tariffs on US made goods to try and inflict as much pain as possible on the States while minimizing the impact to Canadians.
Sort of a tit for tat approach. But as much as the Canadian government has tried to shield The Great White North from tariff trouble, we are about to feel it across the economy.
Retailers like Canadian Tire, Walmart, Costco and others have the size and capability to direct imports from countries such as China and somewhat avoid this situation. However, smaller retailers without scale often buy from US distributors who are facing a 30% duty, in the case of China. Some or all of the incremental duty impacting US importers will be passed onto Canadian sellers, who will in turn need to pass some portion of this increase to end consumers or other businesses.
Even the large retailers operating in Canada have some exposure as they buy from US firms who import raw materials, components, sub-assemblies or parts from China and other duty impacted countries. For these items, some inflation will follow.
In the grocery sector, although the Canadian government has given a six-month reprieve on counter-
duties from US packaging, ingredients and food related raw materials, numerous items found in the grocery store are still subject to 25% duty coming into this country. Products like rice, pasta, produce, orange juice, coffee and consumer packaged goods such as cosmetics, shampoo, soap and more. Grocer Loblaw recently communicated that about 6,000 items could be negatively impacted by US targeted counter-tariffs in the weeks to come.
What level of price inflation will consumers see on shelf and online? It will of course vary based on the size of the retailer and their negotiating leverage with suppliers, the ability to substitute effected items with either Canadian or non-US sources and the characteristics of each item in terms of price point, brand and channel of distribution.
Overall, the retail business has thin margins and there is no room for retailers to eat the incremental tariffs. Full stop. Canada’s inflation rate is already running a little hot, when you take out energy and the reduction of the carbon tax. The next few months will be challenging and our hope is that Prime Minister Carney and team negotiate a deal with President Trump sooner rather than later or we may be facing another tough holiday season.
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