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The trouble with tariff tiffs

Canada’s new retaliatory tariffs on certain U.S. consumer goods are putting retailers in a tricky spot

As you have likely heard, a trade war has
erupted between Canada and our neighbours to the south.

On July 1, Canada slapped a 10% tariff on more than 120 U.S. consumer goods in retaliation for our southern neighbour’s imposition of tariffs on Canadian- produced steel and aluminum. Canada has also applied a 25% surtax on U.S. steel and aluminum products.

Good on Canada for defending itself! The problem, however, is that many products we routinely buy at the grocery store are from the United States and many will become pricier. As suppliers get hit with the extra cost, they’ll likely be forced to pass it along the chain to retailers. This presents Canada’s grocers with a dilemma: do they continue to stock the more expensive U.S. items that have established brand loyalty among Canadian consumers? Or do they opt to cut back on the imports and bump up their supplies of made-in-Canada alternatives to appeal to both price-sensitive and patriotic customers?

Among the U.S.-made products (about $16 billion worth) that are now subject to Canada’s counter-tariffs are ketchup, roasted coffee, soya sauce, strawberry jam, mayonnaise, salad dressing, chocolate bars, yogurt, fresh orange juice, soups and broths, pizza and quiche, confectionery, tomato sauces, cucumbers and gherkins, toilet paper, automatic dishwasher detergents and facial tissues. Mustard was initially on the hit list, but it got a last-minute reprieve (it seems Canada sends a lot of mustard seeds south of the border). All of these products are now subject to the additional 10% tariff.

It appears Canada made an effort to tax U.S. products for which there are Canadian-made alternatives. And some newly-taxed products seem aimed at punishing states that support President Trump’s protectionist policies; for instance, Kentucky, where bourbon is made. (U.S whiskies are also subject to the new tariffs.)

That said, there are still at least two worries facing Canadians. The first, according to a report by the Retail Council of Canada, is that it is not certain that alternative suppliers can—or are willing to—“scale-up production to meet increased Canadian demand, given the uncertainties as to how long this trade dispute will last.” Sure, there are some Canadian products that can fill a void. U.S. maple syrup is taxed, but there will be no problem substituting Canadian maple syrup. Other products may be a bit more problematic.

The second worry is that the unpredictable Trump may opt to impose more tariffs on Canadian goods. As the RCC points out, “[The] vendors’ solution will be to seek enforceable long-term commitments, diminishing retailers’ flexibility on their product mix even after [the] dispute with the U.S. is resolved.”

President Trump seems convinced that trade wars with Canada, Europe and China will help “make America great again.”

He doesn’t grasp that trade wars are as bad for the United States as they are for his targeted countries. As we’ve heard again and again, there are no winners in a trade war.

For Canadian grocers, the best advice seems to be to watch your shoppers carefully, listen to them and respond accordingly.

This article appeared in Canadian Grocer’s August 2018 issue.

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