As ministers from Canada, Mexico and the United States prepare to parry over a new North American Free Trade Agreement (NAFTA) deal in Washington, D.C., this week, a study published by A.T. Kearney on Monday claims that dissolving the treaty could cut spending, slash jobs and hike the cost of retail goods by $5.3 billion per year.
Leaving NAFTA could cost retailers up to $15.8 million from tariffs and weakened consumer purchasing power, according to a financial model that the global management consultancy developed in tandem with the Food Marketing Institute, the National Retail Federation and the Retail Industry Leaders Association.
Retailers are “de facto importers,” A.T. Kearney said. Though made up of disparate sectors—from food and beverage to apparel and footwear—as a whole, the industry imports $182 billion worth of products from NAFTA partners.
“Retailers in different sectors would be affected in different ways—even from product to product,” said Johan Gott, A.T. Kearney principal and co-author of the study. “But bottom line, the impact will extend to millions of products imported into the U.S.”
The effects of reduced margins from tariffs could extend to employment as well, resulting in the loss of 128,000 retail and retail-supported jobs within the next three years.
Mexico and Canada are the second- and third-largest exporters of goods to the United States after China. They’re also leading importers of American products. Together, exports to Canada and Mexico currently make up 34 percent of total U.S. exports, A.T. Kearney said.
In 2017, U.S. retailers imported $128 billion in goods from Mexico, $4 billion of which consisted of apparel and textiles. From Canada, they imported $54 billion in goods, including $1 billion worth of apparel and textiles.
Without NAFTA, the cost of apparel and footwear could soar by $501 million, A.T. Kearney said. Jeans, in particular, would face significant challenges since their manifold inputs—cotton, zippers, rivets, interfacing, thread—from both the United States and Mexico would trigger numerous tariffs before they hit store shelves. A post-NAFTA world could see accrued tariffs of 40 percent of men’s and boy’s jeans, A.T. Kearney said.
Naturally, the firm is a proponent of sticking with with the agreement.
“NAFTA has dramatically influenced the U.S. economy, the retail sector, and Americans’ standard of living,” Gott said. “From the time it came into force, retailers have gradually become de facto importers, because their customers demand the products that NAFTA allows them to purchase easily, affordably and with great variety.”
Should the U.S. exit NAFTA, A.T. Kearney makes a few suggestions, including becoming an active voice with policymakers, industry groups and peers to share the “real, direct impact” of NAFTA’s demise. Retailers should also be prepared to share confidential data with government officials to demonstrate said impact, it added.
“If the United States terminates NAFTA, many importers would likely be covered by other protective sanctions against foreign competition,” Gott said. “U.S retailers do not face the same kind of foreign competition, but they would be left to face higher costs for the goods they sell—a prospect whose ramifications would reverberate throughout the U.S economy.”