Cost To Retailers If US Exits NAFTA: $15.8 Billion Near-Term
The near-term cost to retailers of exiting the North American Free Trade Agreement (NAFTA) is estimated at $15.8 billion, according to a study released by the global strategy and management consulting firm AT Kearney. How NAFTA Affects US Retail quantifies the impact of a potential withdrawal from the treaty and outlines what changes retailers should expect in the event that the United States exits from the pact.
The report points to how the US retail landscape is in danger of being undercut. It quantifies direct and indirect margin impact across all sectors of retail, including food and beverage, electrical and appliances, pharma, auto parts, household goods, and apparel and footwear. With the retail industry importing $182 billion of goods from NAFTA partners, the cost to retailers could amount to as much as $15.8 billion in added tariffs and reduced margins. Additionally, the study quantifies the impact on retail employment, projecting losses of over one hundred thousand jobs within the next three years.
“The three macro areas we researched were tariff increases, reduced consumer spending, and lost jobs, each and collectively amounting to losses of billions of dollars and displaced lives,” noted Johan Gott, AT Kearney principal and co-author of the study. “Retailers in different sectors would be affected in different ways—even from product to product. But bottom line, the impact will extend to millions of products imported into the US.”
Should NAFTA be terminated, the report suggests that retailers take steps to quantify the impact on their cost of goods sold; outline a response in terms of several different scenarios that factor in potential impact; become an active voice with policymakers, industry groups and peers to share the real, direct impact that the end of NAFTA would have; and be prepared to share confidential data with government officials to demonstrate this impact.
“If the United States terminates NAFTA, many importers would likely be covered by other protective sanctions against foreign competition,” said Gott. “US 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 US economy.”
NAFTA has dramatically influenced the US economy, the retail sector, and Americans’ standard of living, Gott noted. “From the time it came into force,” he added, “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. Retailers are agents without the protections that other importers enjoy.”