If the U.S. withdraws from the North American Free Trade Agreement (NAFTA), it could cost retailers a combined $15.8 billion over the next three years, according to a report from A.T. Kearney. New tariffs would increase costs by $5.3 billion, likely resulting in higher consumer prices. Reduced shopper spending from the potential price hikes could shrink retailer margins by $10.5 billion. Negotiations for updating the agreement are getting under way, but the Trump administration has been sending mixed signals about trade policy.
The report estimates that retail spending would drop by $290 per year per U.S. household, with as many as 128,000 retail-related jobs lost within the next three years.
While the tax reform bill passage mostly generated positive reviews from trade groups such as the National Retail Federation (NRF) for putting more money in the pockets of both retailers and consumers, a NAFTA withdrawal would generate the opposite reaction, if these numbers are accurate. In fact, A.T. Kearney completed the report in partnership with the NRF, the Retail Industry Leaders Association and the Food Marketing Institute.
“There’s a lot at stake for American retailers, workers and consumers as the administration resumes NAFTA negotiations,” NRF President and CEO Matthew Shay said in a statement. “It’s clear NAFTA must be modernized, but we can’t lose sight of the fact that this agreement helps ensure that American families have access to products they need at prices they can afford. As this report shows, withdrawing from NAFTA would jeopardize countless U.S. jobs and force consumers to pay more every day for products like groceries and blue jeans.”
If NAFTA is terminated, A.T. Kearney suggests that retailers should:
- Take steps to quantify the impact on their cost of goods sold;
- Outline a response in terms of several different scenarios that factor in the 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
- Prepare to share confidential data with government officials to demonstrate this impact.
In 2017, retailers imported $128 billion worth of merchandise from Mexico and $54 billion from Canada, the study revealed. NAFTA has made most of those goods tariff-free since it took effect in 1994.