The near-term cost to retailers of exiting NAFTA (North American Free Trade Agreement) is estimated at $15.8 billion, according to a study released today by global strategy and management consulting firm, A.T. 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 US exits from the pact.
“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,” notes Johan Gott, A.T. 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 U.S.”
How NAFTA Affects US Retail points to how the American 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.
“NAFTA has dramatically influenced the US economy, the retail sector, and Americans’ standard of living. 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. Retailers, then, are agents without the protections that other importers enjoy,” observes Johan Gott.
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 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
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,” adds 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.”
To view the full How NAFTA Affects US Retail study, go to:
About How NAFTA Affects US Retail
This study, undertaken by A.T. Kearney for the purpose of calculating the impacts of a US withdrawal from NAFTA, was done in partnership with the National Retail Federation (NRF), Retail Industry Leaders Association (RILA), and Food Marketing Institute (FMI). The methodology used aimed at quantifying direct cost increases, indirect revenue loss, and jobs impact. For the first, US Census data was used to identify imports coming into the US from Mexico and Canada, and a filtering process to categorize which of these, directly or indirectly, winds up on the shelves; from there they were extrapolated out, adding in US Most Favored Nation tariffs and percentages of retail-relevant and flow-through costs, to determine their end cost. Indirect revenue losses were assessed based on an average of expert estimates of the GDP impact on the US economy of withdrawal from NAFTA and correlated to consumer spending to estimate a total retail revenue loss. For jobs impact, government statistics on retail employment were used to calculate the total number of employees either directly employed or supported by the operations of retail companies; these were then correlated to consumer spending reductions to arrive at a figure for retail employment reduction.
About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world’s foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.
SOURCE A.T. Kearney