Will tariff reductions mean lower prices?
OTTAWA — The federal budget’s promise of tariff relief on items ranging from baby clothes to ice skates may lead to lower prices for consumers. Then again, it may not. Interviews with retailers and sales experts indicate savings are far from clear.
The budget, released Thursday, removes tariffs that range as high as 20 per cent on items such as skis, helmets and snowboards, to as low as 2.5 per cent on golf clubs. On baby clothes, the tariffs have been 18 per cent.
The change takes place April 1, and is intended to reduce the price discrepancies between Canada and the United States that prompt some Canadian consumers to cross the border in the pursuit of a better deal.
Finance Minister Jim Flaherty called the move a “test case” to see if the savings extended by removing the tariffs would actually reach consumers.
Sean Moore, owner and operation of Lacroix Sports Ottawa, says small businesses could see benefits as a result of these tariff removals as prices to customers drop. “The biggest advantage for us would be keeping people from doing online shopping across the border,” Moore said.
Moore said that in general, the price of hockey sticks south of the border is much cheaper than in Canada.
But here’s the hitch: there is no guarantee that removing tariffs on imports will mean cheaper prices for Canadians.
“(It) will depend on how competitive that marketplace is and whether retailers feel they can pass these savings on,” said Ken Whitehurst, executive director of the Consumers Council of Canada.
Whitehurst said several factors will determine whether consumers see savings from the tariff cuts.
One factor is the financial strength of the retailers themselves.
A healthy company would have good reason to pass the savings on to the consumer, Whitehurst said, while a company that is struggling financially would want to absorb the savings itself, to restore financial stability.
“As a general rule, if there’s a verifiable market inefficiency, and that can be removed, there’s an opportunity for consumers to benefit,” he added.
The Retail Council of Canada will monitor the results of the tariff removal.
Karen Proud, vice-president of federal government relations with the Retail Council of Canada, said she expects consumers will see some savings. “My concern is not with the retailers,” said Proud. “It’s with the rest of the supply chain.”
If a retailer buys from a supplier and not directly from a manufacturer, that supplier may not pass cost reductions along.
The federal budget for 2013 acknowledges this possibility though it predicts savings.
“Altogether, this represents $76 million in annual tariff relief, and comes with an expectation that wholesalers, distributors, and retailers will pass these savings on to consumers,” the document reads.
Sears Canada spokesperson Vincent Power said it is too early to say the prices on their baby clothes will decline in line with tariff removals. But Power said that in general when tariffs are removed or reduced, there is a positive effect on pricing.