Canadian retailers’ short-sighted to attempt to curtail cross-border shopping

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Professor Livio Di Matteo
Professor Livio Di Matteo

THUNDER BAY – Business – The fall in the Canadian dollar’s value relative to the U.S. dollar has led to Canadian retailers to anticipate they will benefit from Canadians staying home to shop.

Canadian retailers, you see, are concerned that the Canada Border Services Agency has been too lenient with cross-border shoppers in the wake of the increase in duty free limits in 2012. They see a lower dollar as a tool in their competitive arsenal.

They are being short-sighted.

Canada’s population is spread in a long thin line with most of it within 100 km of the U.S. border. A road trip to the United States is a logical and convenient tourism experience and crossing the border to visit the U.S. a long-standing part of Canadian culture. The traditional barometer of Canadian cross-border shopping has been Canadian travellers returning from the United States by automobile – both same day and one or more night travellers.

These numbers grew substantially as the Canadian dollar appreciated from the low of just over 60 cents U.S. reached in 2002. In 2002, there were 20.8 million Canadian same day auto travellers and 7.7 million one or more night auto travellers. In 2013, 32.3 million Canadian travellers returned from the U.S. by auto on the same day and 14.1 million returned by auto after a stay of one or more nights. Over the course of almost a decade, there were increases of 55 per cent for same day travellers and 83 per cent for one or more night travellers. However, most of the increase occurred even before the 2012 change in exemptions.

These increases came in the wake of nearly a decade of decline after the cross-border shopping mania peaked in the early 1990s. At that time, the Canadian dollar had also been rising in value and Canadians were drawn to the U.S. by cheaper gasoline and retail prices as well as a reaction to the arrival of the GST. In particular, prices for dairy, poultry and alcohol were seen as extremely attractive. In 1991, both same day and one or more night auto trips by Canadian residents peaked at the highest ever recorded – at 59.1 million and 14.2 million respectively. These numbers collapsed over the 1991 to 2002 period with drops of 65 and 46 per cent largely driven by a depreciating dollar.

Despite the lamentations from Canadian retailers, cross-border shopping today is a much smaller problem than it was during the early 1990s, particularly if measured by same-day auto trips. While growth has been greater for one or more night trips, it is difficult to blame this on cross-border shopping given that longer trips are more often done as part of a vacation rather than simply to shop.

In 2013, the year after the new exemptions took effect, the number of Canadian same day auto travellers actually declined while the number of one or more night auto travellers rose, which suggests the possibility that Canadians have been substituting longer trips for short day trips as a result of the more generous exemption. Same day trips dropped by 0.2 per cent while one or more night trips rose by 2.7 per cent. However, the growth in one or more night auto trips was also down from 8.1 per cent the year previous.

Cross-border shopping is a Canadian tradition and, by occasionally voting with their feet, Canadian shoppers have actually encouraged Canadian retail to compete more effectively. Despite a continuing price-gap between goods in Canada and the United States, Canadian retailing has restructured since the early 1990s and Canadian retailers in general are perceived to be somewhat more competitive. Moreover, the arrival of large American retailers into the Canadian market such as Walmart and Target has also made the Canadian shopping experience more akin to the American one.

Cross-border trips by Canadians concern Canadian retailers because they represent a leakage of business activity. However, seeking to keep Canadian shoppers captive behind their border is a short-sighted activity given that, as a small open economy, Canada stands to benefits immensely from the international flow of visitors and trade. Canadian retailers and tourism operators would be better served by trying to attract more Americans into Canada – especially given the lower dollar and the recovering U.S. economy. After all, the border has two sides.

Livio Di Matteo is Professor of Economics at Lakehead University.

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