Exiting the North American Free Trade Agreement could cost retailers $5.3 billion annually, or $15.8 billion over the next three years, in added tariffs and reduced margins, according to a study released Monday by global strategy and management consulting firm, A.T. Kearney. According to the report, the effects could also lead to the loss of 128,000 retail and retail-supported jobs in that timeframe.
The three macro issues researched in the report included: tariff increases, reduced consumer spending and employment. Retailers in different sectors, even from product to product, may be affected in different ways, Johan Gott, A.T. Kearney Principal and co-author of the study, wrote.
This week, cabinet-level negotiators from the U.S., Mexico and Canada are meeting in Washington to attempt striking up a deal in May, but it won't be easy, Bloomberg reported Monday. The countries have been in talks to renegotiate the deal for more than eight months, and discussions will continue on Monday as U.S. Trade Representative Robert Lighthizer will host Mexico's Economy Minister Ildefonso Guajardo and Canada's Foreign Affairs Minister Chrystia Freeland. The clock is ticking if Congress is to look at the issue this year.
The retail industry imports roughly $182 billion worth of products from Mexico and Canada, with the largest category by far being electronics and appliances, followed by food and beverage, and household goods, according to the report. Striking the world's largest trade agreement, which has been in effect since 1994, could have rattling effects on retail supply chains.
"U.S. 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 U.S. economy," Gott wrote in a statement regarding the report. Specific segments of retail could be harder hit than others, and items like jeans could be taxed multiple times before they arrive at stores.
While these could be the ramifications if the U.S. pulls out of the deal entirely, leaders seem to be making progress on a deal. President Trump told reporters last month that a deal on NAFTA was "getting pretty close," but still weeks or months away, CNBC reports. The administration has been working to close in on a deal before the Mexican elections in July.
But in the case that NAFTA is ultimately terminated, Gott urged retailers in the report to quantify the impact on their cost of goods, become an active voice with policymakers and prepare to share confidential data with government officials to show the potential impact. The report was done in partnership with the National Retail Federation, the Retail Industry Leaders Association and the Food Marketing Institute. These three trade groups have been prominent supporters for upholding but updating the existing trade agreement.