Canada-US Tariffs: Digital Implications
As part of a growing trade war on several fronts, the Trump administration has imposed a 25% tariff on steel and a 10% tariff on aluminium. The Canadian government quickly retaliated, with 16.6 billion Canadian dollars worth of tariffs being imposed on the US, equating to the value of Canadian exports being taxed by the United States. On July 1, 2018, these countermeasures went into effect, with dozens of US exports being impacted, from steel and aluminium all the way to food and textiles.
As the trade war casts a shadow over the world’s largest trade relationship between two countries, what are the implications for the digital landscape in North America? Here is where we think there will be a significant impact from these tariffs.
Retail eCommerce revenue in Canada was 20.2 billion US dollars in 2017. Over 30% of this revenue comes from the United States. Canadian small businesses have a tendency to be laggards in the eCommerce space, which has opened the door for US companies to gain a strong foothold in the country. In fact, many Canadians shop online from US retailers because they are able to find lower prices.
This may no longer be the case. With a 10% tariff on a number of consumer goods, US retailers will have a much harder time making a profit on certain products. Either the items will increase in price, or the retailers will stop shipping them to Canada. Regardless of the outcome, Canadians will be forced to spend more money to buy from local retailers, while US sellers will lose significant revenue from their nearly $7 billion USD in exports to Canada.
OPIN works with a number of retailers that have incredibly small profit margins. Every cent counts, which is why eCommerce sites need to be optimized for visitor conversion. This will be truer than ever, as businesses will begin hemorrhaging cross-border website traffic. In order to survive, they will need to have a conversion-centric website that can provide results even with lower visitor numbers and a lower customer base to pull from.
The United States in Isolation
The implications of the trade war are more severe for the United States. While Canada has maintained the status quo with other countries, the US has levied tariffs against some of its other trading partners, including Mexico and the EU. Meanwhile, India and China have vowed to retaliate with their own tariffs on the US. This means that importing and exporting products will be extraordinarily difficult for stateside retailers.
The growth in eCommerce over the years has largely been fuelled by its global capabilities. The fact that retailers can get their products to nearly anyone in the world has made them incredibly successful in the digital space. These tariffs run the risk of jeopardizing this situation for many US retailers, whose businesses depend largely on international trade. While isolationist policies can benefit some local businesses, many US-based sellers will suffer from the export barriers being levied by other countries.
Isolation benefits very few in the digital space. Drupal is a great example of this. The Drupal project has been touched by hundreds of thousands of talented developers from all over the world. The Drupal we know and love today would have never been possible if people from dozens of countries had been unable to collaborate.
Digital & Construction
This last item might seem like a stretch, but it truly does have an impact, at least in Canada. The logic here is that major Canadian cities such as Toronto, Vancouver and Ottawa have had booming tech sectors for some time. This drives young people to cities, where the demand for housing goes up. Construction companies are contracted to build massive condominiums to accommodate the influx of digital natives. Rent prices have skyrocketed in these major cities, as supply can’t keep up with demand.
With Canadian construction companies purchasing the vast majority of their steel from the United States, there will be two outcomes from the new tariffs. The first is that construction projects will be delayed as companies attempt to source their steel at a more affordable price. The second, as a result of the first, is that steel prices increase. When buildings are more expensive to build, real estate prices will naturally go up. This is what begins to drive young talent out of major cities. Why would they live in an expensive city when they could take a pay cut by living elsewhere, but still have more money in their pockets at the end of the day? This is the type of shift that can bring a booming tech sector to a screeching halt.
Many of these organizations are turning to the digital world to mitigate the effects of these challenges. Reassurances for customers, current and prospective, are incredibly valuable in light of this trade war. Not only are suppliers using web, social media and email to engage in dialogues with customers, but they are even offering online discounts to local purchasers that may no longer want to import their materials from abroad. The key is to have a digital platform that gives you access to prospective customers. With the right tools in place, any business can pivot at a moment's notice and achieve success in spite of the changing political climate.
The good news is that this doomsday talk may be a little bit far-fetched. More importantly, these tariffs are likely to be temporary. People living in both countries should hope that this trade war ends soon, not only for the sake of their digital landscape, but for the overall prosperity of the countries.