In Budget 2013, Finance Minister Jim Flaherty announced that on Jan. 1, 2015, tariffs will increase on 1,290 product classes from 72 countries with GPT status, including China, South Korea, India and Brazil. Once implemented, the tariffs will cost Canadian consumers an estimated $330-million a year. But there has been little public analysis on which products will become more expensive for Canadian consumers.
This is not a simple problem to analyze, as there are many product classes where there are no tariff increases. Where there are tariff increases, they are often on products, such as sparking mineral water, that have minimal imports from the 72 countries losing their GPT (general preferential tariff) status.
Using the Canada International Merchandise Trade Database, I found several products where imports are dominated by the 72 countries losing their GPT status (which I will refer to as GPTLCs: GPT loser countries), products that will be hit by these tariff increases. Given that I searched manually, this is far from an exhaustive list. There are likely many significant tariff increases that I have not discovered.
Every year, Canada imports $125-million worth of bicycles from the 72 countries losing their GPT status, representing more than 50 per cent of Canadian bicycle imports. The tariff on these bicycles is increasing to 13 per cent from 8.5 per cent, a move that will cost Canadian cyclists between $5-million and $6-million each year. This does not include the tariffs on children’s tricycles and wagons, which are also increasing.
Beyond bicycles and tricycles, the tariff changes make it more expensive to raise a child. Nearly 90 per cent of imported baby carriages are from GPTLCs. Since few other countries produce these products, it will be nearly impossible for consumers to avoid a tariff that is increasing to 8 per cent from 5 per cent, costing consumers more than $1-million a year. The added costs continue once the child enters school, as the tariff on plastic school supplies for GPTLCs (who make up 61 per cent of the import market) is increasing to 6.5 per cent from 3 per cent, a move costing consumers roughly $1.3-million a year. These tariff increases erode much of the savings from the reduced tariffs on baby clothes.
GPTLCs dominate the market for imported wigs, with China and Indonesia between them holding nearly 90 per cent of the market. The tariff increase on the $30-million worth of GPTLC wig imports is enormous, jumping to 15.5 per cent from zero, costing Canadian consumers roughly $4.6-million each year. Given that many of these wigs are purchased by cancer patients, it seems an unusual place to increase taxes.
The largest single expense I have discovered is the treatment on “solid state storage devices” such as USB drives. The majority of these devices are imported from four GPTLCs: China, South Korea, Thailand and Malaysia. The $127-million worth of GPTLC imports will now be assessed a 6-per-cent tariff where none was charged before, costing Canadian consumers roughly $7.5-million each year.
Canadian consumers will be paying tens of millions more each year to furnish their homes. The majority of coffee and tea makers (85 per cent of imports), rugs with synthetic fibres (96 per cent) and paint brushes and rollers (55 per cent) are from GPTLCs, making it difficult to avoid these taxes. Tax increases in these three areas alone will cost Canadian consumers roughly $10-million a year, split among coffee and tea makers ($5-million), rugs with synthetic fibres ($2.7-million) and paintbrushes and rollers ($2.5-million). Nearly half of imported plastic tableware and plastic household articles are sourced from GPTLCs. The tariff increase to 6.5 per cent from 3 per cent will cost Canadian consumers an additional $11-million each year.
This is just scratching the surface, as further analysis needs to be undertaken on how these increases will impact the budgets of Canadian consumers. These tax increases are also likely to be regressive in nature; for example, the tariff on low-end coffee makers from China is increasing, while the tariff on high-end coffee makers from Italy is not. We can only hope the government will provide additional guidance on the effect of these changes. We do not need analysis to know, however, that unless Canada can get trade deals completed with China, South Korea, India and the other GPTLCs, Canadian consumers will be feeling a major hit to their pocketbooks in 2015.
Mike Moffatt is an assistant professor in the Business, Economics and Public Policy group at the Richard Ivey School of Business, University of Western Ontario.