Cross-border shopping has always been a popular activity for Canadians living near the U.S. border. Lower prices, better selection, lower sales tax rates and a strong Canadian dollar drew over 1.9 million Canadians over the border to shop in June. June was also when Canadian Customs raised the tax and duty exemption levels for Canadians bringing goods back from U.S. stores, and that has resulted in a spike of shopping trips. Canadians can now bring back $200 of tax-free goods for trips of 24-48 hours, and $800 for trips over 48 hours.

Who Else Is Affected?
Not everyone is happy about the new trend. Recently, American shoppers at a Bellingham, Wash. Costco created a Facebook page to lobby for American-only shopping hours. They were concerned about Canadians inundating the store and being rude. The Facebook page was deluged with supportive comments, but the Bellingham Chamber of Commerce quickly released a statement reiterating their support for Canadian shoppers. While some American consumers may not be fans of cross-border shopping, border town stores certainly are.

Many grocery stores that line the border are dependent on Canadian business. Grocery staples, such as milk and chicken, are far cheaper in the United States than in Canada, due to subsidies. Currently, in many parts of the U.S., a gallon of milk runs around US$2.50, whereas in Canada, it can go for roughly C$5.00. Gas is also cheaper. U.S. gas can be more than US$2 per gallon less than at Canadian stations.

Long-Term Consequences
The benefit of cross-border shopping to U.S. retailers comes at the expense of Canadian stores. BMO Capital Markets recently released a report suggesting that Canadian purchases over the border represent up to 8% to 10% of all goods that can be moved across the border. This creates a potential $20 billion drain on the Canadian economy. Canadian retail organizations, such as the Retail Council of Canada, are calling for federal studies into wholesale pricing and tariffs that affect Canadian goods, in order to make them more competitive with their American counterparts. Canadian retailers fear that the strong Canadian dollar, coupled with upcoming cuts to Canadian Border Services Agency staff, will result in Canadian shoppers taking more trips under 24 hours and taking their chances about not getting caught coming back over the limit.

Cross-border shopping not only benefits American border city retailers, but it also gives a huge boost to state tax coffers. New York and Washington, the destination of most shoppers, does not offer a tax rebate for Canadian shoppers, although sales taxes are substantially lower in these states than the combination of federal and provincial taxes north of the border, making purchases an even better deal. Erie County in New York - which includes Buffalo - reported a 4.5% increase in sales tax revenues in 2011 over the prior year, in part due to an increase in Canadian shoppers. This sales tax bounty means less tax revenue for Canadian government treasuries. To the extent that the lost revenue must be made up by increased sales tax or income tax rates, all Canadians can be hurt in the wallet by cross-border shopping.

The Bottom Line
Everyone loves a deal and, as long as there are pricing and tax differentials on the other side of the border, shoppers will flock there to save money. This transfer of retail activity can benefit border towns immensely, allowing them the funds to increase services and the standard of living for its residents. On the flip side, the sales and tax drain on the northern side of the border can hurt Canadian businesses and the wallets of all Canadian residents.

Related Articles
  1. Stock Analysis

    JCPenney's Path To Profitability (JCP)

    Learn about what J.C. Penney's management team has been doing to profitably grow its business as the company recovers from years of revenue declines.
  2. Budgeting

    Bespoke Post Review: Is It Worth It?

    Find out if Bespoke Post, the fast-growing, e-commerce subscription service for men's lifestyle and grooming products, is worth all of the hype in this review.
  3. Stock Analysis

    The Biggest Risks of Investing in Costco Stock (COST)

    Read about some of the biggest risks of investing in Costco stock. Gain a better understanding of its business model before buying in.
  4. Stock Analysis

    The Top 5 Retail Penny Stocks for 2016 (TWMC, DXLG)

    Find out which retail stocks trade for less than $5 a share. Learn about bargains that can avoid bankruptcy and produce nice returns for investors.
  5. Stock Analysis

    Wal-Mart's 3 Most Profitable Lines of Business (WMT)

    Learn about the key drivers of Wal-Mart's profitability as the company is concluding its fourth quarter, which is the period of its highest sales and income.
  6. Investing Basics

    4 Value Plays in the Retail Sector for H1 2016 (BBBY, WMT)

    Discover four value stocks of companies operating in the retail sector that can prove valuable investments for the second half of 2016 and beyond.
  7. Stock Analysis

    The Top 5 Micro Cap Retail Stocks for 2016 (KIRK,TCS)

    Identify five promising micro-cap retail stocks that all growth investors should have their eyes on when making portfolio decisions for 2016.
  8. Stock Analysis

    Party City Holdings: How It's Fared Since Its 2015 IPO (PRTY)

    Learn about Party City Holding's performance as a public company. Investors would have lost much more than the Russell 2000 Index by investing after the IPO.
  9. Retirement

    Harry's Review: Is It Worth It?

    Find out if Harry's, the fast-growing, online purveyor of low-cost razor blades and shaving kits, is worth all of the hype in this review.
  10. Budgeting

    Manpacks Review: Is It Worth It?

    Find out if Manpacks, the fast-growing e-commerce subscription service for men's grooming products and underwear, is worth all the hype in this review.
  1. Does QVC accept debit cards?

    QVC accepts debit card payments as one of its many payment options. The company, which is the world’s leading video and e-commerce ... Read Full Answer >>
  2. Does QVC charge sales tax?

    QVC, an American TV network, is registered with states to collect sales or use tax on taxable items. QVC is also required ... Read Full Answer >>
  3. Can you pay off a Walmart credit card in store? (WMT)

    Wal-Mart Stores, Inc. (NYSE: WMT) allows multiple payment options for its credit cards, including in-store payments. The ... Read Full Answer >>
  4. Does Walmart take international credit cards?

    Foreign visitors to Walmart locations in the United States can use their credit cards issued by banks outside of the U.S. ... Read Full Answer >>
  5. How can I invest in electronic retailing (e-tailing)? (AMZN, W)

    Electronic retail is one of the fastest growing segments of the economy. Every year, more people are choosing to purchase ... Read Full Answer >>
  6. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center