Retailers could lose up to 128,000 jobs in the next three years if the U.S. withdraws from the North American Free Trade Agreement (NAFTA), according to a recently released A.T. Kearney study. It would also cost retailers and consumers up to $16 billion a year, the report prepared for the National Retail Federation (NRF) stated.
NRF President and CEO Matthew Shay agrees that NAFTA needs to be updated for 2018, but says it is still imperative to helping U.S. families have access to products at fair prices.
RELATED: Retailers balk at aluminum tariff
While the agreement affects all areas of retail, FMI President and CEO Leslie Sarasin notes that trading with Mexico and Canada is especially important for U.S. grocery shoppers. It provides shoppers with produce year-round and safe, healthy and cost-effective food choices.
“The impact across all the sectors of the economy would include both positive and negative effects in a complex dynamic. However, for the retail industry, there is very little upside," Johan Gott, principal in strategy and management consultant A.T. Kearney’s private equity practice and co-author of the study, told FierceRetail. "As an industry it imports goods but it does not export them. Much like for the consumers it serves, the only effect of higher tariffs on retailers is cost increases.”
Retailers imported $128 billion worth of goods from Mexico last year and $54 billion worth of goods from Canada. Most of these goods were sold tariff free since the three countries joined forces in 1994.
RELATED: Are retail relations with Mexico being strained?
Removing NAFTA would hit grocery stores the hardest, costing the industry $2.7 billion. Other areas of retail that would be highly affected include apparel and footwear, $501 million; electronics and appliances, $390 million; and household goods, $498 million.
According to the A.T. Kearney study, the average U.S. household's spending would drop by $290 a year as consumers re-evaluate what they really need to purchase. In turn, this could equate to $39 billion less in annual retail sales.
So what if the withdrawal does go through? Gott says that retailers would then have to think about how much of the cost increases they would pass on to consumers.
"In the longer run, they would have to think about how to adapt by either changing the supply chain networks built up over the last 25 years or to change their assortment strategy to offset the impact of cost increases," he added.