Nov 10 2007
Cross-border shopping and strength of Canadian economy
The rising Canadian dollar (now 1.07 over US$) is a clear indication of a strong Canadian economy. Well, some would argue that the real causes are the ever-rising cost of natural resources and temporary weakness of US economy due to the sub-prime mortgage crises.
The strong Canadian dollar prompts a tide of Canadians shopping across the border. This led to open concerns of weakening Canadian retail industry and hence the entire economy. To address those concerns, it’s useful to start by comparing the tax exemptions between Canada and US to see how the two countries feel about their economies.
| Time out of country | USA | Canada |
| Out of country within 24 hours | US$200 | CA$0 |
| More than 24 hours, but less than 48 hours | US$200 | CA$50 |
| More than 48 hours, but less than 7 days | US$800 | CA$400 |
| More than 7 days | US$1,600 | CA$750 |
It’s worth pointing out that the Canadian exemption rate for 48 hours was raised to $200 only recently.
Examining the exemption limits, you’d see that you’ll have to stay out of the country over 48 hours to shop interesting items. Reports of long queues at border crossings over long weekends confirm the fact. However, this means expenses of two-nights hotel and meals in US. The actual effect is that consumers spend even more abroad.
Often time protectionism of a specific industry backfires. The protected industry would become inefficient and consumers would suffer. A comparable case is the RRSP no more than 20% foreign content rule, which had seriously dented the retirement funds of Canadians while banks raked in excessive profit. An inefficient retail industry would mean high living cost and may create bigger flocks of snowbirds taking their life savings south.
A better solution is to let the market economy shape the industry. I’d think the government should relax the exemption limits and consumers should vote with their choices. This will eventually create a more efficient and competitive retail industry.
If you do decide to take advantage of the strong Canadian dollar, I’d recommend checking out this site http://betterdollar.com/ to avoid the hidden costs, e.g. in credit card payment.
Duly Noted
A considerable fraction of the strength of Canadian economy lies in the well rooted economy plan of the state. Somewhat similar rules apply at the personal finance management through a consumer creditcard. Nowadays a whole host of cards labeling themselves as 0 credit cards are in the market. More recently, the market leader americanexpress has wowed the customers with lowest markup rates on american express centurion card. Few kinds of the secured credit card are saving the card holders from having to pay heavily on missing any of the odd months now and then.
