Canada's Tariff Hangover : Planet Money Canada and the U.S. have come to an agreement on trade, and lifted their punitive tariffs on each other's goods. But some small businesses are still feeling the pain.
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Canada's Tariff Hangover

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Canada's Tariff Hangover

Canada's Tariff Hangover

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CARDIFF GARCIA, HOST:

Last week, the U.S. and Canada announced that they were eliminating the tariffs that they had placed on each other's aluminum and steel and other products. Those tariffs are now gone. So the trade war between the U.S. and Canada, at least for now, has been downgraded to a squabble.

WILLA RUBIN, HOST:

President Trump hopes that lifting the tariffs will help get Congress to pass the new NAFTA agreement, or the USMCA.

GARCIA: Ooze mukka (ph).

RUBIN: Ooze macaw. But regardless of what happens with that deal, you can hear sighs of relief all over North America.

GARCIA: Yeah, because tariffs had pushed up prices on certain goods. And that was making life hard not just for a lot of consumers - people who buy those products - but also a lot of businesses, especially small businesses that have to import those products in the course of putting together their own products to sell to their customers.

This is THE INDICATOR FROM PLANET MONEY. I'm Cardiff Garcia, and I'm joined for the first time today by longtime intern, first-time guest host Willa Rubin. Willa, how are you?

RUBIN: I'm good. How are you, Cardiff?

GARCIA: So Willa, you had been reporting this story for quite some time...

RUBIN: Yeah.

GARCIA: ...About the damage of tariffs to a specific business. And then, of course, before we aired the episode, the tariffs ended.

(LAUGHTER)

GARCIA: We might as well be honest with our listeners, right?

RUBIN: Classic news cycle (laughter).

GARCIA: Exactly. So what did you do?

RUBIN: So I've been in touch with a small business owner in Ottawa. And after I heard that the tariffs were going to be lifted, I gave him a call. What he told me was that while he was really excited that the tariffs were going to be lifted, their damage was far from done for his store.

GARCIA: It was lingering.

RUBIN: It was lingering. Exactly.

GARCIA: Yeah. That's what I like about this story that we're going to tell our listeners today. There are lessons to be learned from the time in which the tariffs were in place, and there are lessons to be learned after they're gone.

(SOUNDBITE OF MUSIC)

RUBIN: Dave Tellier owns a game store in Canada called Wizard's Tower. His store sells a variety of games, and one of the most popular ones is the card game Magic: The Gathering. A few months ago, I went to visit his shop in Ottawa.

DAVE TELLIER: When you come in, we have all our products for Magic around the cash area. And the section over here is usually where we have the game set up.

GARCIA: Yeah. Magic: The Gathering is a card game that has, like, these fantasy genre creatures on the cards. They're kind of like baseball cards. You can get packs of 15 cards. And then players compete, using those cards, and they build up their decks of cards over time.

TELLIER: Magic is the biggest part of our business.

RUBIN: Yeah.

TELLIER: OK. It accounts for, like, over 90% of our business.

RUBIN: Dave's store had been thrown into the trade war because when the U.S. put tariffs on foreign aluminum and steel products, Canada retaliated, and they put their own tariffs on goods imported from the U.S. And on that list was playing cards.

GARCIA: Which Dave had to buy.

RUBIN: But did you ever expect that Magic or that your store would be, like, thrown into the crosshairs of the trade war as it was, you know...

TELLIER: No. No, I would never imagine that, you know, a sector like card games would be involved in politics - a political dispute between two different countries. We're just collateral damage, I guess.

RUBIN: So for the past year, if you wanted to get playing cards across the border from the U.S. into Canada, you had to pay a 10% tariff. And Dave already had to pay to import Magic: The Gathering cards from the U.S. And suddenly, he was paying 10% more.

GARCIA: And this was a problem because, like most retailers, Dave already runs his business on pretty thin margins, so a tariff of 10% on an item that he tends to import a lot of really eats into those already-thin margins. But he couldn't just stop buying Magic. That would've decimated his customer base because Magic: The Gathering is one of his most popular-selling items.

RUBIN: So you can understand why Dave has been worried since the tariffs took effect last July. Dave's had to raise the price of these packs of Magic: The Gathering cards from around $4.50 to $5.

GARCIA: And here's how Dave tried to respond when those tariffs did take effect. He raised the prices on some other products, and he tried raising prices specifically on these weekly tournaments that the store hosts. These events were called Friday Night Magic. But people stopped showing up because of those higher prices, and so that meant fewer people coming to the store and shopping and buying other things. So Dave had to go back down to the original price.

RUBIN: So now Dave has had to be financially cautious. He started keeping a cash reserve. He's held off on hiring. And he chose not to invest in redesigning the store's website even though he really wanted to.

GARCIA: Last month, specifically, Dave says, the store's finances look pretty rough, both because of the tariffs and because of a bit of bad luck, which was that the latest edition of Magic - because new editions come out every few months - the latest edition just wasn't as popular as earlier editions had been. So you take that and the tariffs and - yeah, things just were not looking good. And then this happened.

(SOUNDBITE OF ARCHIVED RECORDING)

UNIDENTIFIED PERSON: The United States has just reached a deal to lift steel and aluminum tariffs on Canada and Mexico.

NATASHA FATAH: The tariffs are being eliminated later this weekend, and that could make room for another international agreement - the new NAFTA deal. Steel and aluminum workers are also breathing a sigh of relief after nearly a year of market tension.

RUBIN: So I gave Dave a call.

TELLIER: And so getting rid of tariffs right away is, you know - it'll be great. It's just such a big part of our business, you know? Like, this one particular product line accounts for the vast majority of our sales, so it is definitely good news.

GARCIA: So the tariffs have been removed. But the damage they caused hasn't yet gone away because, remember, Dave still has all this inventory - inventory of cards that he bought back when there were tariffs. He still had to pay those higher costs, and those costs don't just go away. Unless Dave can sell those cards at a higher price, he still has to end up eating those losses.

TELLIER: So we still got all this - whatever products - we don't have a lot. But whatever products we have left that's - either we have or that's in supply warehouses - the cost is already included in there.

RUBIN: Dave says he'll have to wait until at least July - maybe even later - until he sees the damage from the tariffs totally go away.

GARCIA: Yeah, because, see, the damage lingers a bit, at least until Dave can clear his current inventory, until he has sold the Magic cards that he already bought. Then, and only then, can he import new Magic: The Gathering sets at a lower price without the tariffs.

RUBIN: Still, Dave can't forget how much money he lost because the tariffs were imposed in the first place. And it does make him skeptical about working with the U.S. in the future.

TELLIER: I'm less inclined to do business with the U.S., for sure. We have a neighbor that we just basically can't trust, from a political point of view.

RUBIN: But, Dave says, he also doesn't really have a choice.

I mean, do you feel like you would ever want to stop selling Magic in the future to avoid dealing with the U.S., you know, on trade and so forth?

TELLIER: Well, it's kind of my livelihood, so I'm not sure what else I'd be doing.

GARCIA: So Willa, this was a lovely story, and it seems like there are a couple of lessons we can take away from it. One is that the Canadian government is what ended up causing Dave all this harm, if you think about it, because it was Canada's retaliation that imposed those tariffs on Magic cards in the first place. So it kind of shows you that when a country's government retaliates, it can end up really hurting some of its own people.

RUBIN: Yeah, exactly - and especially, you know, for small business owners like Dave. There are a lot of small business owners out there who rely on imports coming from the U.S. So Canada putting these tariffs on products coming from the U.S. - it disproportionately winds up affecting them.

GARCIA: Yeah. There is a more positive lesson, too, though, which is that, yes, this was bothersome and, yes, Dave is skeptical about doing business with the U.S., but he himself said he has no choice. And so maybe the disruption from the tariffs will eventually dissipate, will eventually go away. And maybe the damage really was just temporary.

RUBIN: Yeah, let's hope so for Dave's sake and for the sake of other small business owners like him.

GARCIA: This episode of THE INDICATOR was produced by Constanza Gallardo, edited by Paddy Hirsch. Willa Rubin co-hosted and fact-checked this piece. THE INDICATOR is a production of NPR.

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