Why the Canada-U.S. price gap is our own fault

For five years now, the loonie has been at par with the U.S. dollar, but for a small deviation in 2009. And for all that time, Canadian shoppers have paid more than Americans for the same goods—often more than 20 per cent more, in fact, according to various surveys. A new Senate report last week promised to get to the bottom of this shake-down. What it offered were the same excuses used by retailers: we are a small, less competitive country with border restrictions and geographic challenges that drive up prices.

But is Canada really such an undesirable place to do business? Consumers here are richer on average than Americans, more likely to be employed and far more willing to go into debt to buy things. In the U.S., credit card debt rose just 0.1 per cent in December, while consumer debt just hit a new high in Canada. We are, if anything, a retailer’s dream. Our willingness to buy stuff is part of the rea- son Target and J. Crew are expanding here.

There are a few reasons to explain slight price differences. It costs something to print up French labels. It costs money to transport goods here (but that’s greatly overstated in a country where most people live next to the U.S. border). None of it explains the hefty markups on everything from appliances to cars, some of which are made in Canada.

When the loonie first hit par, retailers and manufacturers said it would take time to adjust. Some have matched prices, proving it can be done profitably. So what’s the real reason for the price gap? It can only be that Canadians are willing to pay more, perhaps because our economy has performed better than America’s. Retailers are charging what the market will bear. And until shoppers take their business elsewhere, i.e., across the border, that won’t change.