More than just duty free; trade tensions threaten border communities
Border duty free operators are bracing for severe headwinds as escalating trade tensions between the United States and its neighbors threaten to disrupt the delicate ecosystem of cross-border retail. The latest threat of US tariffs on Canadian and Mexican goods, combined with diplomatic frictions and currency pressures, is creating unprecedented challenges for an industry still struggling to recover from the pandemic’s devastating impact.
Just four years ago, COVID-19 border closures brought US-Canada duty free operations to a complete standstill. Many locations along the northern border were shuttered for over 18 months, with some operators forced to permanently close their doors. Those who survived did so by depleting cash reserves and taking on substantial debt. Now, just as these businesses have finally been on the road to recovery, they face a new crisis that threatens to undo their progress.
The numbers tell a sobering story. Canadian travelers, who contributed $7 billion to US businesses in Q1 2024 alone according to StatsCan, are rapidly changing their cross-border shopping patterns. We are now hearing of thousands of Canadians canceling their plans to visit the US.
The US Travel Association has expressed grave concern over this trend, warning that a mere 10% reduction in Canadian visitors could result in approximately 2 million fewer visits, translating to $2.1 billion in lost spending and potentially jeopardizing 14,000 jobs in the hospitality and related sectors.
While the announced US tariffs were temporarily walked back, the mere 30-day delay suggests this isn't a resolution. We fully expect to now face recurring cycles of tariff threats and last-minute postponements, creating an environment of persistent economic uncertainty, and a persistent questioning of goodwill. The potential tariffs aren’t just numbers on a spreadsheet – they’re powerful indicators of the US position vis-à-vis Canada and Mexico, threatening to unravel decades of economic and social integration in border communities.
While headlines focus on duty free operators and major retailers, the real story is playing out in countless small businesses across America’s border towns, where the distinction between “domestic” and “international” commerce has long since blurred.
In cities like Buffalo, Detroit and Bellingham, Canadian shoppers aren’t foreign visitors; they’re part of the economic foundation. When Canadians spent those billions in the US in early 2024, that money didn’t just flow to duty free shops. It supported thousands of American jobs in gas stations, restaurants, malls and service industries. These communities have built their entire economic infrastructure around cross-border traffic, with American businesses and workers depending on Canadian customers just as much as Canadian consumers have relied on American retail options.
The pandemic offered a brutal preview of what happens when these connections are severed. The shuttered border stores weren’t alone in their suffering. Restaurants lost their regular Canadian dinner crowds. Malls saw parking lots empty of Ontario and Quebec license plates. Gas stations near the border, which typically see more than half their business from Canadian drivers, watched sales plummet. Many businesses never recovered.
Now, just as these communities have been rebuilding, they face a different kind of threat. Unlike the pandemic’s clear health rationale and hope for eventual reopening, today’s politically driven tariffs and unprecedented suggestions about Canadian statehood have created deep uncertainty. The 30-day pause on tariffs masks a more fundamental challenge: the breach of trust between neighboring communities that have spent several generations building economic and social ties.
The southern border tells a similar but distinct story. In cities like Laredo and El Paso, Mexican consumers aren’t just shopping; they’re integral to the local economy. American retailers have built massive operations catering to Mexican shoppers, creating thousands of US jobs in the process. These businesses don’t simply sell goods; they’re part of a complex cross-border ecosystem that includes banking, services and essential goods.
Border store operators understand this complexity intimately. A retailer in Washington state noted, “When a regular Canadian customer stops coming, we don’t just lose their purchases. That person was probably also eating at the local diner, buying gas, maybe seeing a movie. Every lost crossing affects dozens of American workers.”
The removal of American spirits from Ontario liquor stores signals more than just lost alcohol sales. It represents a shifting mindset about cross-border commerce. Using tariffs as economic weapons – not against enemies but against friends – threatens the social bonds so consciously built, potentially causing long-term damage that no future trade deal can easily repair.
Industry veterans fear these actions could fundamentally alter the nature of border commerce. While the pandemic’s impact was severe but temporary, the current situation risks permanently changing how Canadians and Mexicans view crossing the border. As one Buffalo retailer observed, “During COVID, customers wanted to return but couldn’t. Now they can cross, but many are choosing not to. That’s a much bigger problem.”