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The high price of tech

The Loonie reached par with the U.S. greenback last week for the first time since 1976, which is the result of several things happening. Some we can take credit for, others are the result of brewing trouble in the American economy.

The Loonie reached par with the U.S. greenback last week for the first time since 1976, which is the result of several things happening. Some we can take credit for, others are the result of brewing trouble in the American economy.

The main factor, many economists agree, is oil. In the mid 1970s the world was in the throes of an energy crisis, raising the price of oil to the point where Canadian oil was cheap enough to mass produce. Now, 30 years later, we’re in the middle of another oil crisis, and have become a primary supplier for the U.S. market.

Americans have also watched their national debt jump from about $5 trillion to more than $9 trillion during George W. Bush’s tenure as president. Spiraling debts, deficits and trade imbalances have prompted a devaluation of the greenback on world markets, making the boring Loonie look pretty solid by comparison.

Relatively speaking, U.S. debt now stands at more than $29,740 per person, while Canada is carrying $481 billion in national debt for a ratio of $14,680 per person. Canadian debt is also shrinking, reduced by more than $30 billion over the past 10 years and we have been running a federal surplus every year since the early 1990s.

The U.S. greenback is also being dragged down by a bursting housing bubble, and a sub-prime mortgage scandal where consumers were duped into buying or refinancing their homes by taking advantage of a combination of artificially high real estate prices and artificially low mortgage rates. As the bubble bursts and people watch the value of their homes shrink, something they were told was impossible, the number of people defaulting on their mortgages has increased. Now a lot of people are paying far too much interest on homes that are suddenly worth far less than they paid, and tens of thousands of people are defaulting on their mortgages.

Canada is protected from the subprime scandal by regulation that prevents that kind of predatory lending, and by the fact that our real estate bubble has been slower to burst as a result of a strong economy.

We’re not completely isolated from what’s happening south of the border. The U.S. is Canada’s number one trading partner, and the combination of a recession, reduced consumer spending, and fewer housing starts in the States will inevitably drag our economy down as the market for wood, metals and other products dries up.

But still — parity with the U.S. dollar for the first time in 31 years is a cause for some celebration, as well as dread on behalf of companies that sell to the U.S. or towns like Whistler that rely on American guests. Parity also underlines the fact that, in some cases, Canadians pay too much for their electronics.

Take the ubiquitous iPod. In the U.S., the new iPod Shuffle with 8 GB of storage retails for $199 plus any applicable state taxes. In Canada, the same iPod sells for $219 plus federal taxes plus provincial taxes. That’s a 10 per cent increase in the sticker price.

The new 160 GB iPod Classic retails for $349 in the U.S., compared to $399 in Canada — a difference of $50 or about 13 per cent.

Both premiums are modest, but considering that our dollar has been within about four per cent of the greenback for a while now you’d think that the price of consumer electronics would be in the same ballpark.

The premium gets higher when we look at the next generation gaming consoles. In Canada, an Xbox 360 Elite is $499 — on sale from $549 regular price. In the U.S., the same console is available for $449 all the time, which is $100 less than the regular Canadian price. Without the sale, the price difference is 17 per cent. With the sale, it’s still 10 per cent.

Looking on the Dell website, the new XPS 720H2C gaming computers start at $5,089 in the U.S. and come with a monitor, compared to $6,517 in Canada without the monitor. Buy the $750 monitor on your own and you’re looking at $7,266 to get the same setup, which is a price difference of   $2,177 or a whopping 40 per cent.

Interestingly, the price difference doesn’t necessarily apply to televisions. A Sony Bravia LCD television at Best Buy in Canada was the same price as the same television in the U.S., even before our dollar reached par. Laptops are also similar in price, with maybe a 10 per cent difference on the most expensive models.

The key question is why? And keep in mind that Canada still has it pretty good compared to most countries in Europe that can pay 50 per cent more for most electronics.

The simple answer is volume. The U.S. population is 10 times larger than Canada, and therefore distributors can get bigger discounts by buying larger quantities of items.

Another answer is that we have different trade agreements and duties when it comes to purchasing items from Japan and China, where the majority of items are manufactured. Our wages and taxes are also higher, and retailers have to defray these costs by raising their prices.

Finally, companies generally work anywhere from three to six months ahead of the market when it comes to ordering products and arranging shipments, and they cannot respond in real time to daily fluctuations in the dollar.

If our dollar remains at par for an extended period of time and prices remain high, it may be time to ask that question again.