Trump ‘tariffs’ threat should hasten trade liberalization among provinces

To much fanfare, President-elect Donald Trump has threatened to impose a 25 per cent tariff on all imported products coming into the United States from Canada. The premiers will meet with Prime Minister Trudeau this week to discuss the situation and possible next steps. While the discussion will no doubt focus on trade with the U.S. and other countries, they should also consider trade reform within our national border.

Indeed, provinces and territories have considerable autonomy to set rules for trade with other Canadian jurisdictions. These rules (or barriers) include different inspection and labelling requirements for agricultural goods, different trucking regulations, different standards and certifications for professionals, provincial monopolies over alcohol distribution, and more.

As with international barriers, trade barriers within Canada inhibit the free flow of goods, services and labour between provinces, which reduces productivity and increases prices. In other words, Canadians pay the price for our interprovincial trade barriers. And the costs are significant. Research suggests that interprovincial trade barriers add between 7.8 per cent and 14.5 per cent to the price of goods and services including groceries and other necessities.

More broadly, according to a 2020 study published by the Fraser Institute, interprovincial trade barriers cost the Canadian economy more than $32 billion per year or approximately 1.4 per cent of GDP. According to a TD report released last month, a 10 per cent across-the-board tariff by the U.S. (and the subsequent retaliation by Canada on U.S. imports) would reduce Canada’s GDP by approximately 2.4 percentage points over two years, compared to current baseline projections. Therefore, if Canadian policymakers removed interprovincial trade barriers they could mitigate much of the economic harm caused by potential new U.S. tariffs.

What would those changes look like?

While the Canadian Free Trade Agreement (CFTA)—a 2017 agreement between the federal government and all provincial and territorial governments—was an important step toward greater trade liberalization in Canada, the Trudeau government should propose a policy of “mutual recognition” so that any item that meets the regulatory requirements of a single province or territory automatically satisfies the requirements of another.

And while the federal government should promote free trade within Canada, provincial and territorial governments should also reduce barriers. In addition to negotiating agreements among themselves (such as the New West Partnership Trade Agreement between British Columbia, Alberta, Saskatchewan and Manitoba) provinces can unilaterally eliminate self-imposed trade barriers (as Alberta did in 2019 with grazing permits for livestock and other reforms).

Trade is fundamental to economic activity, opportunity and prosperity for Canadians from coast to coast. In light of Trump’s aggressive trade posture, now more than ever the federal government and the provinces and territories should work together to remove interprovincial trade barriers to mitigate any economic damage from a hostile trade regime south of the border.