U.S. tariff fears are shining a light on a very Canadian problem
Generated by AI
OTTAWA — Donald Trump’s threats of sweeping tariffs on Canadian imports are spurring Ottawa and the provinces to get busy dismantling long-standing trade barriers within the country, Internal Trade Minister Anita Anand said in an interview with The Logic.
Removing the impediments—an unrealized policy goal of governments throughout decades—could strengthen Ottawa’s hand in negotiations with the new U.S. president, Anand added.
“U.S. businesses are going to see greater investment opportunities, trade opportunities in Canada,” if the barriers can be resolved, Anand said Tuesday. “There is no question in my mind that reducing internal barriers to trade is beneficial for the Canadian economy, and it’s also beneficial in terms of our negotiations on tariffs with the United States.”
The federal, provincial and territorial governments plan to hold an urgent meeting next week of the Committee on Internal Trade, which oversees the implementation of the 2017 Canadian Free Trade Agreement, to discuss how to move more quickly.
The agreement negotiated between Ottawa and the provinces serves as a rulebook for trade within Canada, with the still-unrealized goal of allowing free movement of people, goods, services across provincial boundaries.
Eliminating internal trade barriers on goods alone could boost Canada’s real GDP per capita by 3.8 per cent, according to a seminal paper on the issue published by the International Monetary Fund in 2019, or about $2,900 per person in 2023 dollars. The paper also noted the volume of international trade has been outpacing interprovincial trade as a share of GDP since the 1980s, when they were about the same level.
That international trade environment could be changing dramatically. The Canadian Chamber of Commerce estimates a 25 per cent U.S. tariff could shrink Canada’s GDP by 2.6 per cent. Increasing internal trade could be one way to bolster the domestic economic immune system.
“It’s a pretty quick thing that a lot of politicians should be looking at as something that could really help buffer the shock coming through,” Frances Donald, chief economist at RBC, said Tuesday during a panel discussion hosted by the Empire Club of Canada in Toronto.
Ontario Premier Doug Ford, who has been urging his fellow premiers to put what is best for Canada ahead of regional interests in the tariff fight, said the principle applies to internal trade barriers.
“This has been going on forever, and enough’s enough,” Ford told reporters Wednesday. “Let’s sit down and come up with a list, because everyone wants to protect something.”
Speaking with premiers Wednesday, Anand stressed the importance of mutually recognizing the regulatory requirements. Before that meeting, she said they need to address rules around alcohol, transportation and the financial sector, in particular.
Corinne Pohlmann of the Canadian Federation of Independent Business said she hopes premiers will take a comprehensive approach instead of “trying to take one little rule at a time.” Adopting a mutual recognition agreement would mean that, as long as a good or service met the regulatory requirements in one province or territory, it could be sold in every other one. That “would just make life so much easier for so many businesses right across Canada,” she said.
Ryan Manucha, author of Booze, Cigarettes, and Constitutional Dust-Ups, an award-winning history of Canada’s star-crossed attempts to create a single market for goods, services and labour, said Ottawa could wield a heavy hammer to internal trade issues if it so chose.
He said the federal government should use its powers under section 91 of the Constitution, regarding trade and commerce, to back legislation to force a mutual recognition agreement. The European Union and Australia have similar laws, so there are precedents for how to make it work.
However, such a move would depart from long-standing practice and almost certainly prompt a court challenge, so it probably wouldn’t work as a quick response to Trump. What’s more, Parliament is prorogued while the Liberals look for a new leader. It would be months before the government even tabled the legislation.
Prime Minister Justin Trudeau tasked Anand last summer with reducing interprovincial trade barriers, but made it an official part of her portfolio when he shuffled his cabinet in December. The appointment came alongside a slew of new measures in the fall economic statement, including a plan to fold financial services into the Canada Free Trade Agreement.
Manucha said the government would do well to advance some of those ideas, which he described as the “strongest” articulation of a strategy to advance internal trade during Trudeau’s time in power. He especially likes the federal government’s pledge to create a list of regulations that impede trade, as it might pressure provinces to soften their protectionist instincts.
“You could ram my thought of federal legislation down their throats, or you could name and shame,” he said.
Most provinces and all three territories are involved in a pilot project to mutually recognize each other’s regulatory requirements in the trucking sector. A paper on interprovincial trucking barriers for the Macdonald-Laurier Institute last year estimated that a mishmash of rules and standards—everything from winter road maintenance to the allowable length of semi-trailers—introduces friction equivalent to a tariff of 8.3 per cent. That effective tax ripples through the economy by adding to the already elevated costs of moving goods across a large geography, the report said.
Randall Zalazar, director of government relations at the Canadian Chamber of Commerce, acknowledged that unprecedented tariffs from the Trump administration could change the math on liberalizing internal trade, given that so many sectors are integrated with the U.S., though it is too early to tell.
“Nevertheless, there’s goods and services that are manufactured within Canada that could more easily move across and within the country, regardless of the international trade context,” he said.
It may be up to premiers to make urgent changes in time to respond to Trump.
Trevor Tombe, an economics professor at the University of Calgary who co-authored the paper on trucking with Manucha, said provinces could act unilaterally, even from each other. Ontario did in 2023 by allowing some health-care professionals licensed and registered in another province to start working right away, rather than first having to join a regulatory college in Ontario.
“It’s about making a decision, and that’s what provinces have failed to do,” said Tombe, who also co-authored the IMF paper. Getting everyone to agree at the same time is “fine as a goal, but it’s slower than a province simply doing it.”
Manucha predicts Trump’s broadsides against Canada will give Anand leverage in her push to do something bigger around internal trade. He’d support an overhaul of the Canadian Free Trade Agreement.
“You need a catalyst, and this could be the catalyst,” he said.
With files from Kevin Carmichael
Written by: Laura Osman and Joanna Smith, The Logic; CIFFA