Every week since January, U.S. President Donald Trump’s tariff announcements have been a moving target, morphing with dizzying speed. They may or may not materialize, but reducing barriers to interprovincial trade has become a go-to response for federal and provincial elected officials.
Fewer internal trade rules may not be enough to rally the Canadian economy, already stalling from Trump’s mere threats alone, and may reduce local control over levers that address regionally specific effects of economic disruptions. But there’s growing pressure to do something, and to do it fast.
Keep your eye on the ball, however, as action in this arena accelerates. What’s being gained by businesses won’t necessarily increase overall economic activity, and what’s being eliminated won’t necessarily be costless for workers, consumers or citizens.
Nova Scotia is the first province to hop on the bandwagon to help its businesses — like steel and wine producers — access bigger markets in Ontario and Quebec. Earlier, the federal Minister of Transport and Internal Trade, Anita Anand, started the ball rolling, by announcing 19 of 39 federal exceptions to internal trade would be removed from the Canadian Free Trade Agreement (CFTA), the rules and exceptions that govern trade across Canada’s provincial boundaries.
The federal exceptions being cut relate primarily to procurement. Provincial exceptions vary from general rules on taxation and language rights to jurisdictionally specific rules governing farmland or social services.
The usual argument is that regulatory barriers impose enormous costs on the Canadian economy. Estimates of just how enormous keep ratcheting up.
The most cited source is the International Monetary Fund’s 2019 working paper, which concludes GDP per capita could improve by four per cent a year if all provincial trade barriers were eliminated. (There is no estimate of how that average amount would be distributed.) Deloitte took this methodology and broke it down by province in 2021, showing Ontario, Quebec and Alberta — the provinces that would be hardest hit in a trade war with the U.S. — have less to gain. By 2022, another study said GDP could increase by as much as 7.7 per cent.
This January, Minister Anand cited the federal Committee on Internal Trade’s claims that eliminating interprovincial trade barriers would cut prices by up to 15 per cent and boost productivity up to seven per cent, adding as much as $200 billion a year to the economy.
Ever-accelerating statistics could sway premiers to reduce more provincial regulations, but these claims deserve far more scrutiny.
The tell comes from a recent Statistics Canada report, the Canadian Survey on Interprovincial Trade, examining obstacles Canadian businesses encounter in interprovincial trade, and why most don’t engage in it at all. The findings are a revelation.
• Only 41 per cent of Canadian businesses bought from a business in another province or territory in 2023. Only 27 per cent sold to Canadian businesses outside their province or territory.
• For businesses engaged in interprovincial trade in 2023, the main obstacle is transportation costs.
• Nunavut’s businesses were most likely to buy from another province/territory (77 per cent). Businesses in Ontario and Quebec were least likely (34 and 33 per cent, respectively).
• The share of businesses selling to another province or territory ranged from 32 per cent in Alberta to 12.5 per cent in Nunavut.
• Of the 51 per cent of Canadian businesses that don’t engage in interprovincial trade, 89.5 per cent cited no interest in buying or selling (88 per cent) to other provinces/territories in future.
The punchline: regulations are not the main barrier to interprovincial trade. The main reason we don’t trade more amongst ourselves are the high costs of transportation over vast geographies, and huge differences in what drives regional economies. Places with little manufacturing, like the Atlantic provinces and the territories, import more from manufacturing giants like Ontario and Quebec, who are more likely to trade internationally than interprovincially.
Not all rules are smart rules. But pay closer attention to how much internal trade is genuinely impeded by regulations. A recent study shows interprovincial trade is up 44 per cent since 2007, as compared with international exports (47 per cent) and imports (56 per cent).
Trade barriers provide some measure of local democratic control over market forces, like foreign purchases of real estate, public procurement to strengthen local supply chains, or safeguarding public service provisions; all things that could be impacted by the coming economic storm.
The consequence of this moment could move us toward the lowest common denominator of rules. It’s revealing that, when it comes to the three-quarters of the economy that is services — with health and education being the single largest segment — there is no talk about across-the-board improvements in minimum standards of care, often simply a function of how we treat workers who provide care.
Deregulation, lower taxes and lower wages are perennial corporate asks. All are more achievable now if the rush to “do something” in the face of an existential economic threat proceeds without consideration of the true costs.
As the saying goes: Watch what you wish for, for you may get it.
