Canada Has a Trade War Within Its Borders Too
The Trump administration’s tariffs are a disaster for both the Canadian and U.S. economies. As of writing this, the administration has flipped-flopped on implementing them. However, the outcome is nearly as detrimental as imposing tariffs due to the uncertainty that has emerged in our long-standing alliance with America’s neighbor. Canadian businesses have pulled American products off their shelves en masse and American businesses are unable to plan for the long term if they don’t know which inputs they’re able to buy abroad.
The silver lining, however, is that this may be the push Canada needs to make long-awaited reforms on internal trade barriers. Discussions of removing internal trade barriers have surged in the last few months since Trump won the election and subsequently took office. Former Prime Minister Trudeau recently announced that Canada’s Premiers have agreed to further remove internal trade barriers by June 1, 2025.
One of the American economy’s greatest principles is low trade barriers between states. Article 1, Sec 10 of the U.S. Constitution even restricts the states from imposing their own tariffs. Inter-provincial trade within Canada has not followed the same path. Interprovincial trade flows are lower than they could be, and Canadian provinces are more likely to export goods abroad than other provinces. As one IMF working paper notes, if implemented, lower internal trade barriers could increase GDP by three to seven percent (CA$50 to CA$130 billion in real GDP terms). That IMF paper also found that the cost of non-geographic interprovincial trade barriers is equivalent to tariffs of 21% on trade flows, and that’s on top of the tariffs they could face from the US.
Canada has made efforts to reduce internal trade barriers in the past, both on a national level, as seen with the 2017 Canadian Free Trade Agreement, and on the provincial level, as seen with the 2010 New West Partnership Trade Agreement, but numerous exceptions exist, and there is still work to be done.
Often, these barriers are one-off bureaucratic stipulations that may be costly in the aggregate but are hardly salient in most Canadians’ day-to-day lives. An example of this is with the trucking industry. These barriers include “variations in winter road maintenance standards in different provinces, varying access to rest stops for drivers, the variation in training standards for long combination vehicle (LCV) programs, oversize and overweight sector issues, national standards for bridge height and minimum clearance requirements for construction zones.”
These regulatory inconsistencies can bog down trucking operations with penalties if, say, a trucker carries the maximum weight permissible in Ontario but then crosses into Quebec, which has a lower maximum weight. These costs get passed on throughout the supply chain and, in turn, onto Canadian consumers.
Alcoholic beverage manufacturers face a web of regulations established by each province’s liquor board that prevent the movement of alcohol across provincial borders, different licensing requirements across provinces, and inconsistent categorizations for taxation purposes—all of which serve as protectionism for local provincial businesses. As a result, it’s often easier for a winery in British Columbia to send bottles to Europe than to another province like Quebec.
Similar barriers exist for selling dairy, poultry, eggs, and beef across provinces, and this goes up the supply chain to fertilizer, pesticides, and farm equipment. This has created bureaucratic messes, as seen in border towns like Lloydminster, where deli sandwiches made on the Alberta side of the city could not be sold on the town’s Saskatchewan side without a separate license.
The list of affected industries goes on and it’s not just blue-collar construction and car manufacturing, but also white-collar industries like finance that have to face compliance costs for 10 different regulatory regimes. These barriers notably also reduce labor mobility among educated professionals. As CBC reports, “a nurse trained in Ontario, for example, might need to do additional coursework to practice in Manitoba; a psychologist certified in Alberta might need more training to work in Nova Scotia; and lawyers from outside Quebec who want to practice in the province face barriers because it has its own Civil Code (and the rest of Canada follows common law).”
Removing some of these barriers may not be politically feasible, as with Quebec’s French language laws, which require businesses to adapt their packaging to French—a policy underscored by the region’s deeply contentious cultural and political history. But provincial and federal leadership agree on the problem, and the political will for change is possibly greater than ever.
