In the face of US President Donald Trump’s on-again, off-again tariff threats, Canadian premiers and federal politicians are calling for a reduction of internal trade barriers. Many claim Canada’s gross domestic product (GDP) could grow by hundreds of billions of dollars simply by removing regulatory barriers.
Businesses across the provinces and territories conduct a substantial amount of trade with each other, and it’s growing. Statistics Canada reports that in 2022, interprovincial trade in manufactured goods was worth $170.5 billion, a 16.5% increase over 2021. Trade in services between provinces is even larger and represents about 58% of total interprovincial trade.
In fact, a Statistics Canada survey found businesses have more suppliers and customers in other provinces than they do internationally.
These numbers suggest that reports about huge gains in economic growth from removing so-called interprovincial trade barriers might be inflated.
Increasing trade within Canada should be a priority for federal and provincial governments in the wake of Trump’s threatened tariffs, but the barriers being discussed for removal often involve protections and regulations that are not equivalent to tariffs. These regulations are meant to safeguard important standards and ensure consumer protection. They include health and safety and environmental protection regulations for instance. It’s crucial that the value of these regulations is not overlooked in the rush to promote interprovincial trade.
A 2022 paper for the Macdonald- Laurier Institute, an Ottawa-based market-oriented think tank, argues that mutual recognition of regulations across provinces would boost Canada’s GDP by $100-$200 billion per year, or 4% to 7% of GDP. But the conclusion is based on faulty assumptions.
The first assumption is that there are two reasons that provinces don’t trade with each other: transportation costs and interprovincial trade barriers. The second assumption is that without trade barriers, customers in each province would buy from other provinces proportional to what those provinces produce.
The researchers calculated the gap between current buying habits and this alternative scenario, took transportation costs into account, and said that the difference is how much GDP growth we could expect from removing interprovincial trade barriers.
This method does not evaluate the economic or social benefits of maintaining any of the current regulations or trade barriers. And it does not factor in any other differences, such as regional specialization of production or local preferences, which might contribute to differences in interprovincial purchasing profiles between provinces. The authors do not say why removing existing protections for public services or lowering health and safety regulations would result in a change of trade practices or the economic growth that they predict in their study.
What could this mean for CUPE members at work?
It is standard practice for trade agreements to have a chapter that allows the parties to exempt specific parts of their economy from some of the rules of the agreement. For example, social services such as child care are exempted from the rules of Canada’s current interprovincial trade agreement, the Canadian Free Trade Agreement (CFTA). This is because Canadians have a strong belief that decisions about social services should be made in the public interest, not based on financial or market-based priorities.
When policy makers talk about removing trade barriers, they often mean eliminating these exemptions from the trade agreements. There are multiple exemptions in the current CFTA that relate directly to the work of CUPE members across Canada, such as protections for water, energy, social services, and health and safety standards. Once protections are removed, it can be very difficult to get them back, so we should very carefully evaluate any proposals to change or eliminate them.
On February 21, the federal government announced that they were removing 20 exceptions from the CFTA. This approach is short-sighted and counterproductive.
The policy cuts will reduce the federal government’s ability to:
- direct infrastructure investments based on national and regional needs,
- approve transportation and transmission on pipelines and power lines, and
- advance a general framework of regional economic development.
This at a time when the most effective counter-tariff strategy would be to do exactly those things.
We need to maintain the public policy space to implement public solutions in key sectors like agriculture, transportation, telecommunications and natural resources, and to diversify markets for Canadian products beyond the United States. For example, given that the cost and availability of transportation are the largest barriers to interprovincial trade, governments should be focusing on building East-West public transportation infrastructure in order to better stimulate interprovincial trade.
Defending the rights of federal, provincial, and territorial governments to deliver services and build infrastructure in the public interest is an important component of protecting the Canadian social and economic model in response to Donald Trump’s tariffs.