Canada’s business community is looking anxiously south of the border as Donald Trump gets ready to take the oath as U.S. president for the second time — and urging governments to get serious about mitigating the impacts by trading more between provinces.
Trump has threatened to impose 25 per cent tariffs on Canadian goods coming into the U.S., with a government source familiar with Ottawa’s plans telling Global News on Friday that if the U.S. acts, Prime Minister Justin Trudeau will announce a rapid consultation period – possibly two weeks – on a first round of tariffs that would cover approximately $37-billion of U.S. imports, with implementation to follow immediately after.
These would be the least painful counter-tariffs, the source said, because they would cause the least economic damage to Canadians.
Depending on how hefty initial U.S. tariffs on Canada are, Trudeau may also announce consultations on tariffs covering another $110 billion or so of American goods, the source said.
The economic crisis that Trump’s tariffs would cause has some experts calling on Ottawa to tear down barriers that make it hard for one Canadian province to trade with another.
Fen Osler Hampson, co-chair of the Expert Group on Canada-US Relations at Carleton University, said Canada’s provinces have a chance to turn crisis into opportunity. He said one way of doing that would be to remove barriers that hinder interprovincial trade.
While the volume of trade between Canada and the United States is worth over $960 billion, Hampson said eliminating some trade barriers might offset some of the impacts of Trump’s tariffs.
“They’re saying comprehensive tariffs could reduce Canadian GDP anywhere from two per cent to four per cent,” he said.
“If we completely eliminated the barriers to interprovincial trade, that would boost Canada’s GDP anywhere from four to seven per cent. So, it would be quite substantial.”
The 2024 fall economic statement noted this data too, citing IMF numbers.
The budget document said, “According to a study by the International Monetary Fund, Canada could increase its GDP per capita by as much as 4 per cent—or $2,900 per capita estimated in 2023 dollars through liberalization of internal trade in goods.”
Speaking to reporters in Washington, D.C., Foreign Affairs Minister Melanie Joly said removing trade barriers was going to be part of Canada’s response to Trump’s threat.
“[We are] working on our long-term response, which is basically diversifying our markets and also making sure that there are no trade barriers between provinces and territories across the country,” she said.
Which barriers could come down?
A spokesperson for the Canadian Chamber of Commerce said easing barriers would help protect Canada from Trump’s tariff impacts.
“Every year, Canada loses more to barriers between provinces than we would from Trump’s 25% tariff,” Rewa Mourad said in a statement sent to Global News.
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“It’s time to reclaim our story: let’s break down those walls and unlock Canada’s full potential. The GDP lift over time could be significant and will better protect us from impacts of US tariffs.”
Dennis Darby, president and CEO of Canadian Exporters and Manufacturers, said the barriers to trade between provinces “are not about dollars.”
“They’re about regulations and rules and requirements,” he said.
“Often there are regulatory requirements at a local, provincial and federal level to get a new project [off the ground]. That delays investment and to a degree discourages investment [in Canada].”
Darby said different rules around trucking, for example, discourage Canadian manufacturers from shipping products to other parts of the country.
“In some provinces they allow double tandem trailers, others don’t. Some have restrictions on weight, other ones don’t. You imagine trying to ship things across Canada where you have different rules by each province that discourages that trade,” he said.
“It’s easier to move a truck to the U.S. sometimes than from Atlantic Canada to Ontario.”
Hampson said Canadian provinces also have asymmetrical labour regulations on who can work in which province.
“If you’re a tradesman in Ontario, let’s say you’re living in Ottawa. You cannot go and market your skills on the other side of the Ottawa River [in Quebec],” he said, “although Ontario does allow Quebecers to cross the river and work on the other side so they’re not always symmetrical restrictions.”
He said this also extends to licensed professionals such as doctors and lawyers.
“If you’re proficient in a particular trade and have met a certain standard in one province, then that should count [in another province],” Darby added.
Matt Poirier, vice-president of the Retail Council of Canada, said the country’s retail sector has felt the pinch of inconsistent transport policy and stoppages at Canada’s ports and railways and with the Canada Post strike over recent years.
“We need to have a smooth-moving transportation system so that our supply chains keep moving and keep efficient,” he said.
Why is it hard to break barriers?
Hampson said some provinces have long been reluctant to break down trade barriers because they want to protect their businesses.
“One of the reasons why those protections are in place is because some firms and some producers are not competitive,” he said, adding that removing some barriers might mean some businesses could need provincial assistance.
However, he said removing these barriers could also mean businesses across Canada become more competitive and more productive.
Poirier said there is also a lot of provincial revenue tied to some trade barriers. For this to work, Poirier said governments would either have to compensate each other for the loss in revenue or decide that the benefits outweigh the costs.
“I don’t think we’re there yet,” he said.
He said this will also require a great degree of co-operation between provinces.
However, Hampson said the trade crisis with the U.S. could push provincial governments to act. And the revenue they gain could offset some of their fears.
“The boost to GDP [from removing barriers] would put, by some estimates, $15 billion or more into the coffers of the federal government and the provinces,” he said.
Darby said the benefits of easing some restrictions would be immense.
“It’s high time Canada really has a free trade agreement across the country, just like we’ve had a free trade agreement [with the United States],” he said.
— with a file from Global’s Mercedes Stephenson
Could tearing down interprovincial trade walls help blunt Trump’s tariffs?
