The best response to “economic force” is a united economic front.

CanTruck

By Anil Wasif

January 13, 2025

On January 15th, Prime Minister Justin Trudeau will meet with Canada’s 13 provincial and territorial premiers in Ottawa to plan a unified response to US President-elect Donald Trump’s 25% tariff threat.

So far, it seems, federal and provincial strategies differ: Trudeau has signalled readiness to impose, as his government did in 2018, counter-tariffs; Alberta Premier Danielle Smith opts for a conciliatory approach to showcase Alberta’s energy to U.S. leaders, and Ontario Premier Doug Ford emphasizes public messaging and visible engagement. While each approach offers a piece of Team Canada optics puzzle, the first ministers should also consider uniting our own fractured internal market to buttress the national economy.

A Saskatchewan brewer spends years and thousands of dollars navigating Quebec’s red tape to sell beer. A trucker faces a narrow window to move goods through the Alberta-BC border due to restrictions that prohibit driving certain trucks at night in one province and during the day in the other. An Alberta construction firm stops interprovincial work altogether, overwhelmed by the costs of extra insurance, licenses, and fees. These inefficiencies underscore the staggering cost of our fragmented internal trade landscape, draining $200 billion from our economy annually, roughly $5,100 per person.

If the Trump tariff lands at even 10%, and a trade war ensues, the Canadian Chamber of Commerce has estimated over $1,000 of foregone income per person. These figures alone should empower Premiers to break down internal trade barriers as a response to the tariff threats. A viable strategy, as Canada’s Expert Group on Canada-US Relations agrees.

Canada’s internal trade barriers represent a self-inflicted economic wound, one that stifles growth, innovation, and resilience. These barriers—manifesting as inconsistent regulations for transporting goods, mismatched product standards, and restrictive professional licensing—impose a hidden tariff of 6.9% on goods and services, a cost that exceeds the GST by nearly 2%. Additional studies have shown that these barriers add 7.8% to 14.5% to prices we pay at the market, including groceries and necessities.

The economic cost of these inefficiencies is staggering, and the Senate agrees. A 2016 report by the Senate Standing Committee on Banking, Trade and Commerce estimated that internal trade barriers are restraining economic output by as much as 7%. These figures are compounded by missed opportunities for small and medium-sized businesses, 88% of which view removing these barriers as essential for economic growth. The report also highlighted the irony of Canada’s trade agreements with international partners, such as CETA, granting European businesses smoother access to Canadian markets than Canadian firms enjoy across provinces. Former Bank of Canada Governor Stephen Poloz described these barriers as a persistent “drag on growth,” underscoring their impact on economic productivity and innovation.

As Canada braces for U.S. tariff threats, uniting our internal market presents a powerful strategy to shield the economy while boosting resilience.

There is no shortage of experts offering solutions.

Recommendations have ranged from a negative-list approach where trade would be unrestricted unless explicitly limited, to mutual recognition of each other’s standards to binding dispute resolution mechanisms. But despite the fanfare, progress on internal trade liberalization has been frustratingly slow.

The Canadian Free Trade Agreement (CFTA) and regional accords such as the New West Partnership Agreement represent incremental progress but are riddled with exemptions. The 2017 CFTA alone includes 167 pages of exemptions, allowing provinces to shield protectionist policies under the guise of regulatory autonomy. A Regulatory Reconciliation and Cooperation Table (RCT) was designed to streamline and harmonize regulations, yet since 2017, only five of 30 initiatives have been fully implemented. The Canadian Federation of Independent Business (CFIB) 2024 Interprovincial Cooperation Report Card underscores this inertia, with no province earning an “A” for its efforts. Manitoba’s score of 8.7 (A-) is the highest, demonstrating the kind of leadership needed to tackle these entrenched barriers.

The political challenges are significant. Provincial governments often prioritize short-term revenue gains or the interests of local industries over national economic growth. For instance, entrenched liquor monopolies and interprovincial alcohol sales restrictions persist despite broad public support for reform. A 2020 Fraser Institute study argued that aligning alcohol regulations alone could contribute $2 billion annually to the national economy.

Reducing internal trade barriers has proven transformative for economies worldwide. The European Union Single Market, widely recognized as a landmark achievement, continues to evolve and deliver economic gains by dismantling internal trade barriers. A standout example is the notification procedure under Directive 98/34/EC, which requires member states to share draft technical regulations with the European Commission before adoption. This process removes trade obstacles, bolsters goods’ free movement, and deepens integration, highlighting the transformative impact of reducing barriers within an established market.

Similarly, the Australian national cabinet abinet agreed on the Automatic Mutual Recognition of Occupational Registration (AMR), enabling licensed professionals to work under a single license without additional fees or paperwork. Closer to home, the U.S. Interstate Commerce Clause has long ensured a unified market, enabling businesses to scale nationally and compete globally.

Sometimes, the best offence is a strong defence.

As Canada braces for U.S. tariff threats, uniting our internal market presents a powerful strategy to shield the economy while boosting resilience. Interprovincial recognition of standards offers a practical way to cut through red tape, enabling provinces to retain autonomy while streamlining trade. Ontario’s recent recognition of out-of-province medical credentials sets a bold precedent for easing labor mobility and enhancing productivity.

The federal government must step up, using conditional funding to incentivize provincial action and convening clear timelines for reform. A unified internal market would not only defend Canada against external economic shocks but also realize the long-held promise of Confederation: a union of shared prosperity.

Premiers, it’s time to tear down these walls.

Policy contributor Anil Wasif is Manager of Research at Infrastructure Ontario. He sits on the advisory board of the Max Bell School at McGill University and the Governing Council at the University of Toronto. He is Trustee and Director of Strategy at BacharLorai and is its Official Civil Society Representative to the United Nations and the World Bank Group.

His opinions are his own, and do not reflect the views of any organizations with which he is affiliated.