Canada’s own trade barriers are as bad as Donald Trump’s tariffs

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Trade has dominated the conversation in Canada since Donald Trump won the U.S. election and threatened to slap a 25 per cent tariff on all imported goods.

Now with his inauguration just days away, it’s a good time to reflect on the trade barriers within our own country, said Stéfane Marion, chief economist of National Bank of Canada.

Marion in his note cites a 2019 study by the International Monetary Fund — “regarded as the most comprehensive analysis of internal trade barriers” — that found in many cases foreign companies are getting better access to Canada’s market than Canadian companies themselves.

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This country has entered into trade agreements with more than 40 nations since its first free trade agreement in 1989 with the United States, said the IMF. But “compared to an ambitious and successful international trade strategy, progress in reducing internal trade barriers across Canada has not kept pace.”

These barriers are the result of what provinces control and the varying regulations they set to control them — whether it’s quotas, trucking requirements, business registrations or professional licensing.

All told, non-geographic internal trade barriers in Canada add up to a tariff equivalent of 21 per cent, the IMF estimates.

As Marion’s chart below shows that is a much stiffer hit than the 3 per cent that these same barriers impose on the United States.

The IMF says the benefits of removing these internal trade barriers would be huge. It estimates that if trade in goods was fully liberalized, real gross domestic product per capita would increase by 4 per cent nationally, with internal trade volumes rising to the level of Canada’s international trade.

Labour mobility would increase, boosting employment in the Atlantic provinces by 6 per cent.

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Removing the barriers would also boost international trade by providing easier access to the entire Canadian market, the study said.

The Canadian Federation of Independent Business has long recognized this problem and this week sent a letter to the premiers urging them to “take bold action on interprovincial trade” while Canada faces the tariff threat abroad.

“It’s ridiculous that it’s still easier for Canadian small firms to do business overseas or across the border than within their own country,” said Chorine Pohlmann, CFIB’s executive vice-president of advocacy.

“The solution is a no-brainer. This is an SOS call to all governments: reduce red tape, eliminate internal trade barriers, and ease the tax burden on small businesses.”

Over the decades, interprovincial trade has declined relative to international trade from 50 per cent to 40 per cent, said Marion.

“It’s time to stop scoring own goals and start unlocking our full economic potential,” he said.

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Stock markets blasted off yesterday after data showed a surprise slowdown in U.S. inflation. The consumer price index rose less than forecast in December, bringing bets of a Federal Reserve rate cut back to life. Traders are now fully pricing in a reduction by July, Bloomberg reports. It’s an about-face from last week’s hotter-than-expected jobs numbers that boosted speculation the Fed would not to cut at all this year or even hike.

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Wednesday, stocks erased their losses for 2025 in the best consumer price index day since at least late 2023, according to Bloomberg data.

• Today’s Data: Canada housing starts, United States retail sales, NAHB housing market index
• Earnings: Morgan Stanley, Bank of America Corp., U.S. Bancorp, Richelieu Hardware Ltd.

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Today’s Posthaste was written by Pamela Heaven, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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