The Growing Imperative for Internal Free Trade in Canada

The upcoming 2024 presidential election in the United States is generating concern in Ottawa about the prospects of further protectionist trade in the U.S.

When he was president, Donald Trump threatened to remove the U.S. from the North American Free Trade Agreement (NAFTA), and imposed tariffs on imports of Canadian steel and aluminum products. He’s also threatened to impose a 10 per cent across-the-board tariff on manufactured imports if re-elected.

Meanwhile, President Joe Biden has been a major supporter of U.S. trade unions. His continued presidency would therefore also pose risks to Canadian manufactured and energy exports to the U.S.

Hence, Canadian policymakers should enhance the contribution of trade liberalization to Canada’s overall economic growth by eliminating barriers to interprovincial trade along with impediments to the inter-provincial mobility of capital and labour.

According to estimates, interprovincial trade barriers add between eight and 14.5 per cent to the prices of goods and services in Canada, which implies direct economic costs of around $32 billion a year. Barriers to trade and labour mobility also contribute to slower productivity growth in the economy.

Prominent non-tariff internal barriers to trade and labour mobility in Canada include dairy quotas, restrictions on the sale of alcoholic beverages to customers in other provinces, and sector-specific regulations that differ across provinces/territories, particularly vehicle weight and dimension standards.

The federal government should encourage the provinces to liberalize trade within Canada, especially given growing trade protectionism in the United States.

Author:

Steven Globerman

Senior Fellow and Addington Chair in Measurement, Fraser Institute

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