As the threat of tariffs looms over Canada’s economy, businesses, industry groups and policy makers are scrambling to find the right response.
Economists say that carrying out President Donald Trump’s threatened tariffs would significantly reduce Canada’s GDP, increase unemployment, spike inflation and force the Bank of Canada to raise interest rates. There is.
But one easy way to offset the impact of tariffs has nothing to do with the United States.
Long-standing trade barriers between states and territories have hampered economic growth, prevented businesses from expanding into new markets and made it difficult for workers to move. Removing these barriers could boost the economy beyond the expected damage from President Trump’s tariffs.
“Reducing non-geographic domestic trade costs would increase trade volume as a share of GDP by about 15 percentage points,” University of Calgary economist Trevor Tombe said in a 2019 paper for the International Monetary Fund. .
The study found that real GDP per capita would increase by 3.8 percent nationally. Smaller states would benefit the most. The authors found that real GDP for states like P.E.I. could increase by up to 16 percent.
Graham Sherman founded his brewing company in Calgary over 15 years ago. It has won numerous awards and is considered one of Calgary’s top breweries. Tool Shed Brewing Company currently produces 2 million liters of beer annually.
But despite all this success in Alberta, Sherman still hasn’t been able to sell its beer in Ontario.
“That province almost operates like a cartel. It’s virtually impossible to get our beer into Toronto,” he told CBC News.
For years, Sherman has been trying to tap into Canada’s largest market. But the state’s alcohol distributors impose strict controls on who can sell to consumers, he said.
He says Ontario’s huge market will be a game-changer for his business.
“In my country, we don’t have access to the most incredible, incredible alcohol retailers,” he said, referring to the Ontario Liquor Control Board, which has a near monopoly on alcohol sales in the province. he said.
“And I have some of the virtually best products in the country.”
countless rules
The state’s list of trade barriers is long.
Of course, the biggest and most difficult thing to change is geography. Canada is a large country, so shipping goods into the country takes time and money. However, only 57% of trade barriers faced by Canadian businesses are geographical.
A myriad of rules and regulations, labeling requirements, and shipping procedures combine to make it difficult to move goods from one jurisdiction to another. Professional licensing standards and trade qualifications vary widely from state to state. Business registration fees have increased.
Sherman says that when people ask why it is so difficult to make change, they are told, “It’s always been done that way.”
However, changes have been made.
In September, the federal government launched a pilot project to “mutually recognize regulatory requirements in the trucking sector.”
As spectacularly boring as it may sound, transportation remains one of the most important factors in allowing goods to move freely within an economy.
A common example of an internal barrier is that Nova Scotia has different weight limits for certain 18-wheel transport trucks. That means trucks that reach their legal capacity in British Columbia will have to be unloaded or modified before entering Nova Scotia.
The pilot project does not actually change that rule, but it does require each state to respect the regulations of other jurisdictions.
The Canadian Trucking Alliance says that will lead to more opportunities.
“Canada travels by truck, and it’s important for governments at all levels to come together to identify and eliminate trade barriers for trucking equipment, drivers and their goods,” Alliance President Stephen Laskowski said in a statement. “This is an important step towards improving mobility.”
Great potential improvement
The Canadian Federation of Independent Business (CFIB) says in its latest report on interprovincial cooperation that half of its members report problems in addressing regulatory requirements across Canada’s various jurisdictions. .
“As a result, many small businesses report that they find it easier to do business in the United States than within Canada,” the CFIB reported.
The group says eliminating domestic trade barriers could boost Canada’s economy by up to $200 billion a year, or $5,100 per capita.
Easy and free access to markets is a fundamental promise of free trade. Canada has spent years pursuing and prioritizing free trade agreements with the United States and Mexico, as well as Europe and Asia.
Many small businesses in Canada say interprovincial trade is equally important and necessary.
But now anti-free trade sentiment is on the rise. Tariffs are being threatened by the United States and other close allies.
So Tombe, the economist, says there is an opportunity to fulfill Canada’s long-held promise to remove barriers within Canada.
“In a world where many things are increasingly beyond our control and negatively impacting the health of Canada’s economy, it is increasingly important that we look to those within our jurisdiction. ” he said.
Could President Trump’s threats ultimately prompt Canadian provinces and territories to address these barriers? Tombe says it’s a political issue, not an economic one.
But he says the numbers tell a clear story.
“If this doesn’t make governments think more, we are missing an important opportunity,” Tombe said.
