Canada’s business community looks with concern south of the border as Donald Trump is set to be sworn in as president of the United States for the second time – and is urging governments to get serious about mitigating impacts by increasing trade between provinces.
Trump has threatened to impose 25 percent tariffs on Canadian goods entering the United States, with a government source close to Ottawa’s plans telling Global News on Friday that if the United States acts, the prime minister Justin Trudeau will announce a quick consultation period – perhaps two weeks. – on an initial round of tariffs that would cover approximately $37 billion in U.S. imports, with implementation following immediately thereafter.
According to the source, these would be the least painful counter-tariffs, because they would cause the least economic damage to Canadians.
Depending on the initial amount of U.S. tariffs on Canada, Trudeau could also announce consultations on tariffs covering about $110 billion more in U.S. goods, the source said.
Faced with the economic crisis that Trump’s tariffs would cause, some experts are calling on Ottawa to eliminate barriers that make trade between one Canadian province and another difficult.
Fen Osler Hampson, co-president of Expert Panel on Canada-US Relations at Carleton University, said Canadian provinces have a chance to turn crisis into opportunity. He said one way to do this would be to eliminate barriers that hinder interprovincial trade.
Even though the volume of trade between Canada and the United States is more than $960 billion, Hampson said eliminating certain trade barriers could offset some of the impacts of Trump’s tariffs.
“They say comprehensive tariffs could reduce Canadian GDP by 2 to 4 percent,” he said.
“If we completely eliminated barriers to interprovincial trade, it would increase Canada’s GDP by four to seven percent. So it would be quite substantial.
The 2024 fall economic statement also took note of this data, citing IMF figures.
The budget document stated: “According to an International Monetary Fund study, Canada could increase its GDP per capita by up to 4 percent, or $2,900 per capita estimated in 2023 dollars, through the liberalization of domestic trade in goods.” . »
Speaking to reporters in Washington, D.C., Foreign Affairs Minister Mélanie Joly said removing trade barriers would 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 making sure there are no trade barriers between provinces and territories across the country,” he said. she declared.
What barriers could fall?
A spokesperson for the Canadian Chamber of Commerce said easing the barriers would help protect Canada from Trump’s tariff impacts.
“Every year, Canada loses more from barriers between provinces than from the 25% tariffs imposed by Trump,” Rewa Mourad said in a statement sent to Global News.
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“It’s time to reclaim our history: let’s tear down these walls and unleash Canada’s full potential. The increase in GDP over time could be significant and would better protect us from the impacts of U.S. tariffs.
Dennis Darby, president and CEO of Canadian Exporters & Manufacturers, said barriers to interprovincial trade “are not about money.”
“It’s about regulations and rules and requirements,” he said.
“There are often regulatory requirements at the local, provincial and federal levels to initiate a new project. This delays investment and to some extent discourages investment (in Canada).
Darby said different rules regarding trucking, for example, discourage Canadian manufacturers from shipping products to other parts of the country.
“Some provinces allow double tandem trailers, others do not. Some have weight restrictions, others don’t. You imagine trying to ship products across Canada where each province has different rules that discourage this trade,” he said.
“It is sometimes easier to move a truck to the United States than from Atlantic Canada to Ontario. »
Hampson said Canadian provinces also have asymmetrical labor regulations regarding who can work in which province.
“If you’re a trader in Ontario, let’s say you live in Ottawa. You can’t go and market your skills across the Ottawa River (in Quebec),” he said, “even though Ontario allows Quebecers to cross the river and work from there. On the other hand, there are therefore not always symmetrical restrictions.
He added that this also extends to licensed professionals such as doctors and lawyers.
“If you have mastered 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 impact of inconsistent transportation policy, work stoppages at Canada’s ports and railways and the Canada Post strike in recent years.
“We need a smooth transportation system to keep our supply chains running and remaining efficient,” he said.
Why is it difficult to break down barriers?
Hampson said some provinces have long been reluctant to eliminate trade barriers because they want to protect their businesses.
“One of the reasons these protections are in place is because some companies and producers are not competitive,” he said, adding that removing some barriers could mean some companies might need to provincial assistance.
However, he added that removing these barriers could also mean businesses across Canada become more competitive and productive.
Poirier said there is also a lot of provincial revenue tied to certain trade barriers. For this to work, Poirier said governments would either have to compensate each other for lost revenue or decide that the benefits outweigh the costs.
“I don’t think we’re there yet,” he said.
He added that this would also require a high degree of cooperation between provinces.
However, Hampson said the trade crisis with the United States could push provincial governments to act. And the revenue they get from it could offset some of their fears.
“The increase in GDP (through removing barriers) would, by some estimates, bring $15 billion or more into federal and provincial coffers,” he said.
Darby said the benefits of easing some restrictions would be immense.
“It is high time that Canada concluded a country-wide free trade agreement, just as we concluded a free trade agreement (with the United States),” he said.
— with reporting from Mercedes Stephenson of Global