When Mark Carney became Canada’s prime minister in the spring, he offered a seemingly simple and obvious answer to the economic threat posed by President Trump’s tariffs on Canadian exports: Trade more within Canada.
To that end, Mr. Carney, the leader of the Liberal Party, promised to eliminate rules and laws that stifle the movement of goods and many workers inside the country by July 1, Canada Day, after decades of national hand-wringing over the issue.
Mr. Carney, a rookie politician and former central banker, met his goal after his government pushed a bill through Parliament last week meant to do away with trade and other barriers under federal control.
“We will give ourselves more than any foreign nation can ever take away by building one Canadian economy — the strongest economy in the G7,” Mr. Carney said in a statement, referring to the Group of 7 leading industrialized nations.
But a major hurdle to building a stronger national economy remains: Canada’s 10 provinces and three territories have created their own rules and regulations that inhibit internal trade and, taken as a whole, those are considered a bigger obstacle than the federal barriers.
Economists generally agree that fully opening trade within Canada is good policy. But there is also broad consensus that the country’s vast size, its relatively small market of 40 million people and the globalization of manufacturing mean that it is unlikely to replace the U.S. market for Canadian goods anytime soon.
“It could potentially take decades for these full gains to materialize,” said Trevor Tombe, an economist at the University of Calgary.
On Sunday night, it was clear how important trade with United States remains for Canada. Mr. Carney’s government announced that it would rescind a tax on large tech companies like Google and Apple that operate in Canada. On Friday, President Trump had abruptly called off trade talks with Canada over the levy, which it was set to begin collecting on Monday.
Within Canada, the fragmenting of rules around product standards and regulations among the provinces, rather than having a single national system, adds paperwork and expenses for many businesses.
Canada’s internal barriers are considered stricter than in other federal systems like that of the United States, economists say — much less those of countries like France and Britain, with their far more centralized governments.
In a statement, the office of Chrystia Freeland, the internal trade minister, said that representatives of the provinces would meet on July 8 to “set priorities” for reducing trade barriers. Ms. Freeland added: “Free trade within Canada is about Canadians trusting each other.”
(The minister is married to a reporter on the culture desk of The Times.)
By one estimate, if all internal barriers on goods and services were removed, Canada’s economy would grow between 4.4 and 7.9 percent over the long run.
But Robert Gagné, an economist at HEC Montréal, a business school, recently co-wrote a study that found that eliminating those barriers would not lead to significant economic growth.
“Remove all the barriers — most of them are useless, stupid and unproductive, we should have done it 40 years ago,” he said. “But it won’t be enough.”
Canada’s economy will still need to rely on exports, including to the United States, economists say.
Mr. Gagné said two factors unrelated to regulations play a big role in limiting trade within Canada: transportation costs and the generally low productivity of many Canadian businesses.
“It’s cheaper to ship something from Montreal to Boston than Montreal to Calgary,” he said.
Under the new law, the federal government can accept provincial standards for products as being equal to federal ones to ease shipments across provincial borders. In promoting the bill, officials used the example of shipping a washing machine made in British Columbia.
But washing machines, along with other major appliances, have largely not been manufactured in Canada for decades. That industry, like many consumer products, abandoned Canada after the country signed its first free trade agreement with the United States in 1988. No one anticipates that Mr. Trump’s tariffs will spark a return of small, inefficient factories that once served just the Canadian market.
Many barriers are related to the ability of professionals to be licensed to work outside their home provinces.
Progress there has been limited. Nova Scotia withdrew a bill that would have recognized professional licenses from other provinces over concerns that the governing bodies of those provinces have no authority to investigate out-of-province malpractice.
Unlike most countries, Canada lacks a national securities regulator, like the Securities and Exchange Commission. That power rests with the provinces and, many argue, discourages investment in Canada because of its multiplicity of rules.
Richard Powers, a former securities lawyer who now teaches at the University of Toronto’s management school, says that the arrangement creates costly duplication of paperwork and allows stock scammers to elude regulators by moving from province to province.
After 30 years of talks, that seemed to be on the brink of changing. An office was established and staff hired to set up a national body. But in 2021, after an ever-shifting series of provincial disagreements made closing a final deal impossible, the office was shut and its staff laid off.
“It really comes down to the separation of powers in Canada between the feds and the provinces,” Mr. Power said, and pushing provinces to change the way they do business will be difficult.
“They’re not going to give their powers up,” he said.
Ian Austen reports on Canada for The Times based in Ottawa. He covers politics, culture and the people of Canada and has reported on the country for two decades. He can be reached at [email protected].
The post Can Canada Offset Trump’s Tariff War With More Domestic Trade? appeared first on New York Times.
