Canada is tariffing itself with interprovincial trade barriers, says IMF report

A sign advertising the International Monetary Fund/World Bank Spring Meetings is seen outside the IMF headquarters in Washington, DC, on April 17, 2025. Photo by JIM WATSON/AFP via Getty Images

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Canada’s interprovincial trade barriers amount to an estimated nine per cent internal tariff, according to the International Monetary Fund (IMF).

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Cross-province service barriers are responsible for much of the tariff, with the IMF estimating it’s as high as 40 per cent in sectors such as health care and education. Lift the barriers, however, and the economy could potentially grow by seven per cent, Federico Díez and Yuanchen Yang, said in a report that was released on Tuesday.

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“The Canadian economy remains much less integrated than its global footprint would suggest,” they said. “Goods, services and workers face significant barriers when moving across provincial and territorial lines — a fragmentation that affects productivity, competitiveness and overall resilience.”

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Eliminating service barriers would make the most difference, Díez and Yang said, estimating that much of the potential gain in gross domestic product by ending the barriers would come from finance, transport and telecommunications. “This reflects (services’) growing weight in the economy and their role as inputs into nearly all other activities.”

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They said reducing or eliminating barriers in those sectors would make it easier to open and expand a business, increase the movement of labour and support investment in “high-productivity activities.”

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Weak productivity has hurt Canada’s economy for the past quarter-century, Nicolas Vincent, external deputy governor at the Bank of Canada, said in a speech in November last year.

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“Years of weak business investment mean productivity in Canada is lower than it could be,” he said.

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That creates a vicious cycle of stagnating wages, lower household spending and less demand for products and services.

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Vincent encouraged competition in sectors such as telecommunications, financial services and transportation.

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There has been some progress in removing goods and labour barriers. For example, the federal government in June passed Bill C-5, which granted federal recognition to goods, services and workers that meet requirements in one province.

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But provinces, which have the constitutional right to set licensing standards and procurement and services rules, also have not done likewise.

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“These frictions are economically consequential,” Díez and Yang said, estimating that stripping away interprovincial trade barriers would boost Canada’s economy by about seven per cent per year, or $210 billion.

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The authors said doing so would be the “gift that keeps on giving” because it will come from increased productivity, better competition and more efficient use of capital and labour.

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But 65 per cent of Canadian businesses said they didn’t have any interprovincial sales due to a “lack of interest,” while 8.6 per cent said they avoided interprovincial trade due to barriers, according to a Statistics Canada survey in 2023, the most recent data available.