Freer cross-Canada trade will most benefit Atlantic provinces

A number of restrictions inhibit labour mobility, as well as the free trade of goods and services. And trade barriers add regulatory burdens on businesses

By Ben Eisen
and Alex Whalen
The Fraser Institute

When many people think about threats to free and open trade to Canada, they immediately consider the protectionist outlook of departing U.S. President Donald Trump. In 2020, another obstacle to the free movement of products and people across boundaries has been the COVID-19 pandemic.

However, even if the United States does adopt a more trade-friendly approach in the coming years (it may or may not), and even as the public health crisis from the pandemic eventually subsidies, there will still be important barriers to trade that are harmful to the Canadian economy.

Ben Eisen
Ben
Eisen

Of perhaps greatest importance are the trade barriers that exist within Canada, between our provinces.

The issue attracts less attention than it should, and removing these barriers is one important action policy-makers across the country can take to help encourage prosperity in the years ahead.

There’s a fairly straightforward case for removing barriers to trade between Canada’s provinces. There are a number of restrictions that inhibit labour mobility, as well as the free trade of goods and services. And trade barriers add regulatory burdens on businesses.

These factors weaken the economy and reduce economic well-being in all 10 provinces. Barriers to trade, whether international or interprovincial, also raise prices by restricting the options available to consumers.

As we wrote recently, these barriers often serve no legitimate purpose yet frustrate commerce and add to the regulatory burden associated with doing business. For example, regulations across provinces have mandated different standards for the size of coffee creamers, bus braking mechanisms and the packaging of hay.

Alex Whalen Fraser
Alex Whalen

However, in addition to the problems of burdensome regulation and higher prices, there’s another reason why Atlantic Canadian governments in particular should be interested in this issue. Research shows that lower income regions generally benefit more from freer trade than higher income regions.

A recent study authored by University of Calgary economist Trevor Tombe and released by the Fraser Institute can shed some light. Citing 2019 data, the study estimates that for Canada as a whole, the removal of trade barriers could add $90-billion to the economy. Broken down by province, Prince Edward Island ranks first in terms of the potential gains, while Newfoundland is second and New Brunswick ranks fourth.

A related study found that for the country as a whole, existing trade barriers effectively raise prices on goods and services by 7.8 to 14.5 per cent, which can strain the budgets of households and businesses.

The four Atlantic provinces have made some progress in this area through regulatory adjustments, and have committed to the principles of freer trade and lower regulatory burden. However, much more can be done.

Following the COVID-19 recession, provinces across the country should look for pro-growth policy options that can help encourage economic recovery. Removing interprovincial trade barriers is one way all provinces, and especially in Atlantic Canada, can help achieve these objectives.

Ben Eisen is a senior fellow and Alex Whalen is a policy analyst at the Fraser Institute.

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