Canada’s GDP Could Rise 7% by Removing Internal Trade Barriers: IMF
The International Monetary Fund (IMF) has released an insightful report indicating that Canada could achieve a significant economic boost by removing internal trade barriers. The report, published on Tuesday, highlights that eliminating these restrictions could enhance Canada’s real Gross Domestic Product (GDP) by approximately seven percent over the long term. This translates to an estimated increase of $210 billion in GDP. The IMF underscores that addressing these barriers reinforces the necessity for substantial reforms across the country.
Impact of Internal Trade Barriers
The IMF’s findings suggest that existing interprovincial trade barriers effectively act as a nine percent tariff nationwide. This fragmentation imposes considerable obstacles on the movement of goods, services, and labor between provinces and territories, adversely impacting productivity and competitiveness. The costs are primarily concentrated in the services sector, which accounts for the majority of trade among provinces.
Sector-Specific Barriers
Particularly striking is the presence of high tariffs in some sectors. For instance, healthcare and education services face barriers equivalent to a 40 percent tariff. These uneven trade restrictions disproportionately affect smaller provinces, resulting in significantly higher costs in sectors like health, retail, and professional services.
Recent Trade Agreements
In light of ongoing discussions surrounding internal trade, some provinces have initiated agreements to alleviate certain restrictions. A comprehensive deal was signed in November by the provinces, territories, and federal government to facilitate the free trade of tens of thousands of goods. Effective December, this agreement permits trade across most product categories but notably excludes food, beverages, tobacco, plants, and animals.
- This agreement has received mixed reactions, particularly as it leaves most services—critical for GDP growth—unliberated.
- According to the IMF, around 80% of prospective GDP gains derive from relaxing barriers within the services sector.
Effects on Different Provinces
The potential impact of fully eliminating trade barriers will vary across provinces. Smaller provinces, such as Prince Edward Island, could see substantial percentage gains in GDP per worker, with estimates approaching a 40 percent change. In contrast, larger provinces like Ontario and Quebec may experience a relatively smaller impact, estimated between four to six percent, although they would still see a significant increase in absolute terms.
The Path Forward
The IMF emphasizes that this internal integration is more than just a reallocation; it represents a national productivity dividend. However, realizing these gains requires time and effective coordination among provinces. The IMF asserts that Canada’s economic landscape will be shaped by how it manages both domestic markets and global economic relationships.
The report concludes with a compelling message: “The opportunity is now. The prize is large.” Transforming Canada’s disparate economies into a cohesive market is not merely aspirational; it is an urgent economic necessity.
