Key Takeaways
- Canada’s economy could gain nearly 7% ($210 billion) in real GDP by removing internal trade barriers between provinces and territories.
- Regulation-related barriers are equivalent to a 9% tariff nationally, and over 40% in service-oriented sectors like healthcare and education.
- Smaller provinces and northern territories are disproportionately impacted by internal trade barriers, facing higher costs compared to larger provinces.
- The Atlantic provinces, particularly Prince Edward Island, would benefit the most from the removal of trade barriers.
- Removing internal trade barriers could raise productivity, strengthen resilience, and support inclusive growth.
Introduction to Internal Trade Barriers
The International Monetary Fund (IMF) has published a report stating that Canada’s economy could gain nearly 7% ($210 billion) in real GDP by fully removing internal trade barriers between the country’s 13 provinces and territories. The report, co-authored by IMF researchers Federico J. Diez and Yuanchen Yang, with contributions from University of Calgary economist Trevor Tombe, estimates that regulation-related barriers are equivalent to a 9% tariff nationally. This tariff is even higher in service-oriented sectors like healthcare and education, where professional mobility between provinces is highly regulated, with a tariff equivalent of over 40%. For comparison, the Bank of Canada estimates that the U.S.’s average tariff rate on Canada was 5.9% in November 2025.
The Impact of Internal Trade Barriers
The report notes that smaller provinces and the northern territories are disproportionately impacted by internal trade barriers, facing higher costs compared to larger provinces with diversified economies. The result is a patchwork economy where geography and regulation jointly shape opportunity, and where advantages that normally come with scale are muted. The Atlantic provinces would benefit the most from the removal of trade barriers, according to the report. Prince Edward Island, in particular, stands to save nearly 40 percentage points in real GDP per worker by removing those internal trade costs. The evidence is clear: internal barriers remain large, economically costly, and increasingly out of step with the needs of a modern, vibrant, service-intensive economy.
The Fragmented Nature of Canada’s Economy
Alicia Planincic, director of policy and economics at the Business Council of Alberta in Calgary, notes that due to the trade barriers between provinces, "Canada isn’t really one economy. It’s really 10 economies." Smaller provinces are more likely to rely on trade with other provinces, which is why removing internal barriers in those regions would have a bigger impact than in Ontario or Alberta. It’s not just a matter of moving goods across provincial borders, either. There are a lot of inefficiencies where it’s more difficult for folks who see a job opportunity in another province to move to that province or for businesses to expand their operations and sell to new markets right here in Canada.
Recent Developments and Challenges
The movement to remove internal trade barriers gained wider recognition last year after U.S. President Donald Trump imposed tariffs on Canada, forcing both the federal and provincial governments to look inward for more trade opportunities. To date, some provinces, like Ontario and Manitoba, have signed bilateral memorandums of understanding. The issue moved forward nationally in November when the federal government, the provinces, and the territories signed an agreement to drop trade barriers on most goods except alcohol and food. However, services, which make up the vast majority of internal trade costs, according to the IMF, and which would make up about four-fifths of the GDP gains outlined in the report, were largely exempt from that agreement.
The Way Forward
The report points to finance, telecom, transportation, and professional services as far-reaching sectors that "ripple through the economy" and raise costs for all of the businesses they touch. Ultimately, it will be up to the provinces to make progress on internal trade barriers, said Planincic. "It’s partly political will. It’s also partly that it is quite complicated," she said. There’s this idea that it’s sort of this singular thing that we just need to get together and remove. But in fact, it’s many, many thousands of rules and regulations that are different province to province. And so there’s quite a lot of work and complexity involved with figuring out how do they align from one province to the next. Removing internal trade barriers could raise productivity, strengthen resilience, and support inclusive growth, making it a crucial step towards creating a more unified and efficient Canadian economy.