Canada Could Gain $210B GDP by Removing Internal Trade Barriers
Canada's economy stands to gain nearly $210 billion in real GDP—equivalent to a 7% increase—by eliminating trade barriers between its provinces and territories, according to a comprehensive study released Tuesday by the International Monetary Fund.The research, co-authored by IMF economists Federico J. Diez and Yuanchen Yang alongside University of Calgary's Trevor Tombe, reveals that regulation-related barriers between Canadian provinces effectively impose a 9% tariff on domestic trade—higher than many international trade agreements would permit.The impact is particularly severe in service sectors, where barriers reach prohibitive levels exceeding 40% in healthcare and educational services due to strict professional mobility regulations between provinces."Such a level would be prohibitive in most international trade agreements," the authors noted, highlighting that these internal barriers exceed the 5.9% average tariff rate the United States imposed on Canadian goods as of November 2025.The economic distortion creates what researchers describe as "a patchwork economy where geography and regulation jointly shape opportunity," with smaller provinces and northern territories bearing disproportionate costs compared to larger, more diversified provincial economies.Atlantic Canada emerges as the primary beneficiary of potential reforms, with Prince Edward Island positioned to gain nearly 40 percentage points in real GDP per worker through barrier elimination—underscoring the outsized impact on smaller regional economies."Canada isn't really one economy. It's really 10 economies," explained Alicia Planincic, director of policy and economics at the Business Council of Alberta, emphasizing how fragmentation limits labor mobility and business expansion opportunities within the country.The issue gained renewed urgency following former President Donald Trump's tariff impositions, which prompted federal and provincial governments to seek domestic trade opportunities. While recent agreements have addressed goods movement—excluding alcohol and food—services remain largely exempt despite representing four-fifths of potential GDP gains.The IMF study identifies finance, telecommunications, transportation, and professional services as critical sectors whose barriers "ripple through the economy," raising costs across multiple industries.However, implementation faces significant challenges. "It's many, many thousands of rules and regulations that are different province to province," Planincic noted, describing the complex alignment process required across Canada's federal structure.The research underscores a fundamental economic paradox: while Canada champions free trade internationally, internal barriers continue constraining domestic growth potential in an increasingly service-oriented economy.
