Freer trade will benefit Atlantic provinces more than others
When many people think about threats to free and open trade to Canada, they immediately consider the protectionist outlook of outgoing 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 (which 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. Of perhaps greatest importance are the trade barriers that exist within Canada itself, between our provinces. The issue attracts less attention than it should, and removing these barriers is one important action policymakers across the country can take to help encourage prosperity in the years ahead.
There is a fairly straightforward case for removing barriers to trade between Canada’s provinces. Simply put, there are a number of restrictions that inhibit labour mobility as well as the free trade of goods and services. Further, trade barriers add regulatory burdens on businesses. Together, these factors weaken the economy and reduce economic well-being in all ten provinces. Barriers to trade, whether international or interprovincial, also have the effect of raising 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.
However, in addition to the problems of burdensome regulation and higher prices, there is 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.
Importantly, a related study also found that for the country as a whole, existing trade barriers effectively raise prices on goods and services by 7.8 per cent 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, there is much more that could be done.
Following the COVID-19 recession, provinces all across the country should be looking for pro-growth policy options that can help encourage economic recovery. Removing interprovincial trade barriers is one way provinces across the country, but especially in Atlantic Canada, can help achieve these objectives.