One easy way to offset the damage of Trump’s tariffs

As the threat of tariffs looms over the Canadian economy, businesses, industry associations and policymakers are scrambling to find the right response.

If Donald Trump follows through on his threatened tariffs, economists say Canada’s GDP would fall sharply, unemployment would rise, inflation would soar and the Bank of Canada would be forced to increase interest rates.

But one simple way of offsetting the impact of tariffs has nothing to do with the United States.

Long-standing trade barriers between the provinces and territories act as a drag on economic growth, prevent businesses from expanding into new markets and make it harder on workers to move. Removing those barriers could boost the economy by more than the expected damage from Trump’s tariffs.

“Removing non-geographic internal trade costs increases trade volumes as a share of GDP by roughly 15 percentage points,” wrote University of Calgary economist Trevor Tombe in a 2019 paper for the International Monetary Fund. 

That study found real GDP per capita would rise by 3.8 per cent nationally. Smaller provinces would see some of the biggest gains. The authors found real GDP in a province like P.E.I. could increase by as much as 16 per cent.

Graham Sherman started a brewing company in Calgary more than 15 years ago. It’s won awards and been named among Calgary’s top breweries. Tool Shed Brewing Co. now produces as much as two million litres of beer a year.

But for all his success in Alberta, Sherman still can’t sell his beer in Ontario.

“That province almost acts like a cartel. It’s virtually impossible to get our beer into Toronto,” he told CBC News.

For years, Sherman has been trying to crack the biggest market in Canada. But he says the provincial alcohol distributors impose strict control over who can sell to consumers.

He says the enormous Ontario market would be a game-changer for his business.

“In my own country, I don’t have access to the most unbelievable, incredible retailer of alcohol,” he said, referring to the Liquor Control Board of Ontario, that province’s near-monopoly on alcohol sales. 

“And I have some of the products that are virtually the best in the country.”

Myriad rules

The list of provincial trade barriers is long.

The biggest and hardest to change, of course, is geography. Canada is a big country and shipping goods across it takes time and money. But geographic trade barriers only make up 57 per cent of the trade barriers faced by Canadian businesses.

Myriad rules and regulations, labelling requirements and shipping procedures stack up and make it difficult to move goods from one jurisdiction to another. Professional licensing standards and trade qualifications vary greatly from…