Canada has free trade agreements with 51 countries, yet it has never achieved actual free trade within its borders (Collins, "Canada’s Free Trade Agreements"). Canada’s economy has long been defined by its reliance on international trade, particularly with the United States. However, the Trump Administration announced 25% tariffs on all Canadian imports in March 2025, with threats from the Trump Administration that this figure will rise - further highlighting the need for Canada to strengthen its internal trade. Inter-provincial trade, the exchange of goods and services between provinces, accounts for only around 19% of Canada’s GDP (Government of Canada, "Timeline of Federal Leadership Advancing Internal Trade"). Meanwhile, the U.S. accounts for 77% of Canada’s total goods exports (Scotiabank Economics, Trade Stats – January 31, 2025). This overreliance on global markets, particularly the U.S., makes Canada vulnerable to external shocks, such as tariffs and geopolitical tensions. As global trade dynamics shift, Canada must look inward to build a more resilient and self-sufficient economy.

What is Inter-Provincial Trade?

Inter-provincial trade refers to the exchange of goods, services, and investments between Canada’s provinces and territories. It encompasses resources that span the country, including Alberta’s oil exports, Ontario’s manufacturing goods, Quebec’s hydroelectric power, and the Maritimes’ seafood and fisheries. Unlike international trade, which is subject to tariffs and geopolitical risks, inter-provincial trade operates within a single national framework. However, inter-provincial trade remains underdeveloped, contributing only 36% to Canada’s trade activity, compared to 64% for international exports (Scotiabank Economics, Trade Stats – January 31, 2025). Even within Canada, “free” trade doesn’t truly exist, as provincial barriers such as differing regulations and infrastructure gaps continue to hinder the flow of goods and services. This imbalance underscores the untapped potential of internal trade to drive economic growth and resilience.

State of Inter-Provincial Trade: The Good and the Bad

Inter-provincial trade plays a crucial role in Canada’s economy, particularly in key sectors like energy, agriculture, and manufacturing. For example, Alberta’s oil and gas exports to other provinces and Quebec’s hydroelectric power sales to Ontario are prime examples of successful collaboration (Natural Resources Canada, Clean Energy Projects). However, significant barriers persist. Each province has its own rules for standards, licensing, and procurement, creating unnecessary friction (Canadian Chamber of Commerce, Breaking Barriers). Poor transportation networks between provinces increase costs and delays, while many businesses remain unaware of opportunities in other provinces, leading to missed economic potential. The decline in inter-provincial trade from 55% of total trade flows in the early 1980s to 36% today highlights the need for renewed focus on the internal Canadian trade system (Scotiabank Economics, Trade Stats – January 31, 2025).

Barriers to Interprovincial Trade

Despite its potential, inter-provincial trade faces significant barriers that hinder its growth. These barriers can be categorized into two main sectors: geographic barriers and non-geographic barriers. Geographic barriers, such as the vast distances between provinces and harsh weather conditions, impose visible costs like transportation expenses. However, non-geographic barriers, such as regulatory differences and licensing requirements, are often more hidden and difficult to measure. A 2020 Statistics Canada study found that the burden of internal trade barriers is equivalent to an average 6.9% tariff cost on goods, while a 2019 International Monetary Fund (IMF) study estimated the cost of non-geographic barriers to be roughly equivalent to an average 21% tariff on trade flows (IMF Report). These barriers vary by province and are particularly challenging for smaller provinces like Prince Edward Island, Newfoundland & Labrador, and Nova Scotia, which face some of the highest costs associated with internal trade barriers. The IMF estimates that removing these barriers could lead to significant improvements in productivity and economic growth, with smaller provinces experiencing larger gains in GDP per capita and employment compared to larger provinces (IMF Report).

Canadian Free Trade Agreement (CFTA)

The Canadian Free Trade Agreement (CFTA), implemented in 2017, was designed to address these barriers by promoting the free movement of goods, services, and investments across provinces. While the CFTA has made progress, its impact has been limited. A 2023 report by the Canadian Chamber of Commerce found that "the CFTA has yet to fully eliminate the patchwork of provincial rules that hinder the free flow of goods and services" (Canadian Chamber of Commerce, Breaking Barriers). In response, the federal government has introduced recent updates to the CFTA, including an emphasis on facilitating labour mobility across the country. However, more work is needed to fully unlock the potential of inter-provincial trade. Strengthening the CFTA is essential, particularly in areas like regulatory alignment and infrastructure.

Why Inter-Provincial Trade is Critical Now

The imposition of 25% tariffs on all imports to the U.S. in March 2025 has added urgency to the need for stronger inter-provincial trade. According to The Guardian, these tariffs are expected to cost Canadian businesses $50 billion annually, with industries like automotive, agriculture, and energy being hit hardest ("Canada Braces for Impact as US Imposes Sweeping Tariffs"). Reducing Canada’s reliance on the U.S. market is essential. Currently, exports to the U.S. account for 19% of Canada’s GDP, and many sectors rely on the U.S. for 74% to 100% of their exports (Scotiabank Economics, Trade Stats – January 31, 2025). By strengthening inter-provincial trade, Canada can diversify its economic base, build resilience against global uncertainties, and create a more self-sufficient economy. This is particularly important as geopolitical tensions, such as U.S.-China rivalry and supply chain disruptions, continue to reshape global trade.

Success Stories

Despite the challenges, there are notably successful examples of inter-provincial collaboration. In the energy sector, Quebec’s hydroelectric power exports to Ontario have helped reduce reliance on fossil fuels and create a more sustainable energy grid (Natural Resources Canada, Clean Energy Projects). Similarly, Alberta and Saskatchewan’s agricultural trade ensures a steady supply of food products to other provinces. In the technology sector, British Columbia and Alberta are collaborating on cleaner tech and artificial intelligence initiatives, driving innovation and economic growth (Innovation, Science and Economic Development Canada, Interprovincial Collaboration).

A recent example comes from Nova Scotia, where the provincial government has taken steps to reduce interprovincial trade barriers. Under new agreements, goods from other provinces can be sold in Nova Scotia without “any further testing or red tape,” as Nova Scotia Premier Tim Houston stated. Additionally, workers—from plumbers and roofers to health-care professionals and teachers—can now continue their trade in the province without needing further accreditation (PPF Report). This approach not only simplifies trade but also addresses labor shortages and fosters economic growth. It’s a clear example of how reducing barriers can create immediate, tangible benefits for businesses and workers alike, highlighting the importance of practical, incremental steps toward freer trade, rather than waiting for a perfect, all-encompassing solution.

Economic Benefits

The economic benefits of reducing inter-provincial trade barriers are significant as evidenced by a 2017 Bank of Canada study suggesting that a 10% reduction in interprovincial trade barriers could improve potential output growth on average by 0.2% per year (Bank of Canada Report). Other studies have found that eliminating interprovincial trade barriers could boost national growth by between 3% and 8% in the long term, representing a potential gain of up to $200 billion annually, or thousands per person (IMF Report). Manufacturing alone accounts for 39% of total Canadian direct and indirect jobs attributable to exports, highlighting the sector’s importance to the economy (Scotiabank Economics, Trade Stats – January 31, 2025). A more integrated Canadian market would also foster innovation, making businesses more competitive globally. For example, collaboration in clean energy and technology could position Canada as a leader in sustainability and artificial intelligence.

Beyond job creation and innovation, stronger inter-provincial trade would help Canada diversify its economy and reduce reliance on the U.S. market. By building a more self-sufficient internal market, Canada can better withstand global shocks, such as tariffs and supply chain disruptions. This is particularly important as geopolitical tensions, such as the U.S.-China rivalry continue to reshape global trade dynamics.

A Call to Action

In an era of rising global trade tensions, Canada cannot afford to overlook the potential of inter-provincial trade. By breaking down barriers and fostering greater collaboration between provinces, Canada can build a more resilient, self-sufficient, and prosperous economy. This is not an easy task, as tackling all these barriers at once is unrealistic. However, as focus remains on future planning in incremental steps to adjust the CFTA and address the barriers that exist within the country. As the threat of 25% and increasing U.S. tariffs looms, the time to act is now. Businesses should explore opportunities in other provinces and advocate for reduced trade barriers. Governments must prioritize inter-provincial trade-in policies and investments, including harmonizing regulations and improving infrastructure. Canadians can support inter-provincial trade by choosing Canadian-made products and advocating for a more integrated economy. Strengthening Canada from within is not just an economic imperative—it is a path to a brighter future.

Works Cited:

Bank of Canada. The Economic Impact of Interprovincial Trade Barriers. 2017, www.bankofcanada.ca/reports.

Canadian Chamber of Commerce. Breaking Barriers: The State of Interprovincial Trade in Canada. 2023, www.chamber.ca/reports/interprovincial-trade.

Canadian Federation of Independent Business. Interprovincial Trade Report. 2023, www.cfib.ca/reports.

Collins, Patrick. "Canada’s Free Trade Agreements." Patrick Collins, 2023, www.pfcollins.com/canadas-free-trade-agreements.

Conference Board of Canada. The Economic Impact of Interprovincial Trade. 2023, www.conferenceboard.ca/reports.

Council of the Federation. Enhancing the Canadian Free Trade Agreement. 2023, www.canadaspremiers.ca/reports.

Fraser Institute. Transportation Performance Part 2. 2023, www.fraserinstitute.org/sites/default/files/TransportationPerformancePart2.pdf.

Government of Canada. "Timeline of Federal Leadership Advancing Internal Trade." 2024, www.canada.ca/en/intergovernmental-affairs/services/internal-trade/timeline-federal-leadership-advancing-internal-trade-2017-2024.html.

International Monetary Fund (IMF). Interprovincial Trade Barriers in Canada. 2019, www.imf.org/reports.

Innovation, Science and Economic Development Canada. Interprovincial Collaboration in Technology. 2023, www.ised-isde.gc.ca/reports.

Natural Resources Canada. Clean Energy Projects in Canada. 2023, www.nrcan.gc.ca/energy.

PPF (Public Policy Forum). Why Canada Wants to Finally End Interprovincial Trade Barriers. 2023, www.ppforum.ca/policy-speaking/why-canada-wants-to-finally-end-interprovincial-trade-barriers/.

Scotiabank Economics. Trade Stats – January 31, 2025. 31 Jan. 2025, www.scotiabank.com/ca/en/about/economics/economics-publications/post.other-publications.canada-and-us-economics-.canada-and-us-decks.trade-stats--january-31--2025-.html.

Statistics Canada. Interprovincial Trade in Canada. 2022, www.statcan.gc.ca/trade.

The Guardian. "Canada Braces for Impact as US Imposes Sweeping Tariffs." 12 Mar. 2025, www.theguardian.com/us-news/2025/mar/12/canada-tariffs-us.

University of Calgary School of Public Policy. Opening Canada’s North. 2018, www.policyschool.ca/wp-content/uploads/2018/06/Opening-Canadas-North-Fellows-Tombe.pdf.