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Reducing interprovincial trade barriers is a worthy goal in its own right that could boost Canada’s economy in the long run, but it’s not going to offset the short-term damage that U.S. tariffs would inflict, according to RBC Economics.

In a report published Tuesday, an economist at the bank examines the potential consequences of dismantling internal trade restrictions — an idea that’s being touted as a possible response to increased trade conflict with the U.S. 

While the report said that efforts to reduce internal trade barriers would be a good thing — likely bolstering growth, and improving productivity and labour mobility — it also cautioned that “dismantling the barriers to interprovincial trade isn’t entirely straightforward, nor is it a silver bullet solution to the many challenges that Canada’s growth faces.”

For one, the value of trade between Canada and the U.S. is about double the size of interprovincial trade in goods and services, and the short-term impact of U.S. tariffs would be severe. 

RBC projects that real GDP growth could be reduced to zero this year, and to contract by 2% in 2026, if permanent 25% U.S. tariffs are introduced.  

“While internal trade liberalization would enhance Canada’s long-term economic growth, it would not fully offset the immediate consequences of U.S. tariffs,” it said.

At the same time, the size and timing of the benefits of eradicating internal barriers is uncertain, the report said.

For example, a study from the Bank of Canada in 2017 suggested that a 10% reduction in interprovincial trade barriers could improve potential output growth on average by 0.2% per year — while other research has found that eliminating these barriers “could boost national growth by between 3% and 8% in the long-term,” the report said. “This would represent a potential gain of up to $200 billion annually, or thousands per person.”

Yet, the feasibility and the timing of realizing these gains are also uncertain — while some changes could take effect relatively quickly, others would take longer to play out.

“For example, standardizing trucking requirements, mutually recognizing professional credentials, and removing restrictions on the sale of goods and services between provinces,” could immediately boost the economy, the report suggested.

Whereas efforts to ease geographic trade barriers would take much longer, requiring “significant investment in trade-enabling infrastructure,” it said. 

As well, these benefits wouldn’t be distributed equally. 

Smaller, far-flung provinces such as Newfoundland and Labrador, Nova Scotia and Prince Edward Island face some of the highest added costs on their goods due to these barriers, so they would benefit most from their removal.

At the same time, industries in the service sector face some of the largest costs due to differences in provincial regulations — and would benefit most from reducing these hurdles. 

“Since many services — such as legal and financial services — are critical inputs for other industries, reducing barriers in this sector could create a compounding effect, benefiting multiple areas of the economy,” the report said.

At the same time, there would likely be negative fallout for certain businesses and industries from dismantling restrictions, it also noted. 

“Provinces have distinct economic priorities and have implemented these measures to protect their domestic economies, and not necessarily to reduce trade efficiency. These barriers often reflect efforts to support local industries, maintain regulatory standards, and ensure economic stability within their jurisdictions,” the report said.

Ultimately, the report suggests there would likely be an adjustment period, before the economy overall realized the benefits of internal free trade.