Canada could gain nearly 7% in real GDP by removing internal trade barriers, says IMF

Canada's economic system could clear nearly vii per cent, or $210 one million million, in existent GDP by fully removing internal trade barriers between the country’s 13 provinces and territories, according to a report published Tuesday by the International Monetary Fund (IMF).

On average, the barriers are the equivalent of a nine per cent tariff nationally, estimates the report, which was co-authored by IMF researchers Federico J. Diez and Yuanchen Yang with contributions from University of Calgary economist Trevor Tombe.

That would-be tariff is even higher in service-oriented sectors like healthcare and educational services — more than 40 per cent — where professional mobility between provinces is highly regulated. 

"Such a level would be prohibitive in most international trade agreements," the authors wrote. For comparison, the Bank of Canada estimates that the U.S.'s average tariff rate on Canada was 5.9 per cent in November 2025.

The report also notes that smaller provinces and the northern territories are disproportionately impacted by internal trade barriers, facing higher costs compared to bigger provinces with diversified economies.

"The result is a patchwork economy where geography and regulation jointly shape opportunity — and where advantages that normally come with scale are muted," the report says.

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The Atlantic provinces would benefit the most from the removal of trade barriers, according to the report. Prince Edward Island in particular stands to save nearly 40 percentage points in real GDP per worker by removing those internal trade costs, it says.

While some industries have been pushing for the removal of internal trade barriers for years, the movement gained wider recognition last year after U.S. President Donald Trump imposed tariffs on Canada, forcing both the federal and provincial governments to look inward for more trade opportunities.

To date, some provinces, like Ontario and Manitoba, have signed bilateral memorandums of understanding. The issue moved forward nationally in November when the federal government, the provinces and the territories signed an agreement to drop trade barriers on most goods except alcohol and food.

However, services — which make up the vast majority of internal trade costs, according to the IMF, and which would make up about four-fifths of the GDP gains outlined in the report — were largely exempt from that agreement.

The report points to finance, telecom, transportation and professional services as far-reaching sectors that "ripple through the economy" and raise costs for all of the businesses they touch.

"The evidence is clear: internal barriers remain large, economically costly, and increasingly out of step with the needs of a modern, vibrant, service-intensive economy," the authors wrote.

"Removing them offers one of the most powerful — and least fiscally costly — levers to raise productivity, strengthen resilience, and support inclusive growth."

Journalist

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