Canada’s premiers gathered last week in Charlottetown amid renewed tensions with the United States over threatened tariffs on Canadian exports. While some provincial leaders appeared focused on adopting retaliatory measures against the proposed U.S. duties, experts and observers pointed to a more pressing issue undermining Canada’s economic potential: internal trade barriers between the provinces.

In 2025, the federal government estimated that removing these interprovincial trade obstacles could boost Canada’s gross domestic product by as much as $200 billion, roughly 6 percent of the national economy or about $5,100 per citizen. Similar findings came from the International Monetary Fund, which highlighted the substantial economic drag caused by provincial restrictions on the free movement of goods, services, and labour within Canada. For comparison, the Bank of Canada earlier projected that Trump-era tariffs would reduce Canada’s GDP by approximately 1.5 percent, or $50 billion, by the end of 2026—far less than the potential gains from eliminating internal barriers.

The federal government took steps to address this issue by enacting the Free Trade and Labour Mobility in Canada Act on June 26, 2025, and removing all federal exceptions to the Canadian Free Trade Agreement (CFTA) later that year. Despite these measures, significant obstacles to internal trade remain, largely because the responsibility for regulating interprovincial commerce resides chiefly with provincial governments. While last year’s summit of premiers emphasized the importance of dismantling trade impediments and improving labour mobility, tangible progress has been limited.

Provincial premiers have made some advances, including adopting a Mutual Recognition Agreement on the Sale of Goods and negotiating labour mobility adjustments. Recently, nine provinces agreed to liberalize the interprovincial alcohol market by allowing consumers to purchase directly from wineries and breweries outside their home province. Nevertheless, many provinces maintain exceptions under the CFTA, hindering full integration. The Canadian Federation of Independent Business (CFIB) acknowledged the premiers’ efforts in signing memoranda of understanding and setting policy intentions but criticized the slow pace of actual barrier removals, assigning most provinces sub-C grades for implementation.

Comparisons have been drawn to Australia’s experience in the 1990s when the country grappled with similar interstate trade restrictions. Following a national competition policy review, Australian states collaborated to eliminate internal trade barriers, resulting in significant economic gains. Between 1990 and 2022, Australia transformed its GDP per capita position relative to Canada, surpassing the latter by over $6,500.

Observers urge Canadian premiers to follow this example by accelerating their efforts to dismantle internal barriers. Despite the symbolic value of the federal government’s legislative actions, officials stress that meaningful progress depends on provincial leadership and cooperation. Without more decisive provincial action, Canada risks foregoing substantial economic benefits at a time when external trade challenges, such as U.S. tariffs, demand a strong and united domestic economy.

At this year’s Council of the Federation summer meeting, some analysts suggest premiers should prioritize completing the internal trade agenda established last year, focusing on areas like professional licensing, financial services, trucking regulations, and infrastructure integration, rather than expending political capital on external disputes where their influence is limited. The potential economic rewards for Canadians could far outweigh the costs of unresolved internal trade frictions.