Understanding government: What can provinces do about US tariffs?

Today we continue our series on understanding federal politics--a collaboration with our sibling publication the Fraser Valley Current, which published this piece originally. In this edition we look at what authority provinces have over trade with the US, and at how provinces handle trade with one another.

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Question: How much authority does each provincial government have to choose its own response to American tariff threats? What happens if a province is in direct opposition to the response of the federal government?

The federal government is in charge of foreign policy—and that includes negotiating trade deals. It has the ability to set tariffs on incoming goods—and impose export taxes as retaliation against other countries’ tariffs. That said, each province has both official and non-official tools at their disposal to try to respond to tariffs on their own, or respond to the federal government’s decisions.

Many provincial governments have control over various ministries, agencies, and Crown corporations that do business with the United States. The province can direct those bodies to alter their behaviour in response to American bluster. (Although those actions must still generally abide by existing trade agreements.)

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Most prominently, Canada’s largest provinces all run massive hydroelectric systems that sell electricity to the US. Ontario Premier Doug Ford has threatened to restrict electricity sales to the United States, and added a temporary 25% surcharge to energy exports in March. (That surcharge threatened to exacerbate the Canada-US trade war, with Trump saying he would increase steel and aluminum tariffs to 50% in response. The surcharge ended after one day.) Last month, Manitoba Premier Wab Kinew said his province would not be renewing a deal in which it sells energy to a US power company.

BC Premier David Eby hasn’t gone in that direction—in part because BC also buys power from the United States. But the province has taken its own steps to counter American tariffs. That has included removing US booze from the shelves of provincial liquor stores, introducing legislation that would give BC the power to toll trucks moving goods across the province to Alaska, and cancelling some contracts with US companies.

So while the federal government is in charge of foreign trade, provinces do have their own tools. The feds also usually seek to work with provinces to avoid political and constitutional conflict. If the provincial and federal governments disagree on who has jurisdiction over a certain response or policy related to international trade—or anything else—the dispute will be litigated in, and decided by, Canada’s Supreme Court.

For provinces that oppose federal measures, other options are also possible.

The federal government has threatened, although not imposed, export taxes on energy, which could have a significant impact on Alberta’s oil fields. Alberta’s provincial government has vociferously campaigned against such taxes.

Although they couldn’t do anything to directly stop those taxes, Premier Danielle Smith has threatened other actions. Back in January, Smith said a national export ban on energy would cause a “ national unity crisis,” implying that Alberta would be reconsidering its place within confederation. In March, Smith reiterated the statement in her list of demands to the future Prime Minister, saying Alberta would “not accept an export tax or restriction of Alberta’s oil and gas to the United States.” Ontario's Ford, on the other hand, argued in March that an oil export tax would be a "trump card" that Alberta should put on the table.

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Question: Why haven't interprovincial tariffs been removed? Why does Canada have so many barriers to interprovincial trade in the first place?

There have been a lot of news stories recently that have tried to explain this issue, because it does sound weird that there are so many barriers to trade between provinces. You can find one of those here: Why it’s so hard to do business between provinces.

Let’s try to break it down here as well. The trade barriers are not tariffs. Rather, they are informal obstacles to trade that make it more expensive or burdensome to do business across provincial lines. Frequently, the barriers are regulations that provinces have created for rational reasons. They may involve rules about the qualifications needed to do a certain job or the safety requirements required for a product to be sold.

But because these barriers can vary from province to province—and in some provinces can be more stringent—they can increase costs for businesses and consumers.

Because many barriers were created for noble reasons, they are hard to remove because doing so requires some provinces to ease rules intended to improve public safety. Even so, it’s not always clear that the rules actually accomplish that mission. Quebec, for instance, once had more-stringent rules about the type of stuffing required in car seats. Those rules increased the cost to make car seats, making it harder for manufacturers to sell their products in both Ontario and Quebec. But they didn’t turn out to actually increase safety. (They’ve since been removed.)

The trade situation with the United States has prompted Canada’s provinces and territories to try to remove internal trade barriers. Nova Scotia and New Brunswick signed deals with Ontario to allow people in certain regulated professions to easily move between provinces, and for alcohol to be sold without additional barriers.

BC has said it wants to increase interprovincial trade, and the government introduced a bill in March it said was intended to remove interprovincial trade barriers as well as give the government the power to move quickly to respond to “actions of a foreign jurisdiction.” Although parts of the bill were removed after criticism that they gave too much power to cabinet, the parts about interprovincial trade remained.