Canada’s Protectionist Economic Policies

Canadian Prime Minister Justin Trudeau is often seen criticizing American President Donald Trump for his protectionist trade policies. Trudeau has openly criticized the Americans and Trump in particular for breaking up the NAFTA and for pulling out of the Paris Accord.

Trudeau also wants to project Canada’s image as a country wherein immigrants are welcome. This is the reason why Trudeau has started creating policies which allow H1B workers to migrate to Canada easily.

However, the reality is that all of Trudeau’s policy seems like a publicity stunt. This is because if we look behind the carefully cultivated image, Canada is probably the most protectionist country on the American continent. The reality is that the rules and regulations in Canada are so complex that even the provinces are not able to freely trade with each other.

It has been estimated that more than 35% of the Canadian economy is protected by some form of protectionism. This means that state-sponsored monopolies work with impunity in Canada. As a result, consumers suffer. There is less innovation in services, and consumers have to pay a higher price for the same services since inefficiency is encouraged by blocking out competitors from other countries.

In this article, we will have a closer look at Canada’s protectionist policies as well as how they are negatively affecting the American economy.

Examples of Canadian Protectionism

• The Canadian economy does not allow free movement of goods and services between provinces. There are certain provinces like Quebec and Alberta, which are infamous for harbouring protectionist tendencies.
• There are many industries, such as the airline industry which do not allow investment by foreign companies. The rules state that if a company holds more than 10% market share, foreigners cannot hold more than 20% of the company’s common stock!
• The liquor distribution companies in Canada are also owned by the state. They continue to survive even though they are known to be highly inefficient. Canada Post is also another example which can be used in this regard. The highly inefficient loss-making company is held on by the Canadian government.
• Products manufacturing Canadian staple products like maple syrup are also heavily protected by the Canadian government. Foreign investment is discouraged because of the fear of losing the competitive edge in these industries.

Since all the above-mentioned industries have a high volume and hence form a major chunk of the economy, it can be said that the Canadian government does indeed have protectionist tendencies regardless of what their public would like you to believe.

Problems with Protectionism

The Canadian government and also the people are suffering from a lot of negative consequences of protectionism. Lack of competition and rising prices are some of the obvious side effects. Some not so obvious side effects have also been listed below.

Lack of Scale: Canada is probably the only country in the world where the inter-provincial movement of goods and services is severely restricted. Since most companies are restricted to their own provinces, their business opportunities are limited. As a result, they cannot really grow big and expand their scale. Companies generally realize a lot of cost benefits when they start mass producing goods and services. Thanks to Canada’s protectionist policies, its companies have not been able to reap the true benefits of economies of scale. Hence, the prices of their products are higher compared to the international market. As a result, very few of Canada’s products are actually exported to the external world.

Movement of Labour

The biggest problem with Canada’s protectionism is that it interrupts the free movement of labour from one province to another. This exacerbates the unemployment problem in industries where licensing is required. For instance, if there is a doctor in Quebec, he/she would need to apply for another license to practice in British Columbia.

As a result, even though workers have the exact same skill set, they cannot practice in all the states. In order to practice medicine in all of Canada, a doctor is required to have 13 different provincial licenses! It is ironical that Justin Trudeau is trying to project his country as the destination for immigrants. The reality is that Canada has a very stringent licensing system. It does not function like one single country. Instead, it functions like 13 different provinces!

Difficulty in Signing Trade Deals

Canadian bureaucrats have also expressed a lot of difficulty in signing trade deals with other countries. For instance, if America or Mexico enter a trade deal, then the rules are applicable across the entire country. However, when it comes to Canada, there are different rules for almost every province. This means that the trade partners have to comply with 13 different sets of law. Obviously, this makes compliance more complicated, time-consuming as well as expensive. Canadian bureaucrats have expressed concerns about their inability to enter into better trade deals until the country starts acting like one single unit.

Hence, it would be appropriate to say that the image being cultivated by Justin Trudeau is a façade. If he really wants to open markets and indulge in free trade, removing the barriers separating Canadian provinces from other Canadian provinces would be a good place to start.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.