Buy Canadian Policy: Protectionism will cost taxpayers

• The Buy Canadian Policy could increase the costs of large projects by between $4.8 billion and $12.2 billion a year.

Montreal, March 3, 2026 – The adoption of preferential purchase clauses, like those included in the Buy Canadian Policy, risks increasing costs and reducing quality for infrastructure projects and other public procurements, cautions the MEI in an Economic Note published this morning.

“By adding criteria of origin, competition is artificially reduced, which leads to reduced quality or higher costs, or a mix of both,” explains Vincent Geloso, senior economist at the MEI and author of the publication. “When the amounts in question are already so large, even an increase of a few percentage points leads to substantial costs for taxpayers.”

In Canada, public procurement spending represented 13.4% of GDP in 2021, according to OECD data.

Each additional bidder lowers the costs of a project by 8.3 per cent, according to one U.S. study that looked at the transport sector. An analysis of over 1.3 million procurement auctions in Brazil between 2015 and 2018 arrived at a similar conclusion.

The lower the barriers to entry for new participants, the better the results, explains the researcher. Conversely, he points out, preferential purchase policies are associated with tangible cost increases.

In California, a preference of just five per cent offered to local businesses for certain public projects entailed an estimated increase in the total cost of from 1.4 to 3.6 per cent.

Applied to Canada, this would represent an increase in infrastructure spending of between $4.8 billion and $12.2 billion, according to 2021 data. This represents a cost increase of from $124 to $320 per Canadian, per year.

Another study concerning Buy American provisions on U.S. federal government procurement found that their net cost was between $111,500 and $137,700 per job, far in excess of the average income of Americans.

Beyond the direct effect on costs, the reduction in the number of bidders also reduces pressure to innovate and improve productivity, explains the economist.

“The reduced competition faced by Canadian businesses makes them lazier, as their need to innovate is reduced,” adds Mr. Geloso. “By making less of an effort to reduce costs and improve quality in a context of protection, our firms end up becoming less competitive on global markets.”

In another study, it was found that openness to foreign suppliers in the context of the World Trade Organization’s Government Procurement Agreement led to more cost-effective procurement.

“The fact that preferential procurement policies increase costs, reduce quality, and undermine our competitiveness should be reason enough to abandon them,” concludes Mr. Geloso.

You can read the MEI Economic Note by clicking here.

***

The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.

— 30 —

Interview requests
Florence Plourde
Manager, Communications
Cell: 418-670-5939