Burning the House of Assembly at Montreal, 25 April 1849. Britain’s adoption of free trade caused economic collapse in Canada, rioting in Montreal, and demands for union with the United States. Illustrated London News, 19 May 1849. Library and Archives Canada C2726.
No Canadian political and economic issue is as contentious, persistent, and long-running as the struggle between free trade and protection. A concise account of that issue from 1840 to the 1988 Canada-U.S. Free Trade Agreement provides essential historical background to the impending high-stakes renegotiation of NAFTA with the erratic Trump administration. The record clearly confirms how Canadians have prospered in periods of free or relatively free trade and suffered heavily under trade protection.
The history is offered in the following text. It is my lead chapter in Free Trade: Free Canada (Canadian Speeches, Woodville, Ontario,1988).
SPIES, SMUGGLERS, AND BRIBES PAVE WAY FOR FIRST CAN-AM FREE TRADE AGREEMENT.
A secret agent armed with bags of money to bribe politicians and newspaper publishers, lavish entertainment, and gunboat diplomacy—including the seizure of 400 American fishing boats—were among the means used to secure the first Canadian-American trade agreement, in 1854.
But long before this, the stage was set by the crusade of liberal economists, social reformers, politicians, and manufacturers who set out to strike from Britain the shackles of protection by the salvation of free trade and the promised grace of prosperity and peace.
“It is as foolish for a nation as for an individual to make what can be bought cheaper,” Adam Smith thundered in the Wealth of Nations in 1776. Preachers of the free trade gospel—men like John Bright and Richard Cobden—echoed the refrain in a rising chorus, with demonstrations and monster rallies throughout England. They were joined by the rapidly expanding British manufacturers who wanted to conquer the world, not with armies and navies but with steel, china, and textiles. The corn laws that imposed duties on imported grains, they argued, kept cheap bread from the working classes and benefited only the landed aristocracy. Low-cost production in English factories was the way to wealth and power, but the way was blocked by the high costs of tariff protection.
The corn laws comforted not only the British aristocracy; they were also an important boon to the farmers, millers, merchants and shippers in the four provinces, or colonies, of pre-confederation British North America—Canada, New Brunswick, Nova Scotia, and Prince Edward Island. The preferential tariffs, with low rates for the colonies and higher duties for everyone else, meant that any British demand for wheat and flour that could not be supplied by the farms of the British aristocracy, was supplied by the farmers and millers of Canada.
Even more important to the BNA provinces were Britain’s preferential timber tariffs, established not to protect Britain’s land owners (most of the British oaks had already been felled) but for national security. The Napoleonic wars convinced British leaders that their nation would be vulnerable if they relied on timber from the Baltic countries to keep the British navy afloat. The high tariffs on Baltic wood meant that timber not only for the British navy but also for general construction, came primarily from the provinces of British North America. By the 1840s this important protection cost the British, according to one estimate, £900,000 a year—a terrible burden on Britain but an enormous subsidy for the lumber operations in the provinces.
The most ardent British free traders were no great fans of colonialism. They viewed the defence of far-flung colonies as a burden and waste; their existence a cause of wars, and a part of the vested interests in maintaining a high level of tariffs. “I wish the British government would give you Canada at once,” Lord Ashburton told the American Ambassador John Quincy Adams in 1827. “It is fit for nothing but to breed quarrels.”
It was not a liberal economist who ultimately demolished the tariffs and brought free trade to Britain, but a Tory prime minister, Sir Robert Peel, much to the bitter chagrin of his fellow land owners. At the beginning of 1846, Peel announced that the timber tariffs would be slashed, while the corn laws were to be repealed over a period of three years. But because of the great Irish potato famine that killed more than one million people that year, the import duties on grains and flour were completely removed within 12 months.
In the provinces of pre-confederation Canada, the results were seen as the cause of unmitigated disaster.
Nowhere in the provinces did the slash in timber and wheat sales to Britain hit harder than in the business community of Montreal, where for nearly two years bankruptcy was just about the most active business. English speaking people in French Montreal burned with other frustrations. They were burdened with the problems of looking after more than 100,000 refugees who arrived in 1847 from the Irish famine; destitute, disease ridden, and starving. They blamed England for oppressing these people, then dumping their problem on Canada. They resented legislation to compensate for damages suffered during the abortive rebellion in 1837. And they were deeply concerned that the coming of responsible government would mean the loss of political control to the French-speaking majority of the province.
Their frustrations boiled over into a riot that year, in which Governor General James Bruce, Lord Elgin, was attacked on the steps of the legislature; the legislature was burned and ransacked, and an angry mob roamed the streets all night, looting and rioting. In October that year, the Annexation Manifesto was issued in Montreal, demanding both economic and political union with the United States. The petitioners claimed that joining the United States would increase farm prices, lower the cost of imports, achieve greater exports, provide them with a greater voice in the government at Washington than they had in the government at London, and perhaps most importantly would swamp the French in a vast Anglo-Saxon nation.
A future prime minister of Canada was among 325 business and political leaders who demanded economic and political union with the United States in 1837.
Among the 325 people who signed the Manifesto were John Redpath, the sugar tycoon; the head of Canada’s most powerful family, the Molsons; John Rose, later a cabinet minister and head of the Grand Trunk Railway; Alexander Tilloch Galt, who 18 years later would become one of the fathers of Confederation; and John Abbott, a future prime minister. It was no mere mob of radicals that saw Canada’s best hope in joining the United States.
In Canada West, William Hamilton Merritt, a miller from St. Catherines and the man who had spearheaded construction of the Welland Canal to link Lakes Eerie and Ontario for navigation, had a different vision. In pamphlets and on the platform, in pages of the St. Catherines Standard, and in the legislature where he sat as a reformer (the predecessor of the Liberal Party), Merritt in 1846 became the leading advocate of free trade with the United States as the only possible alternative to annexation.
In 1846, Merritt persuaded the legislature to petition Britain, asking the English to negotiate a free trade treaty with the United States on Canada’s behalf. The next year when the provinces of Canada assumed the responsibility of setting its own tariffs, Merritt persuaded the legislature to lower the duty on imports of American manufactured goods from 12 percent to 7.5 percent, while increasing the duty on British imports from five to seven percent. The legislature adopted an Act offering free trade—or reciprocity—in a list of natural products whenever the Americans were prepared to take similar action. Lobbying in Washington, he succeeded in having a similar bill introduced in the U.S. congress, but it was defeated in the Senate. Throughout all this, Merritt was in constant communication with the Governor General, Lord Elgin, who wrote to the Colonial office in London that “unless reciprocity with the United States be established, these colonies must be lost to England.”
The talks dragged on for eight years, and before they were concluded another factor had entered the equation: a dispute over fishing rights off Nova Scotia and Newfoundland. Nova Scotia claimed that its three-mile territorial limit of exclusive fishing rights extended across all bays, from headland to headland. The Americans claimed that the three-mile limit hugged the shoreline, enabling them to fish inside the wider bays. Partly to force the Americans to come to terms with the demands for a reciprocity treaty, Britain announced that it would send a naval force to protect the fisheries. The United States replied by sending a warship to protect its fishermen. Confrontation on the high seas was avoided—at least for a time—when Britain and the United States agreed to negotiate a treaty to settle both the fisheries dispute and trade with the BNA provinces. The elegant Elgin was sent to Washington as a special envoy to negotiate the treaty.
A pathway through the political undergrowth had already been hacked away by special agent Israel de Wolfe Andrew. A native of Eastport, Maine, Andrews had started his working career facilitating North American trade by engaging in the popular business of smuggling. Some historians would have us believe that by working throughout the night at this covert business, Andrews became a lifelong advocate of free trade. He certainly became a fast talker. In 1849 he persuaded the American Secretary of State to assign him on a secret mission to gather statistical information and other data concerning the trade of the four BNA provinces. Then he persuaded the British Ambassador in Washington to give him a similar assignment, while still secretly working for the Americans.
In early 1853, after conferring with President Pierce and Secretary of State Marcy, Andrews was appointed “special agent” of the United States Government to cultivate support in both the United States and the provinces for approval of a reciprocity agreement. Next he persuaded the City of Boston and the government of Canada to provide further funds for the same cause. With offices in the Astor House in New York and the National Hotel in Washington, Andrews spent more than a year as an early-day lobbyist and public relations hit man, entertaining politicians and newspapermen on both sides of the border, writing pamphlets, arranging supportive editorials, and placing funds with influential people. He collected $110,000 from his sponsors for this work—an enormous sum in 1854—but claimed to have spent more than $200,000. He spent the rest of his life seeking to collect the extra $90,000, but had difficulty substantiating his claims because of the secret nature of his work and the supposed embarrassment that would result by revealing with whom the money had been placed. Unable to pay his debts, Andrews spent several short periods in jail, and died a destitute alcoholic.
With the early advocacy by Merritt, with gunboat diplomacy, with the lobbying of Andres, with Lord Elgin’s charm, wit and gracious entertaining, the Reciprocity Act of 1854 was, as Elgin’s secretary noted, “floated through on champagne.” The agreement provided for free trade in such natural products as farm produce, fish, timber, coal, and other minerals. Americans were allowed to fish in the disputed waters off Nova Scotia and Newfoundland, to use the Canadian shores to dry their fish, and Canadian ports for provisioning. The Maritimers, in turn, could fish off the American coast as far south as North Carolina, but more importantly they had free access to the big American market. It was not, however, the last time that the fisheries became embroiled in dispute, or used as bait in trade talks.
Abrogation, Confederation, and the National Policy (1854-1891)
During the 12 years that it remained in effect, until March 1866, the reciprocity treaty brought good times to the four BNA provinces, as the value of trade with the United States tripled. How much of the prosperity was due to the free trade and how much was due to other factors is still a subject of debate by economic historians, but for Canadians of that era there was no doubt that free trade with the Americans was a very good thing.
With the end of the American civil war, however, the end of the treaty was also in sight. The Americans, as required under the terms of the treaty, gave a little more than one year’s notice before the treaty was terminated. There were a number of causes: growing protectionism sentiment in the northern United States; American resentment of some small-scale raids against the United States that had been launched by confederate forces from Canada; a hope by some that abrogating the treaty might lead to the annexation of Canada in the American drive for manifest destiny. It did not help that the anti-Americanism that has grown like a cancer into the bones of so much of Canada’s nationalism, had already begun to germinate. Sniffed Lord Minto, a later Governor General: “There is a general dislike of the Yankees here and I do not wonder at it… What the Canadian sees and hears is constant Yankee bluff and swagger and that eventually he means to possess Canada for himself.”
The provinces hoped that the treaty would be extended, but they prepared for its end, planning to create their own free market among themselves, and then hopefully some day extend and expand it westward. Canada was planned as the response to the end of free trade with the Americans. A delegation from the provinces to a colonial conference in London reported that they had “explained the immediate injury that would result to Canadian interests from the new abrogation of the Treaty; but we pointed out at the same time the new and ultimately more profitable channels into which our foreign trade must, in the event, be turned, and the necessity of preparing for change, if indeed it was to come.” Nine months after the Americans had given their notice, the provinces formed a Confederate Council of Trade, with two objectives: to form an economic union among themselves, and to re-establish trade reciprocity with the United States.
Confederation did not bring the quest for a fee trade agreement with the United States, or reciprocity, to an end. The first tariff established by Canada the year after Confederation offered to eliminate import duties on specified imports from the United States whenever Americans were prepared to reciprocate.
The long procession of formal and informal missions to Washington to seek a renewed reciprocity agreement, started almost immediately. John Rose, the first Conservative minister of finance, led the parade in 1869, followed two years later by John A. Macdonald himself. The Liberal administration of Alexander Mackenzie in 1874 sent George Brown, who actually obtained the support of President Grant for a draft agreement providing for free trade in 60 specified natural products, agricultural implements, and 37 other categories of manufactured goods. But the American Congress refused to even consider it. The Conservatives sent yet another emissary, Charles Tupper, in 1887; Macdonald made his last pitch to the Americans in 1892, and Wilfrid Laurier made the final pilgrimage in 1896.
Not even the fisheries bait and gunboat diplomacy could budge the Americans into another reciprocity agreement. When the first treaty had been abrogated in 1866, Americans lost the right to fish in disputed Canadian waters, and Britain and Canada seized 400 American fishing boats, much to the wrath of the Americans. It was to settle both this and secure a trade treaty that Macdonald accompanied British officials to Washington the following year. He returned without the trade treaty, and with the fisheries dispute only temporarily resolved.
In between all these negotiations, Macdonald established the National Policy, which was claimed to have a double purpose. One the one hand, it set high tariffs to encourage the establishment of factories and manufacturing in Canada. On the other hand, the high tariffs were said to be a tool, which would pry a reciprocity agreement from the Americans. “Why should they give us reciprocity when they have our markets open to them now?” was Macdonald’s rhetorical question in Parliamentary debate. “It is only by closing our doors and cutting them out of our markets that they will open theirs to us.” The National Policy was supposed to establish both free trade and protection.
Some said the reason the Conservatives had adopted a protective tariff policy was because the Liberals had not. It was 1876. The Liberal administration of Alexander Mackenzie had been in power nearly four years, and would soon have to face the voters. It was Mackenzie’s luck to win office just at the start of the first Great Depression, a quarter of a century of gloom interrupted by only a few brief periods of economic sunshine. Tough times sharpened the trade debate. Manufacturers clamoured for protection. The staples producers—farmers, fishermen, lumbermen, miners—demanded commercial union with the United States. The country’s population was shrinking as Canadians, especially from Quebec, flocked to the United States.
In the Liberal camp, the free trade champion was Richard Cartwright, best remembered, said one historian, for his “improbable whiskers and uniquely passionate hatred for John A. Macdonald.” The scion of a wealthy loyalist family, Cartwright had substantial business interests in transportation, mining, real estate, manufacturing, and had started political life as a Conservative, until he quarrelled with Macdonald. Minister of finance in Mackenzie’s administration, Cartwright had hectored so vociferously for free trade that the Conservatives called him the Blue Ruin Knight. The advantages of free trade with the United States were so great, Cartwright declared “that scarcely any sacrifice is too great to secure them.” It was not free trade but the lack of free trade that threatened to drive Canada into the arms of the United States, according to Cartwright. As for any loyalty or obligation owed to Britain, Cartwright argued that because of how the British had botched negotiations with the Americans, all that was owed was Christian forgiveness.
John A. Macdonald may have died a British subject, but he was buried in an American casket.
The hard times also hit government revenues, which, before income tax was invented, depended primarily on the tariff. The Liberal budget in 1873 was expected to bring a much higher tariff. Conservative finance critic Charles Tupper had reportedly prepared his speech for the House, attacking the anticipated high tariffs. When they failed to appear, Tupper asked that the House rise early, and later that evening delivered his speech, attacking the Liberals for failing to provide protection. The story was later elaborated by one of the leaders in the Conservative caucus, Dalton McCarthy.
“No doubt in the world the Conservative party were put out of power [in 1873] and by going in for the National Policy and taking the wind out of Mr. Mackenzie’s sales [sic], we got [back] into power. We became identified with the protective policy, and if Mr. Mackenzie had adopted a protective policy, we would have been free traders. I am willing to make this confession, that if Mr. Mackenzie had been a protectionist there would have been nothing left but for us but to be free traders. But Mr. Mackenzie was either too honest or too earnest in his opinions to bend to the wave of public opinion and the result was that he was swept out of power and had only a corporal’s guard to support him when the House met.”
Beyond doubt the Conservatives were swept back into power on the National Policy platform when the election came in 1878, but there’s little conclusive evidence that it attained its stated objectives. The National Policy established an average import duty of 28 percent: 25 percent on agricultural implements, 30 percent on railway equipment, 25 percent on woollen clothing; 30 percent plus half a cent a pound on refined sugar. But it did nothing to slow the exodus of Canadians leaving to live in the United States. The year after the policy was established, the number of Canadians emigrating to the United States increased 300 percent, while the following year it increased a further 25 percent. In the two decades after the policy was established, some 1.5 million people immigrated to Canada—and two million left.
Two million people left Canada to make their homes in the United States in the first 20 years of trade protection under John A. Macdonald’s National Policy.
Organized labour was just starting to emerge in Canada, and the attitude of the labour leaders was reflected in the Labour Advocate, the journal of the Toronto Trades and Labour Council. Building Canada as a separate nation, said the Advocate, was “the greatest and most stupendous blunder,” for which “the CPR was built, the protective tariff created, the northwest land monopolies endorsed, and the people’s money squandered on immigration.”
The free trade debate dominated the next election, too, in 1891. Wilfrid Laurier had now assumed the leadership of the Liberals, and for their campaign platform they had adopted a policy of “unrestricted reciprocity”—complete free trade with the United States in both natural products and manufactured goods. Macdonald sought to steal the Liberal platform by arguing that the Conservatives could use high tariffs to compel the Americans to agree to reciprocity, and that the Americans had, in fact, already suggested such an arrangement. But when American Secretary of State John Blaine wrote that “There are no negotiations whatever on foot for a reciprocity treaty with Canada, and you may be assured that no such scheme for reciprocity with the Dominion confined to natural products will be entertained by this government,” Macdonald quickly shifted ground. He now attacked reciprocity as a scheme designed to break up the British Empire.
“A British subject I was born, a British subject I will die,” Macdonald declared. “With my utmost effort, with my latest breath, I will oppose the ‘veiled treason’ which attempts by sordid means and mercenary proffers to lure our people from their allegiance.” The Tories rolled out their banner—“the old flag, the old man, and the old party”—and won the election. Three months later, Macdonald was dead.
Macdonald may have died a British subject, but he was buried in a casket made in West Meriden, Connecticut, described as “an exact facsimile of that of the late President Garfield.” It was symbolic of the National Policy, which ultimately could not overcome the pull of geography, economics, and common sense.
Wilfrid Laurier led his party to victory in 1896, and the Liberals were soon accused of preaching free trade in opposition and practicing protection in power. Goldwyn Smith, the intellectual gad-fly who preached not just economic union but political union with the United States, has described how the Liberals supposedly sold out to the manufacturers at meetings held in the “Red Parlour” of the Queen’s Hotel in Toronto: “… on the neck of the Canadians… now rides an association of protected manufacturers making the community and all the great interests of the country tributary to their aims. Before a general election, the Prime Minister calls these men together in the parlour of a Toronto hotel, receives their contributions to his election fund, and pledges the commercial policy of the country.”
A harsh judgement. But in fact, given the political need to reconcile conflicting demands, Laurier probably went as far as he could to liberalize the tariff—even if that was not a great distance. He renewed the quest for a reciprocal treaty with the United States, and when he was rebuffed declared, “There will be no more pilgrimages to Washington. We are turning our hopes to the old motherland.” In its first two years, the Laurier administration eliminated the tariff on imported binder twine, reduced it on agricultural implements and refined sugar, arranged a preferential tariff that reduced the cost of British imports, and subsequently made other small adjustments.
The 16 years of the Laurier administration brought unprecedented expansion and prosperity. The depression that had hung so long over North America and Europe had at last lifted. Seventy million acres of farm land were settled in the west. People poured in to fill up this empty country: 784,000 from the United States; 961,000 from Britain; 594,000 from other parts of Europe. Laurier seemed right when he said the twentieth century belonged to Canada.
How the Laurier era was ended by the great reciprocity election of 1911 has been told too often to bear a repeating in detail. Perhaps more than ever before the country was pulled into conflicting demands of protection and free trade. On a tour of the West in 1910, Laurier was met at massive meetings by tens of thousands of farmers who were angry at being squeezed by high, tariff-supported prices for everything they bought and low-prices for everything they sold, pushed down by world markets and the cost of railway transportation. “In 1896 you promised to skin the Tory bear of protection,” a farmer in Saskatoon bellowed. “Have you done it? If so, I would like to ask what you’ve done with the hide.” But in Vancouver, Laurier met a delegation of lumber interests who demanded protection. And W.H. Rowley, president of the Canadian Manufacturers Association, told the association’s 1910 meeting:
“In season and out of season, in favour and out of favour, liked or disliked, I have always believed in protection, have always advocated it, and always will continue to do so. I have no politics other than protection, and I hope none of you have, if you have them, I think you should sink them for the good of the Association, for protection is the only politics the Association should recognize.”
In Washington, President Taft saw some potential political advantage in reciprocity, which could lower food costs for consumers and newsprint costs for newspaper publishers. Through the editor of the Toronto Globe, Taft made it known he would like to talk trade, and in a series of meetings finance minister W.S. Fielding and the Americans hammered out the terms of an agreement. When Fielding outlined those terms in the House on January 26, the Tories were stunned by the range of products that would gain duty-free entry into the huge U.S. market. The Liberals, reported the Montreal Herald, “cheered and cheered again.” Even some Conservative members from the West could not resist cheering. During the next couple of days, Conservative newspapers were among those that approved the agreement.
But the railways and manufacturers quickly rallied the opposition. “Bust the damn thing,” CPR president William Van Horn ordered. The opposition was strengthened by 18 prominent Liberal businessmen—led by Laurier’s former cabinet strongman, Clifford Sifton—who came out strongly against reciprocity.
Conservative leader Robert Borden forged two alliances to fight the election. In Quebec, he joined forces with Henri Bourassa, leader of the Nationalists, in an appeal to anti-British sentiment. In Ontario he was joined by the railways and manufacturers in an emotional appeal to pro-British and anti-American sentiment. Borden met in Toronto with four of the leading Liberal defectors—Sifton; Z.A. Lash, from Canadian Northern Railways; Lloyd Harris, who represented the Massey-Harris interests; J.S. Willison, editor of the Toronto News. Defecting Liberals outlined the terms for their support. Quebec and Roman Catholics were not to have an undue influence in any future Conservative government; Borden would bring men from outside Parliament into his cabinet; in forming a cabinet, Borden would consult with Lash, Willison, and Sir Edmund Walker, president of the Bank of Commerce. Borden agreed. By mid-August, some 9.5 million pieces of anti-reciprocity literature had been published by the Canadian National League, the Canadian Manufacturers Association, and the Canadian Home Market Association. The tone is indicated by the title of one tract, “An Appeal to the British-born.” On election day it was Conservatives 134 sets, Liberals 87.
Historian Edgar McInnis has summed up the election this way:
“After long years of alternate bullying at the hands of their stronger neighbours, Canadians seized on an opportunity to assert their independence of spirit, and, under an emotional upsurge that had nothing to do with logic, they rebuffed the United States by rejecting an agreement that Canada had been seeking for the past 70 years.”
The vote, however, was much closer than the standings: 666,074 for the Conservatives, 623,554 for the Liberals. Farmers had voted for reciprocity, and in Alberta and Saskatchewan the Liberals had won 15 of 17 seats. From the bitter disappointment of the farmers emerged the Progressive Party, which campaigned in 1921 under the free trade banner to eclipse the Tories for second position in the House, with 65 seats to 50. The Liberals under Mackenzie King, held 117 seats and a Parliamentary majority of one. The National Policy prevailed, but the spirit of free trade survived.
King, Bennett, depression, war, and a secret agreement
As he clasped the fragile key to office, the free trade flame may well have continued to flicker in the ear of William Lyon Mackenzie King, but he would never forget that it was this cause that 10 years earlier had cost him his Parliamentary seat as the boyish face on Laurier’s team. Doing anything about his preference for a lower tariff was not made any easier by U.S. action the same year that Mackenzie King returned the Liberals to power. The Americans raised their tariff wall a little higher with the 1921 Emergency Tariff Act, and Canadian sales to the United States that year fell by more than 40 percent.
In early 1930, at the outset of the Great Depression, U.S. duties jumped 50 percent with the Smoot-Hawley Act. King retaliated by increasing Canadian duties on American imports, and lowering them on British imports. American tariffs now averaged an astounding 37 percent; Canada’s tariffs, 26 percent. In October, Richard Bedford Bennett rode in from Calgary to take over as prime minister, promising to use his tariff guns to “blast the way to world markets.” The tariff got higher—reaching 30 percent in 1933—and the depression got worse. Nowhere was it as bad as on the prairies. From 1928 to 1933, per capita income across Canada fell by an average of nearly 50 percent; in Alberta, by 60 percent; in Saskatchewan by 72 percent, according to one estimate. The tariff was blamed for skewering Atlantic and Western Canada. In 1934, the Government of Nova Scotia estimated that the tariff amounted to an annual subsidy of $15.15 for everyone in Ontario and $11.03 for everyone in Quebec, subsidies paid for by other Canadians at rates varying from $11.67 per person in Nova Scotia to $28.16 in Saskatchewan. In the 1930s, you could eat for two months for less than $30—and many were hungry. More than a quarter of a million people left the prairies, and abandoned farms dotted the skyline.
In Saskatchewan, import duties cost $28.16 per person
in 1934. In the 1930s you could eat for two months
on less than $30—and many people were hungry.
Bennett and President Roosevelt met in 1933 and at last agreed “to begin a search for means to increase the exchange of commodities between our two countries.” But progress was very slow, until King was again returned to power in 1935, and set his trade officials to work at a “terrific pace” to work out a trade treaty with the Americans. By November, agreement had been reached on the first Canadian-American trade treaty in nearly a century. It was not free trade, but it did slash the tariffs, and it accomplished what it was supposed to. In the next two years, Canadian-American trade increased by more than 50 percent.
Negotiations began on even further cuts, but this time they also involved reducing the tariff preference on British imports, thus requiring complex three-way negotiations. “Our discussions with the U.S. are the least of our worries right now,” wrote Norman Robertson, a senior official in the Department of External Affairs. “We can cope with them but not with God’s Englishmen and the inescapable moral ascendency over us lesser breeds.” But agreement was reached with God’s Englishmen, as well as with the Americans, and tariffs were reduced still more. By the time the Second World War arrived in 1939, the back of the depression has been broken—if not by free trade, at least by freer trade.
Canadian-American trade did not become a big issue again until 1947, when a free trade agreement was secretly pursued as the solution to a severe dollar crisis. The world by then had resolved that never again would protectionism lead to such massive misery and destruction, and Canada was one of the nations leading the way to peace and prosperity through the General Agreement on Tariffs and Trade [predecessor of the World Trade Organization]. But now Canada faced a crisis that could cause it to restrict imports, at least temporarily. After the war, Canada had loaned Britain and other European nations some $2 billion—15 percent of Canada’s gross national product—to help European recovery, in return counting on these nations to buy Canadian goods and help create Canadian jobs. But the devastated European nations could not pay cash for Canadian food and supplies. Meanwhile, Canadians were spending $2 for American goods and services for every $1 sold to the Americans.
Something would have to be done. Like a debtor that can’t pay its bills on time, Canada approached its creditor, the Americans, to see if something could be worked out. Among the parade of officials who left Ottawa to talk things over with the Americans in Washington were Hector McKinnon and John Deutsch who had just recently negotiated Canada’s participation in GATT. An American memorandum on the first informal meeting held in Washington by McKinnon and Deutsch said the two Canadians felt that “Canada must either integrate her economy more closely with that of the United States, or be forced into discriminatory restrictive policies” with a “danger of friction with the United States, if not economic war.”
Deutsch, the son of a Saskatchewan farmer, was a born-in-the-bones free trader. In a confidential letter to a newspaper friend, Deutsch wrote: “We have the choice between two kinds of worlds—a relatively free enterprise world with the highest existing standard of living, and a government-controlled world with a lower standard of living.” If the answer seemed obvious, Deutsch also warned that the first choice “means meshing our economy as much as possible with that of the United States.”
After several weeks of informal talks, the Americans approached Deutsch “on a strictly confidential and private basis” at a New Year’s Eve dinner party in Washington. A conventional customs union was politically out of the question, since that would, in effect, allow the Americans to dictate Canada’s tariff with the rest of the world. The Americans suggested a modified customs union in which there would be substantially free trade between the two countries, but each would set its own tariffs on trade with other nations.
In Ottawa, there was strong support for the idea by Trade Minister C. D. Howe, Finance Minister Douglas Abbott, and even Mackenzie King. McKinnon and Deutsch were authorized to work out the details of an agreement with the Americans, which they did.
On April 1, 1948 Deutsch met with Abbott, Howe, Louis St. Laurent (who became prime minister months later when King retired), and Lester Pearson (then under secretary of state for external affairs). Howe, Pearson, and King were all in favour. Howe thought it would make a magnificent issue for the Liberals in the next election. Abbott and St. Laurent expressed concern about the short length of time to secure Congressional approval for a treaty before the U.S. presidential election in November.
The decision turned on King, but his initial ardour had already cooled. An editorial in Life magazine two weeks before this meeting, calling for a conventional type of customs union between Canada and the United States, did not help. It sounded a bit too much like the Americans whose unthinking out loud had helped lead to the still-remembered reciprocity defeat in 1911, like Congressman Champ Clark who had said, “I am for it because I hope to see the day when the American flag will float over every square foot of British North American possessions, clear to the North Pole.”
Later in a letter to Norman Robertson, then High Commissioner in London, Pearson described how the decision had been taken at the April fool’s day meeting. King, wrote Pearson, had agreed that “from the economic point of view, there was everything to be said for the proposal and little against it.” But on political grounds, King felt that “the Conservatives would seize on this issue… in order to force an early election. They would distort and misrepresent the proposal as an effort on the part of the Liberals to sell Canada to the United States for a mess of pottage. All the old British flag-waving would be resurrected by the Conservatives.” The others apparently did not share this concern, but they acquiesced to King’s decision, although they “felt particular regret at the necessity of coming to this conclusion.”
Ottawa was forced to impose temporary restrictions on how much Canadians could spend on American goods and travel (no more than $150 a year for pleasure travel in the U.S.), but the dollar crisis passed, helped by large American investments, by the 1947 discovery of oil in Alberta, and other economic developments. John Deutsch was reportedly bitter about the loss of this opportunity, but in the end he was right. The tariff continued to shrink, the Canadian economy became more closely integrated with that of the United States, and by comparison with virtually any other era or area, prosperity was unprecedented.
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 Danielle Goldfarb, “What Canada’s trade strategy should look like under Trump,” Maclean’s, December 1, 2016 http://www.macleans.ca/economy/economicanalysis/what-canadas-trade-strategy-should-look-like-under-trump/
 Noam Chomsky, “On the war against terrorism and related issues,” quoted by Dimitriadis Epaminondas, July 3, 2002, https://chomsky.info/20020703/.