The Rollercoaster of Canada-US Trade: A Look Back at 160 Years

A pivotal element of Sir John A. Macdonald’s vision for the nation he significantly contributed to establishing was a robustly protectionist trade policy, aimed at nurturing the growth of the young country’s burgeoning industrial sector in the face of American industrial dominance.

The pro-free trade Liberals of that era opposed Macdonald’s Conservative National Policy, which imposed steep tariffs on imported goods into Canada. Nevertheless, over the ensuing century and a half, the stances of the two sides evolved and eventually converged, leading to a broad acceptance of free trade or minimized trade barriers with the United States as an integral part of Canadian life.

A moment of peak discord over this issue occurred during the 1988 federal election, where Brian Mulroney’s Progressive Conservatives advocated for a free trade deal with the United States, while John Turner’s Liberals vehemently opposed it.

With a current “America-first” president in the White House reconsidering the status quo of free trade with Canada, it’s worth exploring the roller-coaster history of trade deals between Canada and its southern neighbor.

Pre-Confederation

Prior to Confederation in 1867, the provinces that would eventually form Canada enjoyed a decade of a free-trade treaty, known as “reciprocity,” with the United States.

At that time, British North America encompassed New Brunswick, Nova Scotia, Prince Edward Island, the colony of Newfoundland, and the province of Canada (now Ontario and Quebec).

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However, in 1866, the United States scrapped the treaty due in part to the province of Canada imposing the protectionist Cayley-Galt tariffs of 1858–59 on manufactured goods in a bid to boost local manufacturing.

Some Americans perceived that Canada was the prime beneficiary of the reciprocity pact and, combined with protectionist sentiments in the U.S., the deal was negated.

1867: Formation of Confederation

The imperative to fortify the domestic market and apprehensions that the more economically robust United States could potentially dominate or even annex British North America drove the momentum for Confederation, among other motivations.

On July 1, 1867, four British colonies—Nova Scotia, New Brunswick, Ontario, and Quebec—united to establish the Dominion of Canada as a self-governing entity within the British Empire, with Sir John A. Macdonald serving as its inaugural prime minister from 1867 to 1873.

1879: Macdonald’s National Policy

During his second term in office, from 1878 to 1891, Macdonald’s Conservative Party introduced the National Policy in its initial year, a protectionist strategy focused on cultivating the national economy of the newly formed nation situated north of an industrial giant.

The policy entailed imposing hefty tariffs on imported goods to shield Canadian manufacturers from U.S. competition. It also prioritized population augmentation through immigration and the enhancement of infrastructure, including the construction of a transcontinental railway.

In that election, Laurier was defeated by the Conservatives amidst growing apprehensions that free trade could grant America economic control over Canada, weaken the British tie, and potentially lead to annexation. Consequently, the 1911 free-trade agreement was never enforced.

Some scholars assert that these protectionist policies instigated a wave of counter-measures from trading partners, including Canada, which also raised its tariffs in 1930.

1935-1938: Tariff Reduction

Following a slump in Canada-U.S. trade throughout the Great Depression, the two nations struck a milestone agreement in 1935 that revitalized cross-border trade for the first time since Confederation.

The Canada-U.S. Reciprocal Trade Agreement, championed by Prime Minister William Lyon Mackenzie King and U.S. President Franklin Roosevelt, slashed tariffs and alleviated chronic trade barriers, albeit not to the extent of the 1854 Reciprocity Treaty.

A subsequent agreement in 1938 further trimmed tariffs from the prior deal, enabling smoother imports into Canada while facilitating the export of goods like lumber, cattle, fish, dairy products, potatoes, and machinery.

In the ensuing World War II years and the subsequent Cold War era, there was heightened U.S. interest in Canada’s natural resources to fortify national security.