Trade made Canada great: Poloz
The economic benefits of international trade have been understood for about 200 years. But trade itself has been going on throughout history, including here in North America.
At numerous sites, such as the junction of the Gatineau and Ottawa rivers near what is now Parliament Hill, evidence of trading stretches back centuries. Goods — and better methods of producing them — spread via trade among First Nations.
Trade grew even more following the arrival of Europeans. The colonial powers of Britain and France had a strong interest in Canada’s natural resources. Trade in resources like fish, furs and timber, which was established long before Confederation, shaped how Canada would develop.
Tariffs served a dual purpose in the 19th century. Until the First World War, governments relied on tariffs for most of their revenue. But the second purpose of tariffs was the protection of domestic business from foreign competition. Over the years, tension developed between those who sought higher tariffs to provide protection from import competition and those who advocated lower tariffs and open markets. In Canada, this tension has often had a regional component, with consumers outside the protected industries resenting paying higher prices. This tension has ebbed and flowed for the past 200 years.
In the 20th century, Canada’s natural inclination toward open markets asserted itself. The government launched what became known as the Imperial Preference, which allowed for tariff rebates on goods of British origin. And over time, Canada pointed the way toward openness by negotiating lower tariffs through “most-favoured-nation” agreements with several other countries. Today, the concept of “most-favoured-nation” is at the heart of the global trading system.
So, with tariffs starting to trend downward globally, market access rising and population growth accelerating, the Canadian economy boomed early in the century. Foreign investment remained a key ingredient, hitting a record 18 per cent of GDP in 1911. By 1913, more than $2 billion had been invested in railways alone, equal to about $43 billion today, in a country of just 7.5 million people.
Another important trend began to emerge during this period — our economy was becoming more diverse. Canada’s manufacturing sector, centred in Southern Ontario, began to expand rapidly. Several factors helped this rise, including the development of technologies that raised productivity in agriculture, allowing workers to leave farms for new emerging jobs in cities.
After the Depression and war, many countries — including Canada — were determined to create international institutions aimed at preventing such disasters from happening again. At the 1944 international conference at Bretton Woods, Canadian economist and future Bank of Canada Governor, Louis Rasminsky, not only led the drafting of many of the documents but was also credited with breaking deadlocks between the British and American delegations.
A consensus emerged on the wisdom of an open trading system, and three years after Bretton Woods we saw the General Agreement on Tariffs and Trade (GATT). Over the next 50 years, successive rounds of GATT talks led to lower and lower tariffs, reducing costs for consumers everywhere.
The next step in strengthening these ties was the Canada– U.S. Free Trade Agreement in 1988, which was expanded five years later to include Mexico in the North American Free Trade Agreement. As had been the case in earlier attempts at reciprocity, these agreements would not come easily. Many Canadians resisted continental free trade, fearing job losses, the possible loss of our health care system, and a general loss of Canadian economic or even political sovereignty.
None of these concerns have come to pass, although heightened competition did result in job losses in some sectors. But these losses were more than offset by gains in other areas, and consumers have continued to benefit from lower prices and increased purchasing power as most tariffs were eliminated.
When trade barriers are falling, when people are coming to our shores and when investment is rising, Canadians prosper. We saw this before Confederation, in the early 1900s and after the Second World War. The flip side is that responding to tough economic times by turning inward rarely succeeds. The bottom line of our history is that openness and economic progress go hand in hand. Excerpted from Canada at 150: It Takes a World to Raise a Nation, remarks made March 28 by Stephen S. Poloz, Governor of the Bank of Canada at the 50th Anniversary of Durham College, Oshawa.