From Corn Laws to car parts, a brief history of trade battles
Tariff disputes have shaped Canada, often in unexpected ways
OTTAWA— tit-for-tat The tariffs recent between round the of Trump administration and the Trudeau government is just the latest volley in the long, rich history of tariff wars between Canada and its most important trading partner.
This current spat is far from the first time tariffs have dominated our politics. In fact, trade and tariffs have shaped our economy, turned elections and played a crucial role in our perenni- al efforts to find the right balance be- tween t independence and integration. They have been at the very centre of the evolution of Canada and its complex relationship with the United States.
Here’s a look at some of the major turning points in the trade relationship between the two countries and how tariffs have shaped our nation: The kernel of our independence
Like this one any begins good political with the story, 1794 Corn Laws. Canada’s first run-in with tariffs turned out to be an important milestone on the way to independence.
In 1794. Britain introduced steep tariffs on “corn,” meaning cereal crops. The move was meant to protect Britain’s domestic agriculture industry — one of the primary functions of tariffs —along with raising revenue for the Brit- ish government.
But Britain’s demand for cereal crops quickly outstripped what the country could produce domestically, and the colonies were called upon to focus on producing and exporting grain.
In 1846, wanting to embrace freer trade, Britain ditched the Corn Laws, striking a blow to the Canadian grain trade but creating an opportunity for economic self-determination. The move had another unintended consequence — by loosening imperial control on the pre-Canadian colonies’ economies, Britain planted the seed of political autonomy.
Pre-Canadian reformers like Robert Baldwin pushed for what they called “Responsible Government,” a measure of independence from their British overlords. And they won. Britain, for instance, allowed the colonies to apply their own tariff, creatively called the “Canadian Tariff,” which applied a 10per-cent duty across the board — an important leap toward economic and political independence. Our first PM puts Canada first Before Canada was even a country, we were wrestling with the U.S. over tariffs.
After years of negotiations, the Canadian colonies in1854 hammered out a trade deal with the U.S. called the Reciprocity Treaty, which largely eliminated cross-border tariffs and gave pre-Canadian businesses access to the insatiable American economy. The treaty would not last long. “As early as 1856, American protectionists … began agitation against the treaty,” wrote historian D.C. Masters in his book Reciprocity: 1846-1911. “Economic and political forces ... combined to bring about the abrogation of the treaty by the United States in March 1866.”
After many failed attempts to restore reciprocity, the newly formed country of Canada fi- nally got protectionist itself.
John A. Macdonald’s Conservatives ran their 1878 election campaign on a protectionist promise, to put Canada first by pursuing the so-called National Policy, which would impose tariffs as high as 45 per cent on some American goods. The idea was popular and they won.
In a move that has echoes in the current Liberal government’s retaliatory tariffs, Macdonald’s Conservatives decided to abandon “reciprocity of trade for reciprocity of tariffs,” writes Masters.
Let’s hope that’s where the parallels with the present day end, because the policy didn’t work. Canadians, it seems, were disappointed in the rate of economic growth in the 1880s, leading to “second thoughts” about high tariffs, with some even calling for a full “commercial union” with the United States.
The new country’s leaders rejected the idea, believing — not without cause — that a commercial union would end in political annexation. Driving toward free trade Two World Wars later, tariffs again played a role in changing our country’s economy, spurring a leap toward freer trade.
In the early 1960s, Canada’s by-then crucial automotive sector was in trouble. According to Historica Canada, the industry was highly inefficient, the result in part of heavy tariffs on both sides of the border. The industry was unable to achieve the scale required for success and higher costs were being passed on to consumers in both the U.S. and Canada.
Faced with what seemed like a shared opportunity, the government of Lester Pearson and U.S. President Lyndon Johnson’s administration began ne- gotiations, eventually resulting in a free trade-ish Auto Pact in 1965.
The pact, and the attendant removal of the tariffs, aimed to create more efficient production and the opportunities of an expanded market, while ensuring continued Canadian production and thus mitigating the risk to Canadian jobs.
Despite misgivings from within the U.S., the North American automotive trade exploded. Canadian exports climbed from $886 million in 1966 to $9.9 billion in 1977, and U.S. exports to Canada grew from $1.5 billion to $10.9 billion over the same period. Since then, the moratorium on auto tariffs has continued unabated, though amid the current trade spat Trump is now threatening to impose potentially devastating tariffs on automobiles and auto parts made in Canada.
The sector-specific approach of the Auto Pact arguably also paved the way for free trade talks that resulted in the North American Free Trade Agreement (NAFTA), which, depending on your perspective, is either one of the most successful free trade agreements in the world or “the worst trade deal” in U.S. history. Anew tariff war takes us into the unknown Much of Canada’s early economic history is a story of reacting to our major trading partners, first Britain and later the United States.
“Until World War Two, Canadian trade policy was quite directly related to responses to U.S. policy and to an extent British policy,” said Ian Keay, who teaches economic history at Queen’s University.
Yet in a globalized world, Keay points out, Canada is less at the mercy of any one trading partner.
Still, Ottawa is now dealing with a situation where the country’s largest trading partner suddenly wants a dramatic re-evaluation of the relationship. And that trading partner is led by an extremely unpredictable man who eschews conventional thinking on almost every question of public policy. Plus, the effects of tariffs in a globalized economy are far harder to predict.
The trade disputes and negotiations that have marked our history have almost always resulted in unintended consequences — from Canadian independence from Britain, to the threat of U.S. annexation, to continental economic integration.
Under the circumstances, it is hard to imagine that the current spat will be an exception and thus impossible to know where it will take us.