The last time we lost the U.S.

WE WENT FOR HIGH TARIFFS OURSELVES. CONSUMERS, AS ALWAYS, GOT SCREWED.

Bank of Canada “staff discussion papers” tend to be about esoteric monetary- policy matters like “tail risk in a retail payment system,” “repo market functioning when the interest rate is low or negative” or “time variation in exchange rate pass- through.” But one just came out on Canada’s experience with trade policy. Trade can affect what the bank does and what the bank does can affect trade, but you’ve got to wonder whether, if Donald Trump weren’t president, the Bank of Canada would be publishing papers reminding us of the basic economic arguments for free trade. Trump is president, however, and so that’s what the bank is doing.

Written by three economists in the bank’s Canadian Economic Analysis division ( Karyne B. Charbonneau, Daniel de Munnik, and Laura Murphy), the paper is short, only seven pages, 16 footnotes and 32 references, which is downright taciturn as academic papers go. But it does a nice job of summarizing the economic literature on the effects of three major Canadian trade policies: the National Policy ( 1879), the Auto Pact ( 1965), and the twostage FTA ( 1988) and NAFTA ( 1994). Unlike many papers by economists, it contains not one equation and can be read with real understanding by anyone who knows English.

Reading the section on the National Policy (which a student’s exam answer once informed me John A. Macdonald put in place so as to encourage Canada’s car industry) it occurred to me we’ve seen Donald Trump before, at least in trade terms. In 1866, when the White House was occupied by Andrew Johnson, who consistently ranks in the bottom quarter of U. S. presidents, the U. S. abrogated the Reciprocity Treaty, which since 1854 had provided free trade for raw materials between the U. S. and the British colonies north of her. But anger with Britain over her sympathy for the south during the Civil War and the growing domination of the Republican Party by northern industrial interests led to unilateral abrogation of the treaty. That was a great pity, not least because the Reciprocity Treaty was just 2,000 words long, versus several hundred pages for its modern equivalents. O, where are the treaties of yesteryear?

What did Canada do in response? First, we amalgamated, with the idea that free trade within Canada would help us achieve economic efficiencies. If Trump does pull the plug on NAFTA, we could try that idea again, since we pretty much flubbed it first time round. ( Yes, we’re looking at you, Alberta and Saskatchewan, with your recent construction-jobs war, and Ontario and Quebec, which inspired them, and many other pairwise combinations of provinces that have blocked each other’s products, services, workers and investors.)

Secondly, we tried hard, both Liberal and Conservative prime ministers did, to get the Americans to change their minds. And, third, only when that failed, we went for high tariffs ourselves. As the Bank of Canada study reports, economic historians are divided on their effects, mainly because the data are wildly incomplete — we didn’t have StatCan in those days. But the median view is that high tariffs got us more manufacturing than we would have had otherwise, but also manufacturing that was less productive. With tariff protection manufacturing didn’t have to be competitive, and was more likely to be owned by foreigners, since foreign firms jumped the tariff to set up “branch- plant” operations here.

Consumers, as always, got screwed, especially those outside Central Canada, where manufacturing was based. And our politics came to be dominated by the local potentates enriched by protection. On the whole, we were almost certainly worse off than if reciprocity had continued, but probably also worse off than if we had not raised tariffs following abrogation. Of course, in those days tariffs were the federal government’s main revenue source and were therefore hard to avoid, especially for a new national government eager to establish a national presence.

Today our manufacturing productivity and real incomes remain below the Americans’ even though, as the bank study reports, the best research concludes that both the Auto Pact and free trade boosted productivity as much as 10 per cent.

We do have a Canadian economy now and a transcontinental railway, not to mention national road and air travel grids and, although it’s under political bombardment, a cross- country pipeline system. We also have a sense of nationhood, albeit a peculiar one: As Canada 150 showed, these days, being Canadian means saying sorry your country exists.

Be that as it may. Unlike in 1879, we are firmly established and don’t need a new National Policy. If we do lose tariff- free access to the U. S. market, our productivity and living standards almost certainly will fall. What would be really dumb would be to compound our loss and shoot ourselves in the other foot by doing our own Trump and ramping up protection in response.