Trade Barriers and Tariffs
Free trade, known in nineteenth and twentieth century Canada as reciprocity, was and is a significant issue in Canadian – American relations. Canada has both been desirous of free trade with the United States, particularly in the area of natural resources, and somewhat fearful of American dominance. The anti-American sentiment led Canada into a National Policy, which was the official position of the Canadian government implemented in 1879. Tariffs were placed on manufactured goods from the United States in order to stimulate growth in Canada’s own manufacturing industry, especially in the area of farm machinery.
Farmers in Canada’s plains had access to American made farm machinery, but at much higher prices than for which they could be purchased in the United States. The policy led to an increase in Canada’s manufacturing base, but at the expense of the agricultural industry. The tariffs were also a response to high tariffs imposed on Canadian goods by the United States. Canada at the time had no income tax and customs duties on imports was a large proportion of the national budget. Because of this the Canadians could not completely exclude imports, leading them to impose tariffs which were not as high as those of its neighbor.
The National Policy was well received in the growing manufacturing industry, but steadily drew resistance from the Canadian agricultural industry, and the United States. Supporters of National Policy argued that it was necessary in order to protect Canadian industry from being absorbed into that of the United States, and that its removal would lead to American economic dominance which would eventually lead into American annexation of all Canada. Over the decades of the late nineteenth century and the first half of the twentieth, Canada and the United States negotiated several reductions in tariffs, but free trade remained elusive.
In the 1920s a new industry emerged which was not impacted by borders. Radio boomed in the United States, and Canadian cities were flooded with American entertainment, news, and advertising. Canadians viewed the influx of American culture as an assault on their own, and established the Canadian Radio League. The League pushed for the creation of public broadcasting in Canada. In the 1950s the process repeated itself in the form of television, also viewed as a form of American invasion, and laws were passed defining the minimum amount of Canadian productions which could be broadcast.
Through the first half of the twentieth century Canada built a burgeoning automobile industry, with its products protected from the import of US models via high tariffs. After World War II nearly all of the cars built in Canada were in plants owned by US manufacturers and were copies of American models under different names. Most of the parts to assemble them were imported from the United States. In 1965 the American Big Three (Ford, GM, and Chrysler) lobbied for a treaty known as the Auto Pact, which removed Canadian tariffs on Big 3 products in response to maintaining agreed to production levels, and essentially integrated the Canadian and American automotive industries.