Canadian-American reciprocity

Canadian-American Reciprocity was the free trade policy between the U.S. and British North America (the British colonies that became Canada in 1867) in effect from 1854 to 1866. Attempts to revive it in 1911 led to a political crisis in Canada and it failed.

Confronted with an economic depression caused by the ending of British imperial preference when the Corn Laws were repealed in 1847, the Canadian business community looked south for new outlets for Canadian raw materials. Debate on what to do divided merchants, canal and Great Lakes shipping interests, politicians, fishermen, and farmers. Montreal merchants, who dominated Canadian business interests, threatened to push for annexation to the U.S. unless London negotiated a free trade deal with Washington. The most energetic promoter was Israel D. Andrews, a Canadian-born American diplomat who believed the geographic unity of the St. Lawrence-Great Lakes-Mississippi area made inevitable the development of a unified economic system. In 1854, the British and Americans agreed on the Elgin-Marcy Reciprocity Treaty. It gave Americans access to Atlantic fisheries north of the 36th parallel and listed most Canadian raw materials and agricultural produce as goods reciprocally admitted duty-free. It gave American shippers access to the St. Lawrence on the same terms as Canadians.

Trade increased rapidly, jumping 250% between 1853 and 1856, and 365% from 1853 to 1866; Canadians at the time credited the treaty and wanted it continued. The Canadian numbered about 3 million people and the U.S. was a ten-times bigger market, and far closer than Britain. The generally accepted view is that the treaty opened the booming US market to Canada's lumber, fish, coal, and agricultural products, giving Canada wider markets and higher prices. In Nova Scotia, the treaty resulted in modest direct gains. The structure of the economy changed because markets for some commodities, such as coal, were strongly affected though markets for other goods were untouched. The treaty complemented the earlier movement toward free trade and stimulated the export of commodities sold primarily to the U.S. A minority view argues that the treaty did not appreciably increase Canadian trade, and trade that did increase was not entirely beneficial to Canadian welfare.

The United States, angered at British support for the Confederacy, abrogated the treaty in 1866. The solution for most leaders in British North America became confederation into the Dominion of Canada (1867), which offered a new economic possibility.

From 1867 to 1911, regaining reciprocity was an aim of all Canadian governments, although political rhetoric made it a party issue: the Conservative party, which stood publicly for nationalism and protectionism ("the National Policy"), succeeded in associating the Liberals with free trade, commercial union, and continentalism. In the U.S. the Harrison administration of 1889-93 concluded tariff reciprocity agreements with eight nations, but negotiations with Canada failed in 1891-92 when Canadian negotiators refused to include manufactured products, which they hoped could be made in Canada. The Liberal government of Sir Wilfrid Laurier finally succeeeded in signing a reciprocity treaty in 1911 with American president William Howard Taft. The Conservatives made it the central issue of the 1911 election campaign, igniting anti-American sentiment by dire warnings the treaty would turn the economy over to American control. The Liberals were decisively defeated and the treaty was rejected. After 1911, reciprocity was no longer a significant issue. The defeat of reciprocity gave a major stimulus to the expansion of American investment in Canada in the form of branch plants and subsidiary firms. In an era of rapid expansion of American foreign trade the Canadian market, with its openings into the imperial trade area, offered great attraction to U.S. businessmen, who were increasingly anxious about the development of surplus manufactures at home. There was no American annexation plot, as Canadian politicians charged, for American businessmen saw reciprocity as a technique for gaining control of world markets without the burdens of political annexation. Proponents of reciprocity opposed the growth of branch plants, but defeat of reciprocity created additional incentive for their growth and increased the threat of foreign domination many Canadians feared. American investors thereby profited from the Canadian tariff against American goods and from preferential Canadian-British tariff agreements.

After 1945, there was been a long process of tariff liberalization climaxing in 1989 when Canada and the United States signed the North American Free Trade Agreement (NAFTA) that ended most trade restrictions, although friction continues on certain issues such as lumber products.