An Illuminating (but Short) History of Canada-US Trade Relations

By | January 16, 2018

The threat of Mr. Trump ending the NAFTA negotiations, including the possibility of him sending a notice of US withdrawal from the treaty itself, prompts a brief but interesting review of US-Canada trade relations over the last 150 years.

In may come as a surprise to learn that the US has only terminated one trade agreement in its entire history. And that was a trade agreement with Canada.

The 1854 Reciprocity Treaty was the first free trade agreement ever concluded by the United States. Canada was still a British colony then, so the treaty was negotiated and signed in Canada’s name by the British government. It provided for access of American and Canadian fishermen to each other’s coastal waters and created duty-free trade in fish, grain, poultry, eggs, lumber and a range of other non-manufactured commodities.

While the Reciprocity Treaty wasn’t anything like NAFTA or other free trade agreements we know today, it was a remarkable achievement for its time. In those days, customs duties were much more important than they are today, so duty-free trade really meant something, even if it was confined to basic commodities. The preamble used the following wording about both Parties being,

“ . . . desirous to regulate the commerce and navigation between their respective territories and people, and more especially between Her Majesty’s possessions in North America and the United States, in such manner as to render the same reciprocally beneficial and satisfactory . . ”

Unfortunately, the treaty’s days were numbered because of deteriorating relations between the US and Britain, mainly over the Alabama incident.

The Alabama was a Confederate gunboat. It had been built by a British shipyard, delivered to the Confederacy (over protests by Washington) and then raided Union coastal shipping during the early years of the American Civil War.

The fact that Britain allowed the Alabama (and other British-built gunboats) to be delivered to the South in spite of that country’s legal neutrality didn’t sit well in Washington when the war ended. As well, there was a perception that Britain had lent other forms of tacit support to the Confederacy because of its need for cotton from southern plantations to supply British textile mills.

Anger over all of this, plus a movement in the US to annex Canada, was running strong, so in 1866, the US abrogated the treaty. The interesting point about this is that President Johnson, who had assumed office when Lincoln was assassinated, required the approval of Congress to do so. There are some constitutional lessons here that are relevant in 2018.

To restore good relations and help calm things down, the US and Britain concluded the 1871 Treaty of Washington, providing for an international tribunal to settle the Alabama claims, which eventually awarded Washington $15.5 million in compensation. The treaty also resolved pestering disputes over the Atlantic fisheries and drew the Canada-US maritime boundary line off the west coast in the Strait of Juan de Fuca.

Now fast forward a few decades to another interesting episode in the early years of the 20th century. The bitterness of the post-Civil War period had long dissipated and there was general goodwill between the two countries, allowing Canada (under the Laurier government) and the US (under the Taft administration) to conclude a second Reciprocity Treaty in 1911.

In sending that treaty to Congress for approval in January of that year, President Taft expressed fine sentiments about the importance of good relations between the US and Canada:

“The guiding motive in seeking adjustment of trade relations between two countries so situated geographically should be to give play to productive forces as far as practicable, regardless of political boundaries. . . . an exact balance of financial gain is neither imperative nor attainable. No yardstick can measure the benefits to the two peoples of this freer commercial intercourse and no trade agreement should be judged wholly by custom house statistics.”

In the end, Congress approved the 1911 treaty but, as fates would have it, the Canadians rejected it. Laurier and the Liberals lost the bitterly fought 1911 election, the Reciprocity Treaty being one of the main issues in the campaign. Western Canada was in favour, eastern Canada largely opposed. Borden and the Conservatives campaigned vehemently against reciprocity and won, the Toronto business community carrying an anti-free trade banner with the rallying cry, “No Truck or Trade with the Yankees.”

And here matters stood for several decades. While there was an intermittent effort by the McKenzie King government to conclude a trade deal with Washington in the late 1930s, nothing came of it. In 1965, there was renewed forward movement with the conclusion of automotive free trade in the ground-breaking Auto Pact.

However no all-encompassing trade talks occurred until President Reagan and Prime Minister Mulroney launched an historic set of bilateral free trade negotiations in the mid-1980s. In a statement of vision, Ronald Reagan said this in presenting the final outcome – the 1988 Free Trade Agreement – to the Congress in January 1988:

“The U.S.-Canadian free trade agreement is the culmination of 18 months of strenuous negotiations between our governments. . .  Frankly, I think we’ve come up with a winner, a winner for people on both sides of the border. Canada and the United States are already each other’s largest trading partners. . . . The economic health and national security of our countries are linked. This well-honed treaty will build on these ties that already exist and open up tremendous new potential.”

The rest, as they say, is history.