Canada–US Economic Relations | The Canadian Encyclopedia
October 4th marks an important date in Canada-U.S. trade relations. In , both countries agreed to the Canada-United States Free Trade. The report, which maps the energy relationship between Canada and the United States, notes that the overall balance of trade between the two. Media Relations · General Inquiries · Telephone Directory In , Canada's energy sector directly employed more than , people and and the United States Energy Information Administration (U.S. EIA), —treats domestic . *A Canadian company is here defined as a publicly traded company.
Soon other elements endorsed annexation, Their plan was to annex British ColumbiaRed River Colony Manitobaand Nova Scotiain exchange for the dropping the damage claims.
The idea reached a peak in the spring and summer ofwith American expansionists, Canadian separatists, and British anti-imperialists seemingly combining forces.
The plan was dropped for multiple reasons. London continued to stall, American commercial and financial groups pressed Washington for a quick settlement of the dispute on a cash basis, growing Canadian nationalist sentiment in British Columbia called for staying inside the British Empire, Congress became preoccupied with Reconstruction, and most Americans showed little interest in territorial expansion.
The " Alabama Claims " dispute went to international arbitration. Britain paid and the episode ended in peaceful relations.
Prior to Confederation, there was an Oregon boundary dispute in which the Americans claimed the 54th degree latitude. That issue was resolved by splitting the disputed territory; the northern half became British Columbia, and the southern half the states of Washington and Oregon. Strained relations with America continued, however, due to a series of small-scale armed incursions named the Fenian raids by Irish-American Civil War veterans across the border from to in an attempt to trade Canada for Irish independence.
The British government, in charge of diplomatic relations, protested cautiously, as Anglo-American relations were tense. Much of the tension was relieved as the Fenians faded away and in by the settlement of the Alabama Claimswhen Britain paid the U.
Disputes over ocean boundaries on Georges Bank and over fishing, whaling, and sealing rights in the Pacific were settled by international arbitration, setting an important precedent. French American Afterthe pace of industrialization and urbanization was much faster in the United States, drawing a wide range of immigrants from the North.
It was common for people to move back and forth across the border, such as seasonal lumberjacks, entrepreneurs looking for larger markets, and families looking for jobs in the textile mills that paid much higher wages than in Canada. By then, the American frontier was closing, and thousands of farmers looking for fresh land moved from the United States north into the Prairie Provinces.
The net result of the flows were that in there wereAmerican-born residents in Canada 3. The issue was unimportant until a gold rush brought tens of thousands of men to Canada's Yukon, and they had to arrive through American ports. Canada needed its port and claimed that it had a legal right to a port near the present American town of HainesAlaska.
It would provide an all-Canadian route to the rich goldfields.
The dispute was settled by arbitration, and the British delegate voted with the Americans—to the astonishment and disgust of Canadians who suddenly realized that Britain considered its relations with the United States paramount compared to those with Canada. The arbitrartion validated the status quo, but made Canada angry at Britain.
To head off future embarrassments, in the two sides signed the International Boundary Waters Treaty and the International Joint Commission was established to manage the Great Lakes and keep them disarmed. It was amended in World War II to allow the building and training of warships. Canadian manufacturing interests were alarmed that free trade would allow the bigger and more efficient American factories to take their markets. The Conservatives made it a central campaign issue in the electionwarning that it would be a "sell out" to the United States with economic annexation a special danger.
Canada subsequently took responsibility for its own foreign and military affairs in the s. Its first ambassador to the United States, Vincent Masseywas named in Canada became an active member of the British Commonwealththe League of Nationsand the World Courtnone of which included the U. Over 50, people heard Harding speak in Stanley Park. Canada retaliated with higher tariffs of its own against American products, and moved toward more trade within the British Commonwealth.
These were primarily exercises; the departments were never told to get ready for a real war. InCanada developed Defence Scheme No. President Franklin Roosevelt gave a public speech at Queen's University in Kingston, Ontario, declaring that the United States would not sit idly by if another power tried to dominate Canada.
Diplomats saw it as a clear warning to Germany not to attack Canada. Roosevelt were determined not to repeat the mistakes of their predecessors. King sought to raise Canada's international visibility by hosting the August Quadrant conference in Quebec on military and political strategy; he was a gracious host but was kept out of the important meetings by Winston Churchill and Roosevelt.
Canada allowed the construction of the Alaska Highway and participated in the building of the atomic bomb. Fearing a Japanese invasion of Canada's vulnerable coast, American officials urged the creation of a united military command for an eastern Pacific Ocean theater of war. Canadian leaders feared American imperialism and the loss of autonomy more than a Japanese invasion.
The American involvement ended the depression and brought new prosperity; Newfoundland's business community sought closer ties with the United States as expressed by the Economic Union Party. Ottawa took notice and wanted Newfoundland to join Canada, which it did after hotly contested referenda.
There was little demand in the United States for the acquisition of Newfoundland, so the United States did not protest the British decision not to allow an American option on the Newfoundland referendum. Laurenthandled foreign relations in cautious fashion.
However, Mackenzie King rejected free trade with the United States,  and decided not to play a role in the Berlin airlift. It played a modest role in the postwar formation of the United Nationsas well as the International Monetary Fund. It played a somewhat larger role in in designing the General Agreement on Tariffs and Trade. Canada was a close ally of the United States during the Cold War. This led in a large part to the articulation of Prime Minister Trudeau 's " Third Option " policy of diversifying Canada's trade and downgrading the importance of Canada — United States relations.
In a speech in Ottawa, Nixon declared the "special relationship" between Canada and the United States dead. In the War offor example, the enthusiastic response by French militia to defend Lower Canada reflected, according to Heidler and Heidler"the fear of Americanization. Imperialists who admired the British Empire explained that Canadians had narrowly escaped American conquest with its rejection of tradition, its worship of "progress" and technology, and its mass culture; they explained that Canada was much better because of its commitment to orderly government and societal harmony.
There were a few ardent defenders of the nation to the south, notably liberal and socialist intellectuals such as F. Scott and Jean-Charles Harvey — While agreeing that job opportunities are greater in America, 89 percent disagreed with the notion that they would rather be in the United States, and they were more likely to feel closer to English Canadians than to Americans. Granatstein in Yankee Go Home: Canadians and Anti-Americanism Current studies report the phenomenon persists.
By earlyPrime Minister R. Bennett met with Roosevelt in April, with the two leaders agreeing to increase trade. A Canada—US agreement in was a modest step, but marked the beginning of an economic relationship that over time led to steadily declining tariffs and other trade barriers. A second reduction in tariffs came with a subsequent agreement under the Reciprocal Tariff Act.
These agreements made it easier to export commodities such as fish, lumber, cattle, dairy products and potatoes, as well as machinery and equipment to the US, while Canada reduced some of its barriers to imports.
These were the first successfully concluded trade agreements between the two countries since the reciprocity agreement, a gap of roughly 80 years. Canada needed access to US industrial supplies and dollars to undertake its war effort.
All Canadians were required to sell their holdings of foreign exchange to the Foreign Exchange Control Board and Canadians were not permitted to buy foreign exchange for pleasure travel.
Until the Second World War, Canada had regularly run trade deficits with the US but had offset these through its surpluses with Britain. At the same time, to meet its industrial war and other needs, Canada found itself with a serious shortage of US dollars. Under the resulting Hyde Park agreement, Canada and the US agreed to co-ordinate production of war materials to reduce duplication and to enable each country to specialize. Mackenzie King second from left and Franklin D.
Roosevelt second from right courtesy NGC. The postwar economic recovery had led to a surge in imports as Canada experienced a sharp rise in domestic demand, along with conversion of its industrial base to peacetime production. InCanada again introduced exchange controls to limit the purchase by Canadians of US dollars to essential purposes.
The oil discoveries at LeducAlberta, and other discoveries in western Canada, meant that the US now had access to more secure oil supplies shipped overland rather than in ocean-going vessels. The US gave Canadian oil preferential treatment in what at the time was a highly protected market.
This also marked the beginning of a network of North American oil and gas pipelines. The economic crisis in the mids and the growing interdependence in trade and resource development led to new discussions between Canada and the US for a free trade agreement. But Prime Minister Mackenzie King in halted discussions out of fear of rejection by Canadians concerned about the threat of assimilation into the US.
Canada relied instead on successive rounds of the General Agreement on Tariffs and Trade now the World Trade Organization to progressively improve access to the US market. These agreements over several decades led to the elimination or significant reduction in most tariffs between Canada and the US. Defence Industry Collaboration became more important in defence procurement during the Cold War. The two countries agreed to maintain trade in defence products in rough balance.
Canada relied on the US for major military technology, while the US agreed to assist the development of a defence industry in Canada by eliminating tariffs on most Canadian military products and exempting Canada from Buy America provisions that required the US Defence Department to purchase US products.
While acknowledging that Canada had benefited in terms of capital, technology and management skills from US investment, the commission, chaired by Walter Gordonraised concerns about US domination in the oil and gas, mining and smelting, and various manufacturing industries.
Canada had relied on foreign capital for development since Confederation and without it, the economy would have been smaller and the standard of living lower.
But in the 19th century, most of that capital came from Great Britain, mostly in the form of debt that was paid back and concentrated in railways, construction of utilities and funding of governments.
In contrast, US investment from the late 19th century and in the 20th was in the form of direct investment, allowing permanent ownership and control of enterprises. By the s, direct investment had become the most important form of foreign capital in Canadian industry, mainly in subsidiary companies or branch plants. In85 per cent of foreign capital invested in Canada was owned in Great Britain and 14 per cent in the US.
Bythe British share had fallen to 17 per cent while the US share was 77 per cent. The concern of the Gordon commission was that US corporations controlled businesses in the fastest-growing sectors of the Canadian economy.
It was also concerned that US subsidiaries would give preference to US suppliers of machinery and equipment, parts and components and professional services over competing Canadian suppliers, while good jobs in research and development, finance and corporate strategy would be held in US head offices.
The report proposed that wherever possible, branch plants should employ Canadians in senior management and technical positions, retain Canadian engineering and other professional and service personnel, and whenever possible do their purchasing of supplies, materials and equipment in Canada.
The commission also called on foreign subsidiaries to publish full financial statements of their operations in Canada, include on their boards of directors a number of independent Canadians and sell an appreciable interest — 20—25 per cent — of their equity stock to Canadians.
The commission also called for restrictions on foreign ownership in Canadian banks and life insurance companies. By the s, politicians were raising concerns about US ownership and control of Canadian industries, including the oil industry. Limiting US Ownership Inthe report of the Task Force on the Structure of Canadian Industry was published, recommending the creation of a development corporation to support the growth of Canadian-controlled companies, and the regulation of foreign takeovers of Canadian companies.
Inthe federal government created the Canada Development Corporation to support the development of Canadian-controlled companies in the private sector, but it was dismantled in Inthe federal government established Petro-Canada as a Crown Corporation to build a Canadian-owned presence in the oil industry it was privatized in and merged with Suncor Energy in This was followed, inby the National Energy Programwhich set the goal of 50 per cent Canadian ownership of the Canadian oil and gas industry by In14 foreign, mainly US oil companies accounted for 82 per cent of Canadian oil production.
A variety of measures were announced to favour Canadian-controlled oil companies, including Petro-Canada, initiatives strongly opposed by the US. The US strongly opposed the sale, and the Canadian subsidiary of a US company refused to sell the grain handling equipment to make the sale possible, citing US laws that made sales to China illegal. After negotiations between the two countries, the grain-handling equipment was supplied. Following the Cuban revolution ofthe US imposed a trade embargo on Cuba and tried to force Canadian subsidiaries of US corporations to abide by the embargo.
However, Canada insisted that the subsidiaries were subject to Canadian, not US laws. InCanada passed the Foreign Extraterritorial Measures Act, requiring companies in Canada to abide by Canadian laws rather than foreign laws. The law was amended inforbidding Canadian companies and Canadian subsidiaries of US corporations from complying with even harsher US restrictions on trade with Cuba that came into effect that year.
Auto Pact InCanada took a transformative step in deepening cross-border economic integration with the signing of the Canada—US Automotive Products Agreementor Auto Pact, whose purpose was to establish a single continental market for the industry.
The agreement was negotiated to avert a serious trade conflict between the two countries, since the US had found Canadian auto industry policies to be in conflict with US trade laws.
But the agreement was also seen as an efficient way to lower Canadian manufacturing costs through the gains from manufacturing fewer product models, but with longer production runs, for assemblers and parts manufacturers serving a single Canada—US market.Canada and the United States: Energy Partners
This was not a free trade agreement but a managed trade agreement. It did not include free trade for consumers but only for manufacturers, provided they met certain conditions the agreement was limited to US-brand auto assemblers and Volvo, which had a small operation in Halifax. For its part, Canada agreed not to pursue auto free trade with other countries. The Auto Pact led to a surge of investment and production in Canada by the major US auto and auto parts companies and byfor the first time, Canada had a trade surplus with the US in autos and auto parts.
The agreement soon became a source of friction: Inthe US came very close to abolishing the agreement. The pact was ended in after it was found to be contrary to World Trade Organization rules.
But by then, the North American auto industry, with a strong Canadian presence, was already well established, with autos and auto parts the most important Canadian manufacturing exports to the US.
This was clearly apparent in the s as the US grappled with its own balance of payments problems, its long-standing global trade surpluses turning into deficits. Canada argued that its relationship with the US was special, and thus should be exempted from US balance of payments measures.
But the US viewed Canada as part of the problem, saying Canada should borrow less in the US and do more to develop its own capital markets. Inthe US introduced a tax on the interest and dividends earned by US citizens, and on foreign bonds, shares and commercial paper by corporations, in a bid to slow down the flow of US funds abroad. Five days later, Canada obtained a conditional exemption: Canadian borrowing in the US could not increase above traditional levels and Canada was not allowed to increase its foreign exchange reserves through the proceeds of new US borrowing.
InCanada agreed to additional conditions following the introduction of mandatory US controls on foreign investment by American multinational corporations, which were ordered to increase repatriation of earnings from their foreign subsidiaries, including those in Canada.
This led to a further crisis for the Canadian dollar and Canada was forced to negotiate an exemption for subsidiaries of US non-financial corporations in Canada. Inthe US lifted its interest equalization tax and other balance of payments measures.
Canadian paper dollar featuring a young Queen Elizabeth. Faced with continuing balance of payments problems, however, the administration of US president Richard Nixon took drastic steps in with its New Economic Policy. It included a 10 per cent surcharge on all US imports, generous tax incentives for exports and a devaluation of the US dollar by ending the link between the dollar and gold, leading to the current system of floating exchange rates.
At the same time, in bilateral negotiations, each major trading partner, including Canada, was pressured to take additional steps to help the US improve its balance of payments.
What would Canada-U.S. trade relations look like without NAFTA? - The Globe and Mail
Canada, for example, was threatened with cancellation of the Auto Pact. A key lesson of the s, culminating in the New Economic Policy, was the vulnerability of Canada to unilateral US actions. A government report, Canada—US Relations: Options for the Future, said Canada should reduce its vulnerability to US policies and pressures through trade diversification.
Energy Conflict While Canada had long been viewed in the US as a secure source of oil and gas, access to the American market had not always been easy. InPresident Dwight Eisenhower established the Mandatory Oil Import Program, which imposed import quotas and licenses to stimulate domestic US production, which limited Canadian oil exports. But as US needs rose, the quotas were phased out. With the sharp increase in world oil prices through the s, Canada imposed an export tax on oil from until under the Petroleum Administration Act.
The purpose was to sustain an oil price in Canada below the world price by using revenues from the tax to subsidize more costly oil imports used by refiners in eastern Canada.
This was followed in by the National Energy Programwhich included the goal of 50 per cent domestic ownership of the Canadian oil industry byassisted via a tax policy that favoured oil exploration by Canadian companies. The National Energy Program also sought to increase the Canadian share of engineering services, technology and machinery in oil and gas projects. Foreign multinationals in Canada, it was argued, tended to favour companies and technologies already used by their parent companies, thus depriving Canadian enterprises.
The US vigorously protested these measures, and beginning in they were to a large extent unwound. The subsequent Canada—US free trade agreement see "Free Trade Agreement" below barred the future use of an oil export tax, and provided for equal treatment of Canadian and US companies in developing Canadian resources.
ByUS-controlled subsidiaries accounted for 9. In manufacturingfor example, they accounted for In the oil and gas sector they accounted for But in other sectors, such as finance and insurance and construction and utilities, US ownership and control accounted for a much smaller share of industry activity in finance and insurance, for example, just 4. Free Trade Agreement In the early s, following a severe recession, Canada again turned its eyes south in pursuit of ways to expand economic growth.
Government of Canada
This renewed interest in relations with the US was also prompted by growing fears of a resurgence of US protectionism. Based on the success of the Auto Pact, Canada and the US attempted to identify other sectors where they could pursue sectorial free trade.
The exercise failed through lack of agreement on new sectors. As a consequence, Canada decided to seek a comprehensive free trade agreement and in the US agreed to begin negotiations. President Ronald Reagan was open to the idea. InReagan had called for a North American common market. This, it was argued, would encourage innovation and boost productivity, and hence increase employment and raise Canadian living standards. An agreement was reached at the end ofcoming into effect on 1 January A key Canadian objective — an exemption from US trade remedy laws —was not, however, achieved.
Canada was still faced with punitive actions, such as subsequent US efforts to restrict softwood lumber imports, or US unilateral actions, such as Buy America restrictions in public infrastructure projects. Even before the heightened border rules that came after the terrorist attacks ofexports from Canada required extensive paperwork to comply with rules of origin in the agreement which set minimum North American content thresholds.