The Rise and Fall of Canadian-American Free Trade, 1947–8

ROBERT CUFF AND J.L. GRANATSTEIN The Rise andFallofCanadianAmerican FreeTrade,1947-8 'I CONFESS I getalarmedbeyondmeasure,' anexasperated Mackenzie King wrotein hisdiary,'atthecasual wayinwhichafewofficials takeit intotheir handsto try and settlethe greatnationalpolicies; forcethe handsof the Government, etc.withouttheleastknowledge of thepoliticalsideof matters of thekindor theleastkind of political judgment.'• It was6 May •948 and theprimeminister,withonlyafewmonthsof powerremainingtohim,had effectivelyand finallysquelched a movefor a free trade arrangementbetweenCanadaand the United States, under discussion sincethe previous fall. Mackenzie King'stestyruminations abouthisofficials werejustifiedonly in part.Canadianpoliticians hadbeeninvolvedin the planningandin the discussions with Americanofficials,and the prime ministerhimselfhad initially seemedenthusiastic aboutthe economicprospects openedup by free trade, a traditionalLiberal party policy.The storywasmuch more complicated thanKing'sdiaryallowed, moreover, for it emerged withinthe contextof an established communityof interestamong Canadianand Americanofficials whobelievedin freer tradeasa majoreconomic solution tothethreatening chaos of thepostwar world. At the end of the SecondWorld War, Canadawasforced to negotiatea remarkable change inherinternational economic relations. 'The battlefields of the second war,' Harold Macmillandolefullyobserved in hismemoirs, 'mark the end of the heroicageof the BritishEmpire, '2 a true enough statement andonethatonlylightlymasks thevastliquidationof capitaland J.W. Pickersgill andD. Forster,TheMackenzie KingRecord, IV: •947-4 8 (Toronto •97o), 270-1 HaroldMacmillan, Tides ofFortune •945-55 (London•969),xv Vol. LVIIINo 4 December•977 460 THE CANADIAN HISTORICAL REVIEW political investment abroadthatthecosts of thewarhadforcedonLondon. But if Britainwasstrapped bytheconflict,theUnitedStates hademerged wealthyandpowerful,stepping forwardto itsplaceasan imperialpower second to none.How couldCanadadeal with thischangedconditionof affairs? Oneway- amethodembraced withsomeeagerness byCanadian officials andpolitical leaders - wasmultilateral traderelations. A concept popular amongAmericanofficials, onepreached bySecretary of StateCordellHull andhissuccessors anddirected innegotiation byAssistant Secretary ofState William Clayton, multilateralismseemedthe orderly and world-wide methodbywhichCanadacoulddispose of itsexportsurpluses andprosper whileatthesame timecreating afreersystem oftradethatwouldpreventthe re-establishment of tariff barriersof the kind that had helpedlead to the worldwar. Canadawasconcerned notonlywiththelevelof itsowntrade, KingtoldtheHouseofCommons, 'butwehavealso afundamental concern for the level of external trade of other countries. The character of our trade, withsurpluses ofexports tocertain countries andexcesses ofimports from othercountries, requiresa conditionin whichsurpluses ononeaccount can be converted to offset deficiences on another account. This means that a bilateralapproach totradeisnotenough. 'aThat wasa goodenoughstatementof Canada's commitment to amultilateraltradingworld. Withvastly morepowerthanCanada, theUnitedStates hadtriedtouseits leverage duringthewartoforcemultilateralism onBritainanditssystem of preferentialtariffs throughoutthe empire.The weaponemployedwas Articlew• of theLend-Lease Agreement, andtheweapon wasa powerful one.No such bludgeons hadbeennecessary withCanada, for although the dominion tooknolend-lease aidithadreadilyagreed in •942inanexchange of notes to work toward a reduction in tariffs in a similar fashion to that requiredbyArticlevn. Asearlyas•943NormanRobertson, theundersecretaryofstate forexternal affairs,hadsignalled toJackHickerson, probably theleadingCanadian expertin theDepartmentof State,'thattheCanadian Government ispreparedtomoveoutonabroadfrontinassociation withthe United Kingdomand the United Statesin makingpostwarcommercial arrangements underArticle7.He hasindicated tome,'Hickerson reported, 'thatCanadais preparedto go the wholedistance asfar asabolitionof 3 KinginHouseof Commons, Debates, 9 Dec.•947,99.Forpubliccalls formultilateralism, see J. F. Parkinson, 'Problems of InternationalEconomic Reconstruction,' inAlexBradyand F.R.Scott,eds.,Canada aftertheWar(Toronto •943), •99ff; GrantDexter,Canada andthe Building ofPeace (Toronto•944),72if; W.M. Drummond,'Tradefor Prosperity,' Behind the Headlines, v, •945; K.R. Wilson,'DollarFamine,'ibid.,w•, •5Jan. •948.On general similarity ofCanadianandt•sgoals, seeLouisStLaurent,TheFoundations ofCanadian Policy inWorm Affairs(Toronto•947),esp.29-3 •. SeealsoD.G.Creighton, The Forked Road: Canada•939-57 (Toronto •976), •25-7. CANADIAN-AMERICAN FREE TRADE .461 preferenceisconcerned, providedthe United States and theUnited Kingdomarewillingtomakecompensatory tariff reductions. '4 But the roadto free tradewasnottobesmooth.Canadahadhopedthat the United States would make 'multilateral horizontal' tariff reductions, majoracross-the-board cutsin theprotective rates.ButCongressional pressures weresuch, theCanadians wereinformedatmeetings inJuly •945, that only selective cutswouldbe possible. This 'deeplydisappointed and dismayed 'the Ottawaofficialspresent,but after a lengthydiscussion of the waysin whichthe selective tariff cutscouldbe made, the Canadianshad cometobelieve,or sothecounsellot of the embassy in Ottawareportedto Washington, 'thatit wasfar moreimportantto gettheprogramunderway thantobeundulyconcerned withthedetailedmechanics of theprogram. '• Anytariffalterations inalowerdirection wereapparently betterthannone. Nor did the British seemany more eager than the United Statesto dismantle their tariff barriers. The British continued, to American annoyance , to linktheirwillingness toremoveimperialpreferences to sweeping Americantariff cuts,and Congress wasunwillingto acceptthis.The Canadiansweresimilarlyexasperated by Britishattitudes,and at leastone official,HectorMcKinnon,president of theCommodityPrices Stabilization Corporation, a crowncorporation, 'thoughtthatif thepresentadministrationin Londonshouldnotbepreparedto takefairlypromptactionin the tradebarrierfield,it mightbedesirable for theUnitedStates andCanadato considertogetherwhetherthesetwo countriesmight not go aheadon a programof theirown? There in essence wasanindicationof theCanadian 4 t•sNationalArchives, Rc59, Records of theDepartmentof State,HickersonFiles,box8, J.D. Hickerson toAtherton,3oJune •943, 'Memorandum,Commercial Arrangements between Canada andtheUnitedStates.' Polls bytheCanadianInstituteof PublicOpinion generallyfoundheavysupportfor freetradewiththeUnitedStates andoverwhelming internationalist sentiment duringthewar.AJune•943 pollreportedthat67...