Since confederation, the Canadian economy has been at the mercy of the American economy. One of Canada’s most important objectives was – and still remains – trying to build a strong relationship with the United States, and for the most part, Canada has been successful in doing so. However, this relationship has developed into a one-way benefit where, when the US economy declines, Canada’s economy does so as well, however, when Canada’s economy declines, the effect that it has on the US’s economy is minimal to none. The outcome: a Canadian economy that relies on the American economy’s success.
During the mid 1860s, while the founders of early Canada were working on bringing the rest of the Provinces together, the United States met with Canada to discuss a possible treaty to allow for free trade on natural resources and agricultural products. Following this, Britain delivered a huge blow to the Canadian economy by supporting Confederate states in the American Civil War – damaging US’s “free” trade with Canada, and introducing tariffs that benefited the States, but hurt Canada. Looking a bit forward to 1870, Canada introduced it’s first tariff on the US, which was on imports from Canada to counter some other recent tariffs.
The US’s power and control over Canada’s economy came from a large amount of high- ranking US corporate ownership and control of some parts of the Canadian economy. The US first established themselves in Canada in 1898, when the US oil company Standard Oil of New Jersey acquired Canada’s largest oil company, Imperial Oil Ltd. By the time the 1920s came around, an estimated 466 branch plants were owned by US corporations, and just 12 years later, around 641 more were added. By 1930, 20% of Canadian industry was US owned. The US had entered Canada, made itself comfortable, and began to expand – every year eating up more and more of Canadian industry. Prime Minister Macdonald’s government realized this was happening, and they knew they had to do something fast, before time ran out – and Canada could inevitably be absorbed by the US. Prime Minister Macdonald had limited options, and decided it was best to pursue a higher-tariff policy. He feared a trade war. While he was increasing these tariffs to try to decrease the growing US owned Canadian industry, US manufacturers inside of Canada were beating Canadian competitors by lowering their prices below the prices of Canadian manufacturers. What the US was trying to do had been identified, slowed down, even… but the damage was just starting to kick in. The US has also attempted to use it’s Canadian branches to achieve their foreign policy goals. These corporate owners had gained the backing of the US government, which had resulted in the US government opposing policies that would hurt the development of Canadian industry, and would help to further develop themselves inside Canada.
In 1911, an important election took place – one that changed Canada’s history. The defending Prime Minister, Wilfrid Laurier, planned to keep the free trade agreement with the US that had recently been established. The next PM – Robert Borden’s plan, however, in fear of US-Canada annexation, was to cut off the free trade deal between Canada and the US. Robert Borden won, and he ceased the free trade deal. Closing off the USA slowed the growth of US corporations inside of Canada. This move possibly saved Canada from being completely engulfed by the USA. The other thing that Borden was thinking of when cancelling this agreement, was preserving the British connection. Canada’s economy greatly relied on – and continues to rely on today – other countries to buy their exported resources. In the 1930’s, the United States bought 40% of Canada’s exports, which means that Canada’s economy would be affected if the American economy declined. This is exactly what happened. During the Great Depression, because of all the mayhem happening in the United States (extremely high unemployment rate, a low amount of exporting to other countries and overall a very low cashflow for everyone), businesses ceased to be able to afford importing goods from other countries like Canada. In addition, the US introduced the Tariff act of 1930, taking US tariffs to new heights, delivering a devastating blow to Canadian economy. These included tariffs on (give a few examples). All these factors added up, to hurt the Canadian economy, resulted in the crash of Canada’s economy during the Great Depression.
In 1933, Franklin Roosevelt met with the Canadian PM, Richard Bennett, to discuss better trade between their countries. In 1934, Roosevelt introduced the Reciprocal Tariff Act, which balanced out the uneven tariffs benefiting one side over the other. Along with another trade agreement introduced in 1936, these were the first steps towards building a healthier, more fair trade relationship between Canada and the US. Nearing the 1940s, an improvement to the Reciprocal Tariff Act came along in 1938, reducing tariffs for the second time. This change allowed Canada to more easily export select goods to the United States as well as reduce some of Canada’s barriers to imports.
This seemed to work, up until the second World War. Before 1938 Canada was nowhere near dependent on the US, as Britain was Canada’s main importer and exporter. However, once WW2 broke out, a trade surplus with Britain was no longer present, and by 1941, Canada found itself buying 200 more million dollars worth of imports from the US – $912 million in 1941 vs $711 million in 1940. Similarly, exports from Canada to the US jumped to $1.1 billion from $442.9 million in 1940. This was the start of what is now the United States’ extensive influence on the Canadian economy.
In an attempt to boost Canadian economy, in 1947 the Canadian government introduced exchange policies that tried to limit the purchase of products in the States by only allowing the purchase of essential items when in the States. By doing this, businesses would benefit from increased income from citizens that would otherwise be spending their money in the US.
Fast forward to 2014, and trading between Canada and the US topped off at 750 billion. Also, 75% of Canada’s merchandise exports were coming from buyers in the US. This equated to about 20 percent of Canada’s GDP. Furthermore, to prove that Canada does not influence US but US influences Canada: Canada is the largest export market for the US – 19 percent of US merchandise export, but on the other end, the US is around 67 percent of Canadian imports (2014). So, why exactly is this bad? Well, if the US decided to cease trade with Canada, the US would be able to cope – Canada is only 19% of US merchandise exports, still large, but in the end not too significant On Canada’s end, however, Canada’s largest importer AND exporter is the United States’ – the US is 67% of Canadian merchandise imports, and 75% of Canadian merchandise exports. Businesses would shut down, people would lose their jobs, and the economy would crash. Is there anything Canada can do about this situation they have dug themselves into? It would be difficult . One thing Canada could do, would be to shift their imports and exports from US to other countries. However, the reason that Canada chooses the US is because of its proximity and convenience in importing and exporting goods.. Choosing to shift trade to other markets such as Asia, for imports would create challenges, with some unknowns as to how the Canadian economy would cope.
From restrictive, and perhaps unfair tariffs, to US corporations taking over Canadian industry, the US has been in control of Canadian economy since the times of Confederation. Canada should diversify from their reliance on the American economy, because should should the US’s economy crash, the Canadian economy would be dragged down with it.