Canadian–American Reciprocity Treaty
The Canadian–American Reciprocity Treaty of 1854, also known as the Elgin–Marcy Treaty, was a trade treaty between Great Britain and the United States, applying to British possessions in North America including the Province of Canada, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland Colony. It covered raw materials and was in effect from 1854 to 1866. It represented a move toward free trade; it was opposed by protectionist elements in the United States. After the conclusion of the American Civil War in 1865, the protectionist elements were joined by Americans angry at tacit support by Britain for the Confederate States of America during the war, and the alliance was successful in terminating the treaty in 1866. The response in much of British North America was to form Canada (1867), which was expected to both open up many new economic opportunities inside Canada and unify the colonies against growing expansionist sentiments in the United States, associated with the Alaska Purchase.
Attempts by the Liberal Party of Canada to revive free trade in 1911 led to a political victory for the Conservative Party, which warned that Canada would be annexed by the Americans. Talk of reciprocity then ended for decades.
Faced with the ending of British imperial preference when the British Corn Laws (tariffs on food imported to Britain) were repealed in 1846, the Canadian business community, based in Montreal, looked south. Merchants threatened to push for annexation to the United States unless London negotiated a free trade deal with Washington. In 1854, they achieved what they wanted in the Elgin–Marcy Treaty. It listed most Canadian raw materials and agricultural produce, especially timber and wheat, as goods admitted duty-free to the U.S. market. The treaty ended the American 21% tariff on natural resource imports. In exchange, the Americans were given fishing rights off the East Coast. The treaty also granted a few navigation rights to each other's lakes and rivers.
The treaty represented an attempt by American manufacturers to enlarge their export market and to obtain cheaper raw materials and an attempt by free traders, tariff reformers, and their Democratic Party allies to lower the tariff. The protected interests, represented by the Republican Party, fought back.
Historians have agreed the impact was small for the United States but have debated its effects on Canada. After the treaty took effect, there was a large increase in Canada's exports to the United States and a rapid growth of the Canadian economy, especially in southern Ontario. Canadian exports to the United States grew by 33% after the treaty, but American exports grew by only 7%. Within ten years, trade had doubled between the two countries. For nearly a century, Canadian economists saw the reciprocity era as a halcyon period for the Canadian economy.
In 1968, the optimistic view was challenged by economic historians. They argued that the growth of trade was caused by both the introduction of railways to Canada and the American Civil War, leading to huge demand in the United States. They also argue the statistics are questionable. Before the tariffs, much smuggling took place. Free trade brought it trade into the open, but the increase in recorded trade did not actually reflect growth in the economy. In 1855, there were poor wheat harvests in the United States and Britain, and Russian wheat supplies were cut off by the Crimean War. It was a great year for Canadian wheat, independently from the introduction of the tariff. It was also argued that the trade hurt Canadian manufacturing. For instance, the export of milk and barley hurt the Canadian cheese and beer trades. Some scholars like Officer and Smith hold that the economic prosperity that followed the treaty had little to do with tariffs.
The treaty stimulated the coal mining industry in Nova Scotia. The colony was already moving toward free trade before the 1854 treaty took effect, but the treaty still resulted in modest direct gains. The structure of the economy changed because markets for some commodities, such as coal, increased greatly; the demand for other goods was unchanged. The Reciprocity Treaty complemented the earlier movement toward free trade and stimulated the export of commodities that were sold primarily to the United States.
When the trade began it helped The United States to get cheaper raw materials and both nations wanted to expand their own trade markets.
The treaty was abrogated by the Americans in 1866 for several reasons. Many felt that Canada was the only nation benefiting from it and objected to the protective Cayley–Galt Tariff imposed by the Province of Canada on manufactured goods. Also, the United States was angry at the British for having unofficially supported the Confederates during the Civil War.
The state of Maine, given its location, was a key player. The treaty benefited Portland's trading position with respect to Montreal and the Canadian hinterland, but many Maine politicians and businessmen worked successfully to terminate the treaty. Many voters were angry with Canadians' actions during the Civil War. There was complacency on the part of Portland railroad interests, and the Bangor lumber interests opposed the continental economic integration envisaged by the treaty.
While Canada attempted to negotiate a new reciprocity treaty, the Americans were committed to high tariffs and would not agree. Eventually, John A. Macdonald set up a Canadian system of tariffs, known as the National Policy. In 1911, a free trade agreement was rejected by the electorate in the 1911 election.
After 1945, both nations joined the General Agreement on Tariffs and Trade (GATT) and tariffs began to steadily decline. Free trade between the two nations was finalized by the 1988 Canada–United States Free Trade Agreement.
From 1867 to 1911, the Liberals generally favoured reciprocity. After winning the 1896 election, however, Wilfrid Laurier did not pursue free trade because the United States refused to discuss the issue. Instead, he implemented a Liberal version of the National Policy and maintained high tariffs on goods from other countries that restricted Canadian goods, but he lowered tariffs to the same level as those countries that admitted Canadian goods. Political rhetoric made it a party issue: the Conservatives, which stood publicly for nationalism and protectionism ("the National Policy"), succeeded in associating the Liberals with free trade, commercial union with the United States, and continentalism, which smacked of absorption by the United States. In 1911 Laurier's Liberals successfully negotiated a reciprocity treaty with American president William Howard Taft.
The Conservatives made it the central issue of the 1911 election, igniting anti-American sentiment by dire warnings the treaty would turn the economy over to American control. The Liberals were decisively defeated in the 1911 election, and the treaty was rejected by the new Conservative government under Robert Borden.
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