Economic Integration

 

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When WW2 started, a reorientation of trade patterns had been going on for a long time. The old Canadian staples of the 19th century like fur, wheat, and lumber, went primarily to Europe. More recent 20th century exports like lumber, pulp and paper, minerals, hydroelectricity, however, massively went to the US. Since the 1920s, the main trade route in Canada no longer followed the old west-east axis with a prolongation to Europe, but a new north-south axis to the US. In the 1950s and 1960s, there were massive American investments in natural resource industries and the industrial sector, which became dominated by American subsidiaries. In 1965, the Auto Pact led to the development of American subsidiaries in the automobile industry (under the Canada-United States Automotive Products Agreement, the American carmakers had to build a car in Canada for every car they sold in Canada; in fact American automakers in Canada far exceeded their obligations and shipped cars south to the US.

 

American investments brought great prosperity to Canada, but they also were problematic. In the 19th century, the Canadian economy had been fuelled by British investments under the form of bonds, which entailed no direct impact on management of Canadian business. In the 20th century, investments came mainly from the US in the form of stocks, and this meant that American stockholders could influence the decisions of Canadian companies. The Royal Commission on Canada’s Economic Prospects of 1955 revealed the depth of American economic control, with 25 % of Canadian stocks belonging to Americans.

 

Canada-U.S. economic linkages extend beyond trade. Many firms operate on both sides of the border with activities that are often tightly integrated. Canada is one of the most important destinations for U.S. investment abroad. There are just under 2,000 U.S. affiliates operating in Canada that generate US$ 2.9 trillion in sales annually

 

All tables from http://www.international.gc.ca/eet/research/nafta/NAFTA-en.asp

 

 

 

Canadian resistance to American economic domination had always involved an interventionist tradition. Canadians were proud of this key difference between the unregulated capitalism of the US and a more “social” capitalism in Canada. State interventionism was at the heart of the National Policy of the late 19th century and  triumphed with the development of the Canada welfare state after WW2, which established a free and universal healthcare system on the model of the British National Health Service and a generous pension system. In Canada, public companies, known as "crown corporations", abound - utilities, state TV and radio. Even the Conservatives developed the Red Tory tradition, adding a social agenda to Conservativism and Canada developed a viable quasi-socialist party, the New Democratic Party, heir to the Co-operative Commonwealth Federation of the 1930s.

 

For a long time, Canada would not consider free trade with the US, not only because it would accelerate trade exchanges and American ownership of Canadian companies, but also because it would constraint Canadian state intervention  (no more subsidies, no more state control on prices).

 

Yet in 1988 Canada signed a free trade agreement with the US, which developed into the North American Free Trade agreement (NAFTA) in 1994. The evolution towards an acceptation of free trade resulted from the growing realization of the high cost of the interventionist economic policy of Canada. The high tariff was a brake to the prosperity of the West and made prices higher than they should be and wages lower. The welfare state was perceived as guilty of burdening Canada with a huge public deficit. In the 1980s, neo-liberal ideas, inspired by the Thatcher/Reagan economic models, emerged in the west and were taken up by the Reform Party. This was the time when the Conservative Party broke away from the Red Tory tradition to adopt a market liberalism close to the Thatcher / Reagan policies. The reorientation made it logical that the Conservatives should now support the project of a free trade agreement, which was negotiated by the Conservative PM Brian Mulroney in the mid 1980s. While Canadians were not enthusiastic about free trade, they came to recognize that trade with the US already was an overwhelming reality for Canada: in the 1970s, 60% Canada trade exchanges are with the US; 75% in the 1980s. Free trade was finally adopted after the 1988 elections.

 

Canada, the U.S.'s most important trading partner, accounts for 19.0 percent of American exports and 16.5 percent of American imports, compared to the US account for 81.6 percent of Canadian exports and 69.9 percent of Canadian imports. The U.S. economy is increasingly linked to its northern neighbour.

 

The adoption of free trade may be interpreted as a sign that Canada was at last secure enough in its identity and future to stop worrying about American pressure. It may also be seen as the sign that they had accepted the idea that the North American economic had passed under American control.