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 United Province of Canada, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland Colony. It covered raw materials and was in effect from 1854 to 1865. It represented a move toward free trade, and was opposed by protectionist elements in the United States. After the conclusion of the American Civil War, these protectionist elements were joined by Americans angry at apparent British support for the Confederate States of America during the war, and the alliance was successful in terminating the treaty in 1866. The response in British North America was to confederate into the Dominion of Canada (1867), which was expected to open up many new economic opportunities inside Canada, and also 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 Conservatives who warned that Canada would be swallowed up by its giant neighbor. Talk of reciprocity was put on hold for decades.

Origins

Faced with the ending of British imperial preference when the British Corn Laws (tariffs on food imported into Britain) were repealed in 1846, the Canadian business community, based in Montreal, looked south. Merchants threatened to push for annexation to the U.S. 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, on the one hand, to enlarge their export market and to obtain cheaper raw materials, and an attempt by free traders, tariff reformers, and their Democratic Party allies, on the other, to lower the tariff. The protected interests, mobilized in the Republican Party, fought back.

Effects

Historians have agreed the impact was small for the U.S. 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, while Americans exports only grew by 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 this optimistic view was challenged by economic historians. (Officer and Smith, 1968). They argued that the growth of trade was caused by the introduction of railways to Canada and by 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 this trade into the open, but this 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. It also saw Russian wheat supplies cut off by the Crimean War. This led to a great year for Canadian wheat, independent of 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 generally, and Officer and Smith particularly, hold that the economic prosperity that followed the treaty was largely the result of these other factors.

The treaty did stimulate the coal mining industry in Nova Scotia. That colony was already moving toward free trade before the 1854 treaty took effect, but that 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 sold primarily to the United States.

End of treaty

The treaty was abrogated by the Americans in 1866 for several reasons. Many felt that Canada was the only nation benefiting from it, and because they objected to the protective Cayley-Galt Tariff imposed by the Province of Canada on manufactured goods. Also the US was angry at the British for having unofficially supported the South in 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 nevertheless worked successfully to terminate the treaty. Many voters were angry with Canadian behavior during the Civil War. There was complacency on the part of Portland railroad interests, and the Bangor lumber interests oppose 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 between Wilfrid Laurier's Liberals and the Americans 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.

Political effects

From 1867 to 1911, The Liberal party of Canada generally favoured reciprocity. After winning the 1896 election, however, Laurier did not renew free trade because the United States refused to discuss the issue. Instead, he implemented a Liberal version of the National Policy in which he maintained high tariffs on goods from other countries that restricted Canadian goods, while lowering tariffs to the same level as those countries that did admit Canadian goods. Political rhetoric made it a party issue: the Conservative party, which stood publicly for nationalism and protectionism ("the National Policy"), succeeded in associating the Liberals with free trade, commercial union with the U.S., and continentalism, which smacked of absorption by the U.S. In 1911 the Liberal government of Sir Wilfrid Laurier succeeded in signing 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.

See also

• Canada–United States Free Trade Agreement
• National Policy

References and further reading

• Ankli, Robert E. "The Reciprocity Treaty of 1854," Canadian Journal of Economics / Revue canadienne d'Economique, Vol. 4, No. 1 (Feb., 1971), pp. 1–20 in JSTOR
• Masters, D. C. The Reciprocity Treaty of 1854 (1963)
• Master, D.C. "Reciprocity." The Canadian Encyclopedia."
• Officer, Lawrence H., and Lawrence B. Smith. "The Canadian-American Reciprocity Treaty of 1855 to 1866," Journal of Economic History, Vol. 28, No. 4 (Dec., 1968), pp. 598–623 in JSTOR
• Tansill, Charles. The Canadian Reciprocity Treaty of 1854 (1922) online edition

External links

• Text of the treaty from Library and Archives Canada