By Brian D. Varian
In light of the unfolding situation around deleterious American tariffs on Canadian goods, a brief and, therefore, necessarily selective account of historical episodes of American protectionism and their consequences for Canadian trade is useful to bear in mind. This account concerns, in particular, the consequences for Canada’s trade with the United Kingdom. These episodes of American protectionism, which occurred in the 1890s and 1930s, gave impetus to the adoption of policies that demonstrably enhanced Anglo-Canadian trade. At present, however, there is very little scope for history to repeat itself in this manner, given the extent to which Anglo-Canadian trade has already been liberalised, at least insofar as tariffs are concerned.
The apex of late-nineteenth-century American protectionism was the McKinley Tariff of 1890, which had the effect of reducing imports from Britain (Varian, Citation2018). In 1893/4, the bilateral American tariff towards Britain peaked at 45 percent (Varian, Citation2018, 203). At the 1894 Colonial Conference, high American tariffs engendered a call for greater economic integration within the British Empire (Palen, Citation2010, 408). The call was heeded by, first among the (tariff-autonomous) Dominions, Canada in 1897.
(It should be mentioned that, at the time, Canada was hardly an example of Gladstonian liberalism, having adopted its protectionist National Policy in 1879.) Canada’s policy of ‘imperial preference’ entailed a 12.5 percent reduction of whatever was the applicable duty on a good, if the good was imported from Britain; the reduction was raised to 25 percent in 1898 and 33.3 percent in 1900 (McDiarmid, Citation1946, 209 and 214). The policy was a consequential one, estimated to have approximately doubled Canada’s imports from Britain in succeeding years (Keay & Varian, Citation2024). However, Britain, which was still an essentially free-trade country, could offer barely any tariff preferences in return.
As the United Kingdom began imposing tariffs on a small range of goods, there emerged some limited scope for offering preferential duties to imports from the British Empire. These duties were first legislated in the Finance Act of 1919 (Russell, Citation1947, 20–21). Of these preferential duties, the only one of significance to Canada was the preferential duty on motorcars (McGuire, Citation1939, 268; Russell, Citation1947, 115). In the late 1920s, the United Kingdom established the Empire Marketing Board, in an attempt to reciprocate the preferential policies of the Dominions by advertising Empire goods in the British market. There is no statistically significant evidence that the Empire Marketing Board was effective in increasing the United Kingdom’s imports from the Empire (Higgins & Varian, Citation2021).
Another increase in American tariffs came with the Smoot-Hawley Tariff of 1930, which prompted Canadian retaliation (McDonald et al., Citation1997). The New York Times observed that the Smoot-Hawley Tariff was ‘ … consciously giving Canada inducements to turn to England for the goods which she has been buying from the United States’ (quoted in McDonald et al., Citation1997, 810). Indeed, in parallel with this commercial shift, Canada augmented its existing preferences for the United Kingdom by lowering its preferential-rate duties on 270 goods (McDiarmid, Citation1946, 273). A reciprocal system of imperial preference was close on the horizon. Amid the exigencies of the Great Depression, the United Kingdom abandoned free trade with the Import Duties Act of February 1932. As British goods already received considerable tariff preferences in the Canadian market, Canada was in a strong bargaining position.
MacDougall and Hutt (Citation1954, 241) estimated that, in 1929, 62–63% of British goods imported into Canada received a preferential duty, whilst the average margin of preference across all imports from the United Kingdom, i.e., preference-receiving and non-preference-receiving, was 7 percentage points. At the Ottawa Conference in the summer of 1932, the United Kingdom granted extensive preferences to imports from the British Empire, which had the effect of increasing the Empire share of the United Kingdom’s imports by an estimated 8 percentage points between 1930 and 1935 (de Bromhead et al., Citation2019, 347). In the same period, the Canadian share of the United Kingdom’s imports doubled – from 3.7 percent in 1930 to 7.4 percent in 1935 (Statistical abstract for the United Kingdom, Citation1937).
Today there is an acceleration of American protectionism. In the past, Canada and the United Kingdom could have sought out each other as semi-substitute markets for the United States. However, the potential for doing so by means of preferential tariff policy is comparatively very limited – an outcome of the post-war project of trade liberalisation, extending to the Canada – United Kingdom Trade Continuity Agreement of 2021.
Brian D. Varian is a Senior Lecturer in Economics, Newcastle University.
[This is an excerpt from an article in The Round Table: The Commonwealth Journal of International Affairs and Policy Studies.]
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