Canada An American Nation

Trade Flows Despite Tariff Walls

In controversies in Canada over the value of the United States market to us one encounters—this was particularly true of the 1911 discussion over reciprocity—the bold claim that it is of no value because the two countries, in their relation to one another, are competitive and not complementary. The relationship is both competitive and complementary and on both counts interchange of trade is profitable. In the battling about tariffs which has been going on in the past few years one fact long hid, not only from the people generally but from such exalted persons as prime ministers, ambassadors, ministers of finance, {111} secretaries of state—perhaps even presidents—is now almost universally accepted; and perhaps the future economic historian of these times will say that the widespread learning of this lesson was ample compensation for the defeat which the cause of freer exchange suffered, because it made possible the ultimate overthrow of the delusive idea that there is national profit in artificial trade restriction. The fact, no longer open to successful challenge, is this: that international trade is done with goods; and not with goods on one hand and something called money on the other. Even the people whom we might call “self-containers” will agree to this. Such small dribbles of international trade as they will graciously permit are to be made up of interchanges of needed goods. This being so, it follows that by so much as a country restricts imports that would otherwise flow into it because there is profit in doing so, it restricts the export of goods that would otherwise find a profitable market abroad. Therefore a country cannot increase employment at home in the aggregate by shutting out imports. The delusion that this can be done is the tap root of the tariff monstrosities to be observed in the world today. I was, for a few days, an onlooker at the Ways and Means Committee in Washington when the Hawley-Smoot tariff was in the making; every one taking part seemed to accept without question the theory that an import shut out would mean that the goods thus barred out would be produced at home with a net increase of {112} employment exactly equivalent to the work which would be put into the substitute for the discarded import. Your politicians had no monopoly of this patent remedy for unemployment. In the Canadian general election of 1930 it was declared on the platform and propounded in the columns of the press that there was available for additional employment in Canada no less a fund than $600,000,000 a year, this being the volume of imports that, it was pointed out, could be shut off. Knowledge of this principle that international trade is exchange of goods and that the employment we lose by bringing in a product is offset by the employment we gain in the making of the product which goes out in exchange, is now within the intellectual consciousness of the public; but it has not yet become operative. That is to say men do not yet act on this knowledge. But this is a matter only of time.

Trade relations between Canada and the United States have been subject, in special measure, to the handicaps of legislation embodying the economic delusion to which I have made reference. The fact that the two countries are so alike in their resources and their natural equipment has strengthened the popular appeal of the delusion. We both have lumber; why permit the exchange of lumber products? And so with wheat, flour, coarse grains, dairy products, vegetables, coal, and with all manufactures based upon natural products. I have been encountering all my life the {113} argument that the point at which American and Canadian competition should begin is the outside markets toward which they direct their surplus products. The answer is written large in the history of the relations between these two countries. “True ideas,” William James says, “are those that can be assimilated, validated, corroborated and verified.” The idea that, given a chance, trade between Canada and the United States will expand enormously to the enrichment of both countries, can stand all these tests—has indeed been verifying them, in the face of difficulties, for the last half century or more. Since the abrogation of the Elgin-Marcy reciprocity treaty in 1866 Canadian-American trade has been carried on by the enterprise of business men in the face of official discouragement. For the last forty years, less the period of the Underwood tariff, Washington has been alert and resolute in expedients to keep Canadian imports at a minimum; and Ottawa has replied in kind. “Reciprocity in trade or reciprocity in tariffs” was the war cry of the Conservative Party in the “National Policy” campaign of 1878; and reciprocity of tariffs it has been. Yet trade, searching for markets, infinitely resourceful in seeking out channels, has succeeded, not in full measure but in very considerable degree, in defeating the purposes of Washington and Ottawa. The best comment on theories that Canada and the United States are not natural complementary trading units is that which is made by our trade statistics. As long {114} ago as the fifties of the last century the trade between the United States and the British colonies multiplied itself fifteen times within three years from the coming into effect of the reciprocity treaty; and this is still the experience. Take down the fence or even lower it by a rail or two and the tide of commerce rises like a flood. Under the opportunity of the Underwood tariff, which imposed no duty, Canadian cattle entered the United States in 1920 to the number of 600,000 head. Duties imposed by the Fordney-McCumber tariff cut that number down to less than one-third within two years; but adjusting itself to the new conditions the trade climbed again by 1930 to the 200,000 mark. Then came the prohibitive rates of the Hawley-Smoot tariff: and last year a market was found in the United States for 2,107 head. There you have, in epitome, the history of tariff relations between Canada and the United States. A trade is developed by ingenious and resourceful business men until its volume excites the cupidity of powerful national interests which figure out that this market could be made useful to them; as things have been in the past it has always been easy to induce the legislators to destroy the trade thus marked down for destruction. It was only necessary to claim the market as a right, to point out the national benefit that would accrue from “keeping the money at home.” A trade did not need to be large to bring the avengers of national economic integrity upon it. The ingenuity and persistence of the {115} successful campaign by which our poor little trade in maple sugar was done to death some three or four years ago, seems to me a perfect example of the tactics which have been employed over so many years to strangle trade between the two countries.

In spite of tariff obstructions the trade between the two countries keeps at astonishingly high levels. Canada buys much more from the United States than from the rest of the world. The percentage figures remain fairly constant however tariffs may change. In 1900 (fiscal year) 59.2 percent of our imports came from the United States. In 1913, two years after Canada had been swept in an election by the cry that we should have no “truck or trade with the Yankees,” 65 percent of our imports came from the United States; in 1929, it was 68 percent; in 1932 it was 60.8 percent. We not only buy more from the United States than from any other country but until the last two years we sold more to the United States than to any other country—contrary to common belief. The comparative percentage of our exports to the United States over a term of years ending in 1932 was over 40 percent in the case of the United States and less than 30 percent in the United Kingdom. In the fiscal year 1932 (ending March 31 of last year) for the first time in many years our exports to Great Britain exceeded those to the United States; and this will be true to a lesser degree of the fiscal year just closed. These percentage decreases took place on a greatly {116} restricted volume of trade. Now that this volume is rising it is noted that the United States is again taking first place. In both January and February of this year the United States bought more from Canada than Great Britain did; and the increase in percentages is rather startling. In January, 1934, Canadian exports to Great Britain increased over the same month last year by 39 percent, while in the case of the United States the increase was 83 percent. With an improvement in trade the old ratio will tend to reëstablish itself. With respect to our total trade the United States for a long period of years never failed until 1933 to account for more than half of it; in 1930 the percentage was 58.