Canadian-American Reciprocity Treaty
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The Canadian-American Reciprocity Treaty was a trade treaty between the colonies of British North America and the United States. It covered raw materials and was in effect from 1855 to 1866.
Origins
After Britain moved to free trade and repealed the Corn Laws the Canadas had to search for new destinations for their exports, especially of wheat and timber. The Canadian-American Reciprocity Treaty was thus negotiated by the British on behalf of the Canadians. In 1854, the Americans agreed to eliminate 21% tariff on natural resource imports. In exchange, the Americans were given fishing rights off the east coast. The treaty also granted navigation rights to each others lakes and rivers.
Effects
In Canada, there has long been a dispute about the effects of the treaty. The period after the treaty's introduction saw a large increase in Canada's exports to the United States, and a rapid growth of the Canadian economy, especially in what would be southern Ontario. For decades afterwards Canadian economists saw the reciprocity era as a halcyon period for the Canadian economy. Canadian exports to the United States grew by 33% after the treaty, while Americans exports only grew by 7%. Ten years later, trade had doubled between the two countries.
After the Second World War, this view was challenged, especially by University of Toronto economic historians L.H. Officer and L.B. Smith. They argued that the growth of trade was caused by the introduction of railways to Canada and by the 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 reocrded trade did not actually reflect growth in the economy. In 1855, there was a poor wheat harvest in the United States and the United Kingdom. It also saw Russian wheat supplies cut off by the Crimean War. This lead 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.
End
The treaty was ended by the Americans in 1866 because they felt that Canada was the only nation benefiting from it, and because they objected to the protective Cayley-Galt Tariff imposed by Canada on manufactured goods. This worried Canada and was an important impetus to Confederation in 1867. While the new country attempted to have a return to reciprocity, the Americans 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. Both nations joined the General Agreement on Trade and Tariffs (GATT) after the Second World War, and tariffs began to steadily decline. Free trade between the two nations did not again come into being until the 1988 Canadian-American Free Trade Agreement, brought in by Brian Mulroney's Progressive Conservatives.