Canadian trade with the United States Summary

  • Last updated on November 10, 2022

Canada is the most important trading partner of the United States and the major export market for thirty-five U.S. states. It is the United States’ largest market for food and also is a major market for manufactured goods. The United States imports more agricultural products from Canada than from any other nation and depends on it for forest products and energy.

Major trading between Canada and the United States began with the Canadian-American Reciprocity Treaty (1854)Canadian-American Reciprocity Treaty in 1854. Before this time, Great Britain had functioned as a ready market for Canadian grain and timber products. Britain’s Corn Laws, import tariffs that were created by the Importation Act of 1815, supported the import of grain (primarily wheat) grown in the British colonies rather than foreign-grown, often cheaper, grain. However, when Great Britain repealed its Corn Laws with the Importation Act of 1846, Canada needed to find new markets for its raw materials.Trade;U.S. with CanadaCanada;U.S. trade with

Aware that this act placed a serious hardship on Canada, Britain negotiated the Canadian-American Reciprocity Treaty (Elgin-Marcy Treaty) of 1854 with the United States to provide a market for Canadian raw materials, especially wheat and timber. In accepting the treaty, the United States agreed to eliminate its tariff of 21 percent on the import of raw materials. In exchange, the United States was granted fishing rights off Canada’s east coast. In addition, each country received some navigation rights on the other’s lakes and rivers.

The treaty resulted in rapid growth in Canada’s economy, as exports to the United States grew rapidly, eventually increasing by 33 percent. Exports from the United States to Canada, however, increased by only 7 percent. Trade between the two countries doubled by 1864. Then in 1866, the United States decided to end the treaty, citing three reasons. First, it seemed that only Canada was benefiting from the treaty. Second, the implementation of the Cayley-Galt Tariff (1858)Cayley-Galt Tariff, enacted in 1858, imposed a tariff of 20 percent on manufactured goods and of 10 percent on partially manufactured goods imported into Canada. Third, the United States, angered by British aid to the Confederacy, saw the canceling of the treaty as a means of retaliation against Great Britain.

Opposition to Free Trade

In 1871, negotiations for the Treaty of Washington, Treaty of (1873)Washington began. Although the treaty for the most part addressed issues other than free trade, its acceptance in 1873 did allow free entry into U.S. markets for Canadian fish in return for the admission of U.S. fishermen into Canada’s inshore fisheries for a period of twelve years.

From about 1875 to 1900, neither Canada nor the United States was in favor of free trade. In 1891, Canadian Liberals ran on a platform of unrestricted free trade and lost the election. Many Canadians feared political takeover by the United States because free trade would increase Canada’s economic dependence on the United States. Free trade, as U.S. policyFree trade was also opposed by the United States, which maintained a protectionist attitude and a policy of high tariffs on all imports.

In spite of the distrust between the two countries, U.S. companies invested large amounts of money in the Canadian commercial sector, and Canada’s developing unions affiliated with their American rather than British counterparts. This increase in economic ties paved the way for an attempt at negotiating a new free trade agreement between the two countries.

In 1911, President William Howard Taft and Prime Minister Wilfrid Laurier concluded an agreement to provide limited free trade on a significant number of manufactured items. In a surprising reversal of its protectionist attitude, the U.S. Congress passed the agreement. However, the Conservative opposition defeated the agreement in Parliament. Laurier himself was defeated in the following general election. Too many Canadians still believed that free trade with the United States would lead to political annexation of Canada.

The early 1930’s witnessed continuing opposition to free trade from both Canada and the United States. In 1930, Congress passed the Smoot-Hawley Tariff Act of 1930Smoot-Hawley Tariff Act, pushing duties on imports to the United States higher than they had ever been. Canada responded by raising its tariffs in 1932.

Toward Free Trade

In 1934, the situation began to change, as the United States passed the Reciprocal Trade Agreements Act of 1934Reciprocal Trade Agreements Act. The two countries started negotiations to further lower tariffs the following year and signed a new treaty in 1938. During World War II, trade relations continued to improve, as Canada and the United States collaborated economically for the war effort. In 1941, President Franklin D. Roosevelt and Prime Minister William Lyon Mackenzie King met at Hyde Park, New York, to implement an agreement for cooperative war production. The Hyde Park Declaration (1941)Hyde Park Declaration was signed on April 20, 1941.

After the war, Canada was once again wary of economic dependence on the United States, and having seen its imports from the United States rise to twice as much as it was exporting, Canada preferred multilateral trade agreements and relied on the General Agreement on Trade and Tariffs (GATT) and the agreements reached under the North Atlantic Treaty Alliance (NATO). However, economic involvement between the two countries continued to increase. Canada possessed enormous stores of raw materials but needed the industrial supplies and technology of the United States.

In January, 1965, the Automotive Products Trade Agreement (1965)Automotive Products Trade Agreement, or Auto Pact (APTA), was signed by Prime Minister Lester B. Pearson and President Lyndon B. Johnson. The agreement eliminated tariffs on cars, buses, trucks, tires, and automobile parts. To protect Canadian workers, the agreement stated that the three major U.S. Automotive industry;Canadaautomobile manufacturers, General Motors, Ford, and Chrysler, would make three of every five cars sold in Canada in Canadian plants. It also ensured that Canadian auto production would not fall below the 1964 level. Although the Auto Pact provided many blue-collar jobs in Canada and thus stimulated the economy, it was detrimental to Canada from the standpoint of creating a large trade deficit, as more cars produced in the United States were sold in Canada. The agreement also prohibited Canada from free trading in automobiles with other nations. In 2001, the Auto Pact was declared illegal by the World Trade Organization; however, other treaties between the United States and Canada had already reduced it to an agreement of relatively little importance.

Free Trade

From the 1960’s to the 1980’s, United States-Canadian trade relations vacillated between a move toward free trade and the imposition of tariffs or surcharges in various areas of trade. In 1983, Prime Minister Pierre Trudeau’s government entered into negotiations for free trade in certain economic sectors. Then, in 1985, Prime Minister Brian Mulroney began negotiating a free trade agreement with the United States. In October, 1987, the treaty was drawn up and subsequently ratified by the U.S. Congress and the Canadian Parliament. Within a ten-year period, starting in January, 1989, all tariffs between the two countries were to be eliminated by the treaty.

However, the subject of free trade soon became a topic of interest to politicians not only in Canada and the United States but also in Mexico. In December, 1992, President George H. W. Bush, Prime Minister Mulroney, and Mexican president Carlos Salinas de Gortari signed the North American Free Trade AgreementNorth American Free Trade Agreement (NAFTA). Agriculture remained an area of contention between Canada and the United States, and this made a single trilateral signing of the treaty impossible. Therefore, three separate agreements were signed by each pair of countries. The agricultural agreement between Canada and the United States still contained tariffs and restrictions on certain agricultural products, including poultry, dairy, and sugar.

The treaty had to be ratified by the legislative body in each of the countries. In all three, it met with strong opposition as fears of job losses, economic dependence, and political annexation arose. However, the treaty was ratified by all three legislative bodies and went into effect on January 1, 1994. In general terms, NAFTA brought about free trade among the three countries.

The treaty has not solved all the problems and controversies surrounding trading between Canada and the United States. The imposition of a 27 percent tariff on the import of Canadian softwood lumber by the United States has caused considerable argument. Canada has been concerned about the provision in NAFTA that states that once anything is sold as a commodity, governments are prohibited from stopping its continued sale as such. The “commodity” causing the problem is water from Canadian lakes and rivers. Another issue involves the importation of banned substances. There has also been dissension over certain changes that Canada has made to its taxation laws.

Public opinion about the benefits of or harm done by NAFTA remain varied, as free trade has been an ongoing issue between Canada and the United States since their first exchange of goods. Whether free trade eliminates or increases jobs, whether it creates a dangerous economic dependence between countries, or whether it has the potential to destroy a country’s autonomy all remain unresolved topics of debate associated with trade between the United States and Canada.

Further Reading
  • Anastakis, Dimitry. Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971. Toronto: University of Toronto Press, 2005. Views the Auto Pact as good for the Canadian economy, although it eliminated a Canadian automotive industry. Illustrations, bibliography, and appendixes.
  • Corsi, Jerome R. The Late Great U.S.A.: The Coming Merger with Mexico and Canada. Los Angeles: World Ahead Media, 2007. Sees NAFTA as leading to a North American community like the European Union and predicts dangers for the United States. Illustrations, foreword, and appendixes.
  • Hakim, Peter, and Robert E. Litan, eds. The Future of North American Integration: Beyond NAFTA. Washington, D.C.: Brookings Institution Press, 2002. Discusses the issue of how fully NAFTA addresses the relationship among the United States, Canada, and Mexico, and contains essays by experts from the countries.
  • Orchard, David. The Fight for Canada: Four Centuries of Resistance to American Expansion. Westmount, Que.: Robert Davies Multimedia, 1998. Discusses the history of opposition to free trade, U.S. investment in Canada, and the dangers of Canadian economic dependence on the United States.
  • Thomas, David M., and Barbara Boyle Torrey, eds. Canada and the United States: Differences That Count. Peterborough, Ont.: Broadview Press, 2007. Gives insights into Canadian and American attitudes, and can be useful to understand the underlying cultural differences that cause problems in trading, especially free trade.
  • Thompson, John Herd, and Stephen J. Randall. Canada and the United States: Ambivalent Allies. Athens: University of Georgia Press, 2008. Covers Canadian-United States relations from the American Revolution to the present.
  • Weintraub, Sidney, ed. NAFTA’s Impact on North America: The First Decade. Washington, D.C.: Center for Strategic and International Studies, 2004. In-depth, unbiased analysis of NAFTA and its effects.


Automotive industry

Fishing industry

Forestry industry

Fur trapping and trading

General Agreement on Tariffs and Trade

International economics and trade

Mexican trade with the United States

Multinational corporations

North American Free Trade Agreement

War of 1812

Categories: History Content