Reciprocal Trade Act Summary

  • Last updated on November 10, 2022

In 1936, the United States and Canada established their first reciprocal trade agreement since 1854.

Summary of Event

A reciprocal trade agreement between two nations provides for both countries to reduce tariffs on trade goods. Such agreements between the United States and Canada date to 1854. British diplomats had begun negotiations with the U.S. government two years earlier, but they were unable to reach a conclusion at the time because of a dispute over fishing rights off the eastern coast of Canada. Negotiations continued until the fisheries dispute was resolved and a reciprocity treaty was signed on June 6, 1854. This treaty gave fishermen from the United States the right to catch fish in the Atlantic coastal fisheries off Newfoundland, which were then the richest fishing grounds in the world. In turn, British fishing boats were granted permission to operate in U.S. coastal waters off Maine. The agreement also created a list of goods, such as timber, wheat, and corn, that neither country would tax in trade with the other. Trade between the two nations increased rapidly after ratification of this treaty. [kw]Reciprocal Trade Act (Nov. 11, 1936) [kw]Trade Act, Reciprocal (Nov. 11, 1936) [kw]Act, Reciprocal Trade (Nov. 11, 1936) Reciprocal Trade Act (1936) Trade agreements, Canada-U.S. [g]Canada;Nov. 11, 1936: Reciprocal Trade Act[09270] [g]United States;Nov. 11, 1936: Reciprocal Trade Act[09270] [c]Diplomacy and international relations;Nov. 11, 1936: Reciprocal Trade Act[09270] [c]Economics;Nov. 11, 1936: Reciprocal Trade Act[09270] Hull, Cordell King, William Lyon Mackenzie Roosevelt, Franklin D.

In 1866, because of complaints from U.S. farmers, the United States repealed its part of the agreement. The American Civil War had ended a year earlier, and many veterans had resumed farming; they protested loudly against free importation of Canadian grain, so reciprocity was ended. The Canadians wanted a new agreement, however, and in 1871 sent a delegation to Washington, D.C., to open trade talks. Nothing came of the talks, and the 1871 Treaty of Washington barely mentioned reciprocity of trade.

The issue was not raised again until 1911, when Canada’s finance minister, William S. Fielding, told the House of Commons that negotiations with the United States would begin immediately. The goal was to obtain as much free trade as possible, and Fielding suggested that once that was accomplished, the Canadian economy would flourish and unemployment would decline rapidly. Loud protests from workers and industrialists in Ontario indicated that many Canadians did not agree. The protesters argued that reciprocity and free trade would give a tremendous advantage to powerful industries in the United States, such as the steel and textile industries, which would flood Canada with huge amounts of goods, driving Canadian industries into bankruptcy and costing thousands of Canadian jobs. Reciprocity agreement (Canada-U.S.) Trade became the major issue in the Canadian election of that year. Conservatives denounced reciprocity in the campaign and won the election, bringing an end to discussions of free trade with the United States.

In 1924, both nations signed a treaty limiting halibut fishing off the coast of Washington and British Columbia, but reciprocity talks failed. Republican administrations in the United States wanted only one thing from the Canadians: an agreement to construct the St. Lawrence Seaway to link the Great Lakes with the Atlantic Ocean. This massive project would make it easier to ship grain from the Midwest to Europe and, it was hoped, greatly improve the prosperity of farmers in the region. By 1932, it seemed as if negotiations on this project were almost completed. President Herbert Hoover signed an agreement in July with the Canadians, but the U.S. Senate was unable to get the two-thirds majority required by the Constitution for ratification. The major opposition came from senators opposed to the seaway’s projected high costs. The seaway would not be constructed for another twenty-five years.

Relations between Canada and the United States improved greatly after the inauguration of President Franklin D. Roosevelt in 1933. Roosevelt promoted the Good Neighbor Policy Good Neighbor Policy with all nations in the Western Hemisphere, which included support for reciprocal trade agreements. Talks with Canada began in 1934 but were not concluded until two years later. Roosevelt had signed the Trade Agreements Act of 1934, Trade Agreements Act (1934) significantly lowering tariffs on many items. This bilateral agreement was not satisfactory, however, to the newly elected Liberal government of Prime Minister William Lyon Mackenzie King. King, a fervent advocate of reciprocal trade agreements, led a delegation to Washington to discuss such an agreement with representatives of the U.S. Department of State.

Secretary of State Cordell Hull headed the U.S. negotiating team. He favored reducing trade restrictions with as many nations as possible, but he faced considerable criticism for his position within his own Democratic Party and especially from conservatives in the Republican Party. He knew it would be difficult to win the two-thirds majority vote needed in the Senate for approval of any bill reducing tariffs. Great Depression;tariffs Many conservatives in both parties thought higher tariffs rather than lower presented the best opportunity for protecting jobs. The Great Depression, they argued, made it necessary for countries to protect themselves from competition from outside states by building a high tariff wall.

Hull wanted Canada and the United States to reach an agreement quickly. This, he explained to the Canadians, would demonstrate to the rest of the world, especially the Europeans, that persons of goodwill could still sit down and negotiate peacefully. The Germans, Italians, and Japanese seemed to prefer war or economic suicide to any attempt to discuss seriously the mutual sacrifices required by reciprocal trade treaties. The United States and Canada could show world leaders an alternate course for resolving economic problems. Friendly nations had to show that talking still could produce results, Hull argued. The fact that the King government recently had signed a bilateral agreement with the German Nazis angered him, but he indicated that this would not stand in the way of the current discussions. He hoped that reciprocal trade agreements could reduce conflict in the world and provide an alternative to cutthroat methods of bilateral trading, with each nation looking out only for its own narrow self-interest.

Hull believed that unless freer world trade was provided for, the nations of Europe and the Far East would face continued economic strife and chaos. Economic disaster would affect all countries and bring about an even worse financial collapse than the Great Depression. Only a broad program to remove excessive trade barriers, he told the Canadian delegation, could save the situation. The world needed a policy of equal treatment for all nations and a method to promote and protect fair trade methods and practices. If nations such as the United States and Canada refused to take the first steps in this direction, catastrophic consequences awaited the peoples of the world. Hull’s warnings of the terrible consequences of failure encouraged a quick end to negotiations.

Significance

The final result, the Reciprocal Trade Act of 1936, produced far fewer reductions in trade barriers than had been gained in 1854, but it proved satisfactory to both sides. The United States agreed to admit limited amounts of cream, cattle, lumber, and potatoes with significantly reduced rates. In return, Canada accepted more manufactured goods from the United States. Members of Canada’s Liberal Party hoped that this trade would produce higher incomes for Canadian farmers, loggers, and ranchers. They also predicted it would reduce Canada’s economic dependence on the United States. As it turned out, it made little difference. Both policies, the high tariffs favored by Conservatives in the 1920’s and the Liberal support for freer trade, had the same result: They increased Canadian economic dependence on the United States.

From 1923 to 1935, the period of the highest tariffs on U.S. manufactured goods, the number of U.S.-owned factories and businesses in Canada increased from 524 to 816. U.S. goods were kept out, but corporations bought the factories or built new ones in Canada rather than pay the increased rates. One Canadian economist observed that it made little difference whether Canadians were buried by U.S. exports or U.S. branch plants—they would lose control of their economy either way.

The 1936 agreement remained in effect until 1948, when both nations signed a general agreement that superseded prior trade treaties. In 1994, Canada joined Mexico and the United States as a member of the North American Free Trade Agreement, which solidified the movement toward free trade that gathered momentum after World War II with the formation of the General Agreement on Tariffs and Trade. Reciprocal Trade Act (1936) Trade agreements, Canada-U.S.

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Butler, Michael A. Cautious Visionary: Cordell Hull and Trade Reform, 1933-1937. Kent, Ohio: Kent State University Press, 1998. Discusses the impacts on U.S. trade policy of Hull’s tenure as secretary of state, given his strong views on the importance of fair trade. Includes notes, bibliography, and index.
  • citation-type="booksimple"

    xlink:type="simple">Corbett, Percy E. The Settlement of Canadian-American Disputes: A Critical Study of Meetings and Results. New Haven, Conn.: Yale University Press, 1937. Covers treaty and tariff negotiations from the 1840’s to 1936. Provides detailed discussion of the trade policies of both nations.
  • citation-type="booksimple"

    xlink:type="simple">McInnis, Edgar. Canada: A Political and Social History. 4th ed. Toronto: Holt, Rinehart and Winston of Canada, 1982. Contains a useful discussion of Canadian trade policy in the 1930’s and a brief discussion of the treaty.
  • citation-type="booksimple"

    xlink:type="simple">Riendeau, Roger. A Brief History of Canada. 2d rev. ed. New York: Facts On File, 2006. Concise history includes discussion of Canada’s difficulties during the Great Depression, tariff protections, and reciprocity.
  • citation-type="booksimple"

    xlink:type="simple">U.S. Department of State. British Dominions and Canada. Vol. 1 in Papers Relating to the Foreign Policy of the United States, 1936. Washington, D.C.: Government Printing Office, 1951. Contains the complete record of the discussions and negotiations.
  • citation-type="booksimple"

    xlink:type="simple">Welles, Sumner. Seven Decisions That Shaped History. New York: Harper, 1951. Discusses the U.S. secretary of state’s views on trade relations and his belief that freer trade would prevent a future war. Written by a participant in the 1936 negotiations with Canada.

United States Establishes a Permanent Tariff Commission

Halibut Treaty

Great Depression

Hoover Signs the Hawley-Smoot Tariff Act

St. Lawrence Seaway Treaty

King Returns to Power in Canada

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