There's a 150-year-old lesson Trudeau should heed in dealing with Trump's tariffs
How Canada reacted to our first trade war with the United States offers a practical roadmap for today
America is politically divided and suspicious of foreign trade advantages, and the president just gave notice that he would repeal a successful trade agreement with his northern neighbour.
The year is 1865.
How Canada reacted to our first trade war with the United States offers a practical lesson for today. Unfortunately, it's not one that Prime Minister Justin Trudeau is likely to follow.
Back in 1865, the worst came to pass when President Abraham Lincoln abrogated the Canadian-American Reciprocity Treaty, an agreement that had seen cross-border trade double in the decade since it was signed. The reasons ranged from American resentment over tariffs Canada had imposed on manufactured goods in 1858, to retribution for British support for the Confederacy during the Civil War. The result was there would not be another bilateral free trade agreement between the two countries until 1988.
The immediate consequence for Canada was the most important: Confederation. The Fathers of Confederation had learned a hard lesson about the unreliability of international diplomacy and resolved that, if they could not rely on their neighbours, they would at least guarantee Canadian businesses access to the widest possible markets within a new, united country.
So they wrote into the constitution provisions to ensure free trade within Canada, including an explicit free trade guarantee in Section 121 and federal authority to regulate and promote "trade and commerce" across Canada.
Since then, Canadian courts have watered down the free-trade guarantee of Section 121, culminating this April with the Supreme Court of Canada's refusal to enforce it in the Comeau "beer case," — a case involving New Brunswick man Gérard Comeau, who was fined for buying beer in Quebec and bringing it back to Tracadie. (The Canadian Constitution Foundation, of which I am executive director, supported the case.)
Meanwhile, successive federal governments have declined to exercise the full scope of their trade and commerce power. This has left the provinces free to pass thousands of local trade restrictions, giving us a patchwork country of provincial fiefdoms guarded by regulatory walls that, according to StatsCan, amount to a 7 per cent tariff on interprovincial trade.
The self-inflicted cost is staggering. Economists Trevor Tombe and Lukas Albrecht have estimated that full free trade within Canada would add between $50 billion and $130 billion to our GDP each year, or $7,500 per household. To put that number in perspective, $50 billion is twice what the federal government spends on defence. By comparison, a free-trade agreement with China has been projected by the Canadian Chamber of Commerce to increase Canada's GDP by only $7.8 billion by 2030.
Free trade within Canada is also wildly popular, at least in the abstract. In a recent poll conducted by Ipsos for the Canadian Constitution Foundation, 94 per cent of Canadians said they should be able to transport legally-purchased products between provinces and 95 per cent said Canadian businesses should be able to sell their products directly to people in any province.
It's also constitutional. Although the Comeau decision recently held that provinces may erect some interprovincial trade barriers, the Court added the caveat that laws intended to protect local industries were constitutionally suspect. Moreover, the decision considered provincial trade barriers in the absence of an overriding federal law. The federal government could still invoke its constitutional trade and commerce power to pass federal legislation – a Canadian Free Trade Charter, perhaps – which would supersede provincial regulations that discriminate against goods and services from other provinces or pose unnecessary obstacles to interprovincial trade.
So why isn't Trudeau even talking about it as part of a national response to Donald Trump's belligerence?
The reasons are, depressingly, similar to why we are having trouble renegotiating NAFTA. It turns out interprovincial trade is not so different from international trade, shrunk to fit our domestic divisions. Within their provincial bailiwicks, our premiers are pint-sized Trumps and Trudeaus, simultaneously demanding fairness from their neighbours and special protections for their own industries.
And, of course, looming over it all are the provincial supply-managed sectors, those parochial relics of 1970s statism. The scare-tactics they use with respect to free trade with the United States – hormone-laced milk and the need for "food security" – may not apply to interprovincial barriers, but that doesn't stop them from defending the vital importance of protecting Quebec shoppers from the temptations of Ontario cheese and Manitoba chickens.
No federal government wants to pick a fight with all ten provinces, three territories, and the well-funded agricultural marketing boards simultaneously, so instead they dither and dissemble, hoping we won't notice that, within our own borders, our leaders are everything that we accuse Trump of being: bullying, blinkered and economically-ignorant.
It shouldn't be this way. Every other federation — from Australia to Germany to the United States — has figured out the benefits of internal free trade. But until our provincial and federal leaders shake their own Trumpian, zero-sum approach to domestic trade, Canada will continue to be denied a key protection that our founders provided against just the kind of diplomatic uncertainty we now face from Trump.