third such agreement dealt with agricultural machinery.35 But such agreements were few and far between, and being limited in scope didn’t offer the kind of room for favourable trade-offs that a more comprehensive agreement would have done.
Under our second strategy, we were enthusiastic supporters of multilateral trade negotiations, looking to the General Agreement on Trade and Tariffs (GATT) and its successors to help discipline the US tendency to go it alone by dangling the prospect of improved access to world markets and not just Canadian ones. Like the sectoral trade agreements, these international agreements were useful, and throughout the period international trade grew consistently faster than domestic economies.
The third Canadian strategy was to seek to diversify trade away from the United States and toward other markets. This policy was an abject failure. Many Canadian governments came to office in the postwar years bubbling with enthusiasm for the unexploited or underexploited foreign markets that would reduce our reliance on American customers and vulnerability to American politicians. China, and to some extent India, plays that role in Canada today.
After the shock of Nixon’s New Economic Policy, however, the pursuit of such diversified markets became a matter of high policy known grandiloquently as the Third Option, the other two options being the dysfunctional status quo or an unpalatably closer embrace of the US, a set of choices designed to make the Third Option appear highly attractive.36 Talks were opened on special trading relationships with the European Community and Japan, for example, and Prime Minister Trudeau cultivated leaders of emerging economies around the world. These efforts foundered on the same shoals as all their predecessors: governments don’t actually make trade decisions; companies do. And Canadian exporters were closely bound up with American markets. One acute observer of the time summed up the results with devastating accuracy: “Every Canadian government after 1945 hoped to diversify trade and every one left office with an increase in the proportion of trade with the Americans.”37
Channelling Laurier’s spirit, historian Michael Bliss dismissed all these efforts in the sixties and seventies as naïve attempts to deny Canada’s real economic circumstances:
The Galbraithian world of controlled markets, planning systems, and perpetual profits was a fantasy. Canadian governments’ confidence in their ability to anticipate the future and shape economic events was pathetically absurd.38
One reason that Bliss’s verdict on these lost decades may seem harsh, but is in fact quite justified, is that the policy of these years was based on an increasingly outmoded view. The truth of the matter was that it was becoming more and more misplaced to think of the Canadian and US economies as separate national economies. We had many highly integrated industries, such as autos, defence, and agricultural machinery, operating on both sides of the border as if the continent were a single economic entity. Autos and other manufacturing industries, however, weren’t the only industries that were increasingly integrated across the international border. Our natural resources fed US production, for example, which was powered by our electricity, our oil, and our natural gas. To an ever-growing extent, we did not make products exclusively within our national borders and then trade those finished products with each other. Different pieces of complex production processes took place on both sides of the border; we traded less and less in the classical sense, and instead more and more we made things together. “Shifting” Canadian exports to other nations implied that Canadian exports were constituted of finished products we could sell to whomever we wanted, a naïve and dangerously outdated understanding of the unique degree of continental integration we were already achieving.39
Dawn of the Redemptive Decade
Slowly, groggily, Canada began to question the wisdom of the new course it had charted for itself, but once roused, Canadians began to demand change, and change they got. In fact, there is a decade during which Canada clearly changed course, beginning with the free trade election in 1988 and ending with Paul Martin’s tabling of the 1997–98 budget, the first balanced budget in Ottawa in a generation. We call this the Redemptive Decade. Canadians and their leaders took bold steps to resolve problems that had been festering within the body politic for years. Actions that just a few short years before were conventionally viewed as “unthinkable” became not only thinkable but doable. And the country began to redeem itself, to return to Laurier’s path of discipline and virtue after a long and uncharacteristic detour through self-indulgence.
Later chapters will lay out the blood, sweat, toil, and tears we expended to reduce our welfare dependence and put our public finances and tax burden on a sounder footing—or at least give them a strong push in that direction. But these were the last elements of our partial restoration of Laurier’s plan for Canada. Others came earlier.
For example, we finally realized the limits of incremental trade deals with the United States in specific sectors, such as autos, especially as we began to see how signally we had failed to shift our trade to other nations. We could not beat the Americans—in large part because “beating them” implied being on a different economic team, which increasingly we were not—so we had to join them.
No politician was willing to call down upon his or her head the kind of repudiation that Laurier had endured on the issue, so progress was cautious and measured. We employed that handy standby called upon by all Canadian governments that hope to provoke change without taking responsibility for it—Pierre Trudeau appointed former federal finance minister Donald Macdonald to head a royal commission on Canada’s economic prospects. After years of research and hearings, the Macdonald Commission delivered itself of a report, the content of which is now largely forgotten—except for the seemingly revolutionary recommendation to launch free trade talks with the Americans. The sentence from the Macdonald Commission’s report that summed up that document’s virtual repudiation of twenty years of poor policy was: “the message is that there is less and less place to hide [in the global marketplace].”40
While he would not deliver his report until the government that had commissioned it was long gone from office, Donald Macdonald let the cat out of the bag in an interview with William Johnson of the Globe and Mail: free trade with the US was going to be on the table.41 His fellow Liberal, and the prime minister who appointed him, Pierre Trudeau, did not share Macdonald’s enthusiasm. Even Trudeau understood that the old hiding places were offering less and less shelter, however, and had plans for expanding sectoral free trade agreements with the US—reciprocity in bite-sized pieces.42
Trudeau soon passed from the scene, and the Liberal government was defeated by the resurgent Conservatives under Brian Mulroney, who showed no interest during his 1983 Tory leadership campaign in opening free trade talks with the Americans. In his remarks on the subject he conflated two contradictory ideas: namely, that Canada is vulnerable to US unilateralism when it is in the Americans’ interest and that the proper response to this threat is to refuse to negotiate an agreement with them that might limit the threat:
Now there’s a real honey—free trade with the Americans! Free trade with the Americans is like sleeping with an elephant. It’s terrific until the elephant twitches, and if the elephant rolls over, you’re a dead man. I’ll tell you when he’s going to roll over—he’s going to roll over in times of economic depression and they’re going to crank up the plants in Georgia and North Carolina and Ohio and they’re going to be shutting them down here. That’s why free trade was decided on in the election of 1911. It affects Canadian sovereignty, and we’ll have none of it, not during the leadership campaigns, nor at any other times.43
But the Macdonald Commission recommendation became the idea that would not die, and the protectionist proclivities of the US Congress toward Japan, among other successful trading nations, breathed new life into the Nixonomics nightmare.
A debilitating recession gripped
