The great depression is said to have began in October 1929. It was sensed when the United States stock market dropped rapidly. Many investors lost their investment and others were wiped out of the market completely. The period was characterized by low business activities and high rates of unemployment.
It led to closure of several factories, stores and banks. As a result, many Americans were left penniless, homeless and jobless. In 1930, the depression spread to the rest of the world, cutting down rapidly the size of world trade.The trade reduced because each country was trying to protect its products and industries by high import tariff impositions. In attempts to counter the effects, many nations changed their leaders and systems of governance. The depression came to an end when countries increased their production of war materials before the start of the Second World War.
The increment in production of these items in turn increased the number of job opportunities and returned a lot of the formerly withheld money into circulation within the global economy (Hart, 1994, pp.12).Canada and the United States started industrialization collaboration many years before the great depression. The collaboration begun back in the nineteenth century and showed a rapid expansion and improvement in early times of the twentieth century. US dollars in form of hundreds of millions were directed into Canadian economy to support branch plants and subsidiaries or acquire transfer of ownership of prospering Canadian companies.
This strategy was made to boost the preferential markets for Canada and Britain especially the development and enhancement of new industries such as metal processing, machinery, chemicals, electric appliances and motor vehicles. However, when the great depression of 1930s, came across the world, Canadian economy regretted the overdependence on the American’s economy. This was so because the terms and policies American economists adopted to counter the effects of the depression were no longer economically friendly to the Canadian economy (Britton, 1998, pp. 22).
To start with, the US congress introduced and quickly implemented the Hawley-Smoot Tariff. This tariff makes history up to date in terms of restricting US imports to the highest levels and terms possible. This made Canadian commodities, who’s US was the major market to lose market share. The reason why no imports at all could be made by US is because this tariff increased import duty to the highest levels in history. Canadian economists also responded by hiking their tariffs, but this could not shake the economic condition in US to a great deal (Hilmer, Granatstein, 1991, pp. 45).
The then the Canadian prime minister vowed to find a way into the world market and stop or minimize as much as possible the over reliance on the American economy. In 1932, Canada called and hosted an Imperial Economic Conference. The conference was made to revise the then existing tariffs and devise a viable system of tariff which could exist commonly within the Empire and British Commonwealth. This meeting was very essential in the economic history of these two countries because it is where the solution of these economic disparities between the two countries took a promising direction.It marked an economic recovery of the Canadian economy that was adversely affected and at the same time renewed the relationships of the two countries that were almost tattered on economic and political lines (Scott, 1998, pp.
14). The conference made US to pass the Reciprocal Trade Agreement Act in 1934, a move that greatly restored the trade relations. The two countries engaged into serious negotiations to lower tariffs between them and therefore intensify trade between them.In 1935, the US Prime Minister concluded the document that outlined the new Canada US trade agreement. To diverse the trade, a broader and extensive trade agreement was added and signed in 1938, which provided a further reduction of tariffs between the two nations. These documents led the two countries over the Second World War, ensuring a concrete collaboration throughout the warring period.
Therefore the established relation after the great depression took these countries through the second war, maintaining their stability.To make sure the two countries do not unite on economic ties only, the prime ministers from both countries met and formed a permanent joint board on defense. When the United States of America intervened in the war, this defense board initiated American funded projects in Canada. The projects included construction of Alaska Highway and Canol project. The projects gave the country a big push in expanding oil production at the wells of Norman (Baillargeon, 1999, pp.
46). Before America had entered to the war officially, Canada had already gained a lot from the trade agreement.It had expanded the capacity of its industries by making equipment and machinery vast purchases from America. Early in 1941, Canada underwent foreign exchange down pull where US reserves plummeted to low levels that threatened the foreign exchange market. As a result, Canada turned its attention to US for help.
Due to these negations, Hyde Park Agreement was evolved in to the economic relations. This agreement provided that US should significantly increase purchases from Canada to increase the level of US dollars in that country.The same agreement allowed Britain to supplement US lend lease funds that were spared for American war equipments with imports from Canada. America sacrificed those imports from Canada to strengthen the British Military equipment base. These two strategies increased the strengths of the Canadian foreign currency level in terms of dollars, to a level that it could comfortably cover all imports from the United States (Hart, 1994, pp. 67).
The First World War had left all economies of the world into a recessionary ditch which departure from such situation was a big challenge.The situation made most of Canadian population to rely on imports from America. The postwar essentiality to change wartime industrial machinery to meet civilian needs, demand for consumer goods and the vast increment of immigrants into Canada made the country rely heavily on imports from America for both industrial machinery and consumer goods. The exports of Canada to the outside world including America fell sharply. In 1947, the Canadian imports from US were twice the exports it made to America.Both Europe and Britain were suffering from economic devastations because of the war effects and therefore deficient of foreign exchange.
Canada could therefore not afford to pay US trade deficit which could result from trade surplus with economies of the rest of the world. This was the second time the country faced this problem. Through trade negotiations especially with the United States, these problems disappeared before 1950 and the country was enjoying enormous investment booms from the trade.During the progression of the cold war atmosphere which took place from 1940s to early 1950s, most US corporations paid a special attention towards extensive programs made to develop and locate natural resources of Canada. The resources which these corporations targeted included oil, gas, uranium, ferrous and nonferrous metals such as iron ore and copper.
This investment program coupled with parallel investments in major cities of the country helped spur Canadian economy to closer links with US economy.As a result of this close involvement, manufacturing industries, gas, oil and mining companies fell under control and ownership of US corporate (Robert, 1997, pp. 34). However, as all these processes and dynamics were taking place, Canada was viewing it a kind of exploitation because it had to make concessional commitments to America for it to benefit from American markets. It therefore had in mind a feeling of avoiding further bilateral negotiations with America, for the fear of exposing the countries resources and economy to America’s control.
These negations had sacrificed the ownership and control of Canadian resources to American cooperates, pinning the country’s economy downwards. Canadian leaders therefore proposed and turned their attention away from such bilateral negotiations to multilateral negotiations such as General Agreement on Trade (GATT) and North Atlantic Treaty Organization (NATO). The engagement to GATT was to foster international economic relations and therefore reap the associated benefits of trade liberalization and trade diversification. Within these levels mobility of labour and capital was not restricted among the member countries.
The engagement to NATO was aimed at maintaining good military relations and support from other countries alliances to curb any unilateral power exercise by US that may result after learning the Canada’s decision. NATO was also believed to take into control any direct confrontations that may result between Canada and US (Hilmer, Granatstein, 1991, pp. 87). Despite the fact that Canada stretched its efforts towards inter world competition, the process of integrating this continent continued.
Canada continued serving as raw materials supplier whereas America continued to act as the technological and industrial capacities supplier.To make this process continue, a Joint Ministerial Committee was put up to continue with all possible means to revive the economy from effects of the world war and the great depression. This committee met annually to address economic and trade affairs. Among the members of the committee were principal economic cabinet ministers drawn from each country.
This committee was made especially to guard Canada from Americans intoxicative trade policies. One major issue that this forum tackled was the plan of US government to dispose surplus grains to the third world countries, a move which could significantly cut commercial grain sales of Canada.By then, America was also applying extraterritorial laws to subsidiaries in Canada that were US owned, baring any exports to Cuba and China. This law was made by America to infringe the sovereignty of Canada. The government of America was still finding all possible avenues to get back to and ensure bilateral negotiations with Canada (Jemin, 1976, pp. 32).
In 1957, a conservative government took over Canada and promised to minimize to very low heights the economic ties between these two countries. Canadian economic prospects were closely monitored and reported by The Canadian Royal Commission.In 1957, it thus warned that with that continued tight economic relationship with America, Canadians were losing control of their own destiny. It gave the notion that Canada was simply being utilized as a supplier of resources to the giant industrial base of US. Reflecting the state which both economies were left by the great depression, these countries still felt that they needed one another. Although US was economically suppressing Canada, it still appreciated that it needed Canada for economic stability to prevail.
This meant that the great depression tightened the ties between the two countries.US could reflect the challenging economic moments it could undergo if Canada happened to completely pull off from trading with America. Canada was the nation that was supporting the industrialization process in United States. Any strong and irreversible deviance of Canada from US economic interrelations could seriously soil the Americas economy (Greenberg, 1997, pp. 124). What the great depression did on the relationship is that, it made it close as America could make all possible efforts to keep in touch with Canada.
This is because it needed Canada as a supplier and Canada needed America as a consumer base.To still propel the relationship deeper, these two countries signed an Auto pact Agreement in 1965. This agreement came at a time when many Canadians had developed the desire to cut down the foreign ownership and economic influence from America. It however provided a free trade zone for Canadians in production and manufacturing of motor vehicles and motor vehicle parts.
This policy faced a lot of criticism and policy conflict arguments in Canada (Britton, pp. 27). This was because it affected Canada’s tax policy, banking policies and made the diplomacy of US magazines which existed in Canada questionable.To express conservation of their economy without minding on the external economic effect, US introduced a tax which restricted funds outflow from the country. Since Canada highly depended on American capital market, this tax sparked an immediate, direct and severe crisis within its financial institutions. For exemption of this tax, Canada was given a condition to meet.
US only promised to review the tax if and only if the level of Canadian borrowing in the United States rose above the traditional amounts.Canada was also supposed to promise that the new borrowings would not be made to improve their foreign exchange reserves. This was a fix which Canada found challenging to overcome because it could ultimately narrow their potentiality to conduct their own economic policy (Jemin, 1976, pp. 90). To increase the suppression of Canadian economy against sovereignty, US government gave guidelines that were mandatory to all American multinationals. Every subsidiary was cautioned to heighten the profit repatriation from Canada and at the same time to switch from investing in subsidiaries to investing in America.
They were also directed to increase US plants exports instead of exporting from subsidiaries situated in Canada. US extended protectionism behavior to balance of payment section. It started charging surcharge of 10% on US imports which were subjected to duty. Negotiations of Canada to all these policies were possible provided that it exposed the vulnerability of the whole economy to respond towards the changes in US policies. As a result, Canada had to intensify efforts to seek economic ties with the rest of the world which could possibly give fair terms of trade (Gates, 1999, pp.
56).
