Canada and Its Economic Discontents

Robert M. Dunn, Jr.

From Foreign Affairs, October 1973

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Summary:  Relations between the Canadian and U.S. governments are probably more strained than at any time in living memory. The difficulties are not of the same order of magnitude as those between decidedly competitive or unfriendly neighbors, but they are enough to make uncomfortable a relationship which for at least three decades had been presumed to be, and was in fact, almost ideal. During that period, and indeed generally going back much further, both countries assumed their interests seldom differed significantly in either multilateral diplomacy or in matters related to North America; with this assumption, whatever differences arose were handled with discretion and forbearance.

Relations between the Canadian and U.S. governments are probably more strained than at any time in living memory. The difficulties are not of the same order of magnitude as those between decidedly competitive or unfriendly neighbors, but they are enough to make uncomfortable a relationship which for at least three decades had been presumed to be, and was in fact, almost ideal. During that period, and indeed generally going back much further, both countries assumed their interests seldom differed significantly in either multilateral diplomacy or in matters related to North America; with this assumption, whatever differences arose were handled with discretion and forbearance.

In recent years this situation has changed progressively. Troublesome issues have arisen, and more important, the general tone of the relationship has declined. As Canadians see it, not only are their interests no longer presumptively the same as those of the United States, but in fact the two countries differ about as often as other pairs of friendly but independent neighbors. Canadians have long felt frustrated at the unequal position of a nation of 20 million people living alongside a neighbor of 200 million; now that frustration, with much else, finds expression in a newly vocal and substantial anti-Americanism among some elements of Canadian society.

A few of the problems are, of course, primarily political in nature.1 But the dominant ones, those above all that touch the Canadian people widely and concretely, are in the economic sphere. After all (though President Nixon managed momentarily to forget it on one occasion in 1971), Canada has been for some time the largest trading partner of the United States, taking 25 percent of U.S. exports, or more than our next three largest single customers combined.2 The other way around, the United States represents about 70 percent of Canadian foreign trade, which means that almost 15 percent of Canada's GNP is sold here. Add the long history of large capital flows between the two, and it is plain why trade and financial issues have always been at the center of U.S.-Canadian relations.

Today, differences over international monetary arrangements and trade restrictions present short-term problems. But overshadowing these are two far graver matters: the role of American investment in Canada and Canada's emerging effort to change the basic structure of her economy. Both of these issues grow out of a strong and growing Canadian desire to become more independent of the United States; the question is whether much greater Canadian economic independence is attainable, or whether instead unsuccessful Canadian efforts in this direction will merely produce resentment of the United States and a continued worsening of U.S.-Canadian relations.

II

In the field of international finance, Canada has pursued an independent line for some time, having experimented with flexible exchange rates from 1950 to 1962 and then, in June 1970, returning to a floating rate. In a sense, Canada was the first rebel against the Bretton Woods system, and this role was a source of concern and friction in Washington as long ...

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