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Conservatives cut shackles of tariffs

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There was a time when being a Canadian Conservative meant you were prepared to sacrifice all for Mother Britain. As a devoted Tory, you ardently upheld religion (Christian) and age-old traditions, argued that women should never be granted the right to vote, and you believed in the almighty protective tariff -- the anchor of John A. Macdonald's National Policy.

Times do change, however. Today, being a Conservative in Prime Minister Stephen Harper's Canada means supporting personal and corporate tax cuts, law and order and family values, though talk about abortion and same sex marriage, among other sensitive topics, are verboten. It also entails embracing a liberal concept of free trade.

The framework for a comprehensive free-trade agreement recently negotiated by Harper with the European Union will permit cars, cheese, wine, pork, beef and other products to be sold here and in Europe without the encumbrance of tariffs that increase import prices. The agreement still has to be ratified by Parliament, the provinces and European countries.

Yet assuming a final deal is worked out during the next few years, it will complete the process of redefining conservative economic thinking begun 25 years ago by Harper's Tory predecessor, Brian Mulroney, with the signing of the Canada-U.S. Free Trade Agreement in 1988.

The great confrontation that pitted protectionists against free traders was played out over more than 200 years across the western world in a passionate debate about liberalism and freedom as well as self-interest and political opportunism often wrapped in patriotic fervour.

It involved shifting from 17th-century mercantilism -- which had been used by European countries to exploit their colonies and prop up their empires -- to a free-market economy of the kind advocated by the economist Adam Smith, who saw in government controls a detriment to prosperity and the free working of the market.

Opposing the Smith view were such politicians as Alexander Hamilton, the first American secretary of the treasury under George Washington in the 1790s, and the father of economic nationalism who regarded protective tariffs as a necessary tool to build up U.S. commerce.

During the 19th century, most countries in Europe experimented with free trade, symbolized most notably in 1846 by the repeal in Britain of the Corn Laws that had kept agricultural prices artificially high. But when faced with a depression in 1873, tariffs were gradually reinstated, with the exception of Britain, which kept import duties low on most products.

Building a protectionist wall around an economy only offered a short-term solution, if any, to solving a worldwide depression, but contemporary political leaders did not see it that way. In Canada, for instance, Macdonald began to favour protectionism as a way to counter his Liberal Party opponents' almost fanatical support of free trade.

Generations of Canadian school children have been taught, and still are, that the Conservatives' promotion of the tariff during the 1878 federal election was one plank in Macdonald's National Policy, a grand vision for the country, along with construction of the Canadian Pacific Railway and settling of the West.

Yet as historian Michael Bliss has pointed out, the adoption of the tariff was merely "the politics of self-interested (state) paternalism." For John A., the benefits of protectionism were clear. The policy allowed him to put up tariffs on cheap American imports while the U.S. maintained high tariffs against Canadian products; it made him the best friend of Ontario and Quebec manufacturers who benefited from the tariff and they, in turn, became the chief financial backers of the Conservative Party; and it allowed Macdonald to portray himself as a true British-Canadian patriot.

In the 1891 federal election, John A.'s last campaign, the Liberals, now led by Wilfrid Laurier, advocated a policy of "unrestricted reciprocity" with the U.S. This was a form of free trade that played into Macdonald's hand. "With my utmost effort, with my latest breath," he declared, "will I oppose the veiled treason which attempts by sordid means and mercenary proffers to lure our people from their allegiance (to Britain)."

In succeeding years, such zealous appeals to patriotism and the possibility of Canada being absorbed into the U.S. became a standard political ploy. Conservative leader Robert Borden used it effectively against Laurier, who after a decade of maintaining the tariff, opted to abandon it for a possible free-trade deal with the U.S. in 1911. That cost Laurier and the Liberals the election that year.

In the 1988 election, it was the reverse. When Brian Mulroney became Conservative Party leader in 1983, a year before he won a decisive election, he dismissed the idea of free trade with the U.S. "Free trade with the United States is like sleeping with an elephant," he said. "It's terrific until the elephant twitches, and if the elephant rolls over, you're a dead man." His buddy, U.S. Republican president Ronald Reagan, however, changed his mind.

Republicans had been firm believers in the tariff since the party was established in the 1850s, no matter what the economic climate. The most ill-advised case was president Herbert Hoover signing the Republican-initiated Smoot-Hawley Tariff in 1930, even though more than 1,000 economists urged him not to. The tariff triggered a backlash against the U.S., making the onset of the Great Depression worse.

By the time Reagan came to office in 1981, the Republicans had switched sides. Free trade now fit better with their less-government-is-better platform. In a sense, they adopted a 19th-century liberal laissez-faire economic policy that Adam Smith would have cheered. Mulroney was eventually convinced, as was the Canadian business community, and the tough negotiations began that led to the Canada-U.S. Free Trade Agreement.

Hence, during the bitterly fought 1988 federal election, there was a political ideological trading of places. Mulroney and the Conservatives defended free trade, while John Turner and the Liberals maintained, like Macdonald had in 1891 and Borden in 1911, that a free-trade agreement was the first step to an American takeover of Canada.

More than two decades later, the free-trade agreement-- expanded to include Mexico in 1994 -- has proved its worth and Canada remains an independent country. According to Michael Den Tandt of the National Post, federal government data indicates that "between 1993 and 2008, Canadian merchandise exports to the U.S. grew at a compounded annual rate of more than six per cent, while the value of two-way trade in services more than doubled, creating some four million net new jobs."

There is no reason to believe the impact of the Canada-EU trade agreement will be any less significant. And given the size of the EU market, the results could be more positive.

Significantly, Justin Trudeau and the Liberals are on board, while the NDP has taken a more cautious wait-and-see approach to appease Quebec dairy farmers who fear the loss of their protected market. Someone should tell them and NDP Leader Thomas Mulcair that such thinking is oh so 19th-century.

Now & Then is a column in which historian Allan Levine puts the events of today in a historical context.

Republished from the Winnipeg Free Press print edition October 26, 2013 A17

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