Stephen Harper’s response to the Obama administration’s punting of the Keystone XL pipeline decision was decisive. The Prime Minister made exporting to Asia and China a “national priority” and is looking for foreign capital to support the oil sands. Every economic nationalist on the right and the left should be applauding. American rejection has driven Canada to create an east-west pipeline and potentially an east-west supply chain with all that entails. As Bank of Canada Governor Mark Carney recently commented, the opportunity for the rest of Canada, and Ontario in particular, is “tremendous.”.
This tale of American rejection and Canadian response would sound very familiar to our first, visionary leader, Sir John A. Macdonald. Macdonald was the prime mover behind the unification of Canada, and single-handedly set the stage for its industrialization through the protectionist National Policy. But few remember that both the political union of Canada and the National Policy were in part a response to American rejection of Canadian schemes at economic integration.
The British Colonies that would become Canada survived and maintained their independence from the United States in part due to the mercantile trade and navigation privileges of the Empire. The British ended this privileged protection with the adoption of free trade and the repeal of the Corn Laws. The first reaction of British North America to the retreat of the Empire was to seek shelter in another through a trade agreement with the United States, which came into force in 1854.
The treaty lasted from 1854 to 1866. It was considered a boom time for Canadian commerce and prosperity. But the Civil War intensified American dislike of British North America, resulting in the abrogation of the treaty and threats of war with the Empire. This tension was joined by a muscular expansionist streak in the United States (Texas was annexed in 1845, Oregon in 1846 and Alaska purchased in 1867). Repeated threats of annexation by American politicians combined with American settlers swarming over the western frontier led Canadian colonies into a defensive political union in 1867.
Politically strengthened by Confederation, but economically weak, the new Canada continually sought reciprocity with the United States. Liberal and Conservative leaders (Macdonald, George Brown and Charles Tupper) made various attempts at recommencing free-trade – only to be rebuffed by a protectionist Congress and repulsed by American taunts that annexation was inevitable. Macdonald himself failed several times to secure an agreement of some kind, particularly during the Washington treaty negotiations of 1871.
Macdonald’s ultimate response to these rejections was to think on a grand scale and conceive the National Policy. If Canadian industry would be excluded from a continental economy of North America, then conditions must be created to enable a truly integrated Canadian business environment. The policy had three components: significant investment in railway, harbour and canal expansion; settlement of the West through mass immigration; and high tariffs to promote Canadian manufacturing. The policy got off to a slow start due to the global recession of the 1880s, but starting in the 1890s and up to 1914, a period of explosive growth occurred. The creation of east-west transportation linkages, settlement of the west and industrialization behind a tariff wall created a robust national economy. Macdonald had turned American rejection into dizzying political and economic success.
Barack Obama’s rejection of a north-south pipeline, combined with “Buy American” provisions and the thickening of the border due to the U.S. security bureaucracy, is undoing some of the post-1988 free-trade-agreement economic integration. In response, the Prime Minister, just like Macdonald, is robustly pursuing a response to American objections to continental integration. The stakes are high: a recent study estimates the cumulative contribution of the oil-sands industry to Canadian GDP between now and 2035 is over $2-trillion, a staggering sum. The Prime Minister and other Canadian leaders must do everything they can to ensure this tremendous wealth is captured.
We won’t see Stephen Harper pursue a new National Policy. He is aggressively pursuing various free-trade agreements and a security arrangement with the United States. But it is important to keep in mind that changing American opinion has created great opportunities to strengthen the bonds of our own confederation in the past. An east-west oil pipeline, financed, engineered and managed with expertise from across the country, is a project all nationalists, both of the right and left, can get behind.
J.C. Bourque is a business strategy consultant in Toronto. He has worked on several campaigns for the Progressive Conservative Party of Ontario.