Free Trade between the United States and Canada: Fifteen Years Later

Abstract

One objective of our 1967 study (Free Trade Between the United States and Canada: The Potential Economic Effects) was to provide a solid base of analysis and factual data for the recurrent discussion of free trade between Canada and the United States1 the 'Issue that Won't Die,' in the words of one newsman. By and large, we believe that this objective has been achieved. While substantial differences of opinion of course remain on a matter of such importance and complexity, the discussion of free trade in the past decade has been carried on in a serious manner, with the ratio of analysis to rhetoric being much higher than in previous eras (such as the early part of the century, when reciprocity was rejected with the slogan, 'No truck or trade with the Yankees'). And, with the more serious discussion of trade issues has come a movement in the centre of Canadian opinion. No longer is free trade with the United States considered the quaint idea of a few academic scribblers; it is now viewed as a serious option in large part because of a number of research studies and official reports that have greatly expanded our understanding of trade liberalization. Especially noteworthy have been the reports by the Economic Council of Canada (1975) and the Senate Standing Committee on Foreign Affairs (1978) that recommended a careful study of the Canada-US free trade option; the Senate Committee's follow-up report earlier this year endorsing such an initiative; and Richard Harris' study now under way for the Ontario Economic Council that broadly confirms our empirical results of 15 years earlier. (In Wonnacott (1982), the yet unpublished study by Harris is examined, along with a number of recent theoretical articles that show how a small country may be able to benefit from a tariff. While these latter articles seem to contradict our earlier conclusions, it is shown that they do not.) The purpose of this present paper is to update parts of our earlier 1967 study, and to answer our critics. Considerable initial updating was done in Wonnacott (1975) where we dealt in detail with the question, 'Didn't the elimination at that time of the traditional wage gap between Canada and the United States reduce or eliminate the gains from free trade? 'an issue to which we return below. The present paper is divided into three parts: a very brief summary of our principal earlier conclusions; a discussion of how developments during the past dozen years have affected these conclusions; and a response to our critics.