National Policy

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The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1879 after it returned to power. It had been an official policy, however, since 1876. It was based on high tariffs to protect the manufacturing industry.

Macdonald campaigned on the policy in the 1878 election, and defeated the Liberal Party, which supported free trade.

The motives for the National Policy are plentiful. Macdonald hoped that by creating a strong manufacturing base in Canada, the nation would become more secure and less reliant on the United States. He was also closely linked to the Montreal and Toronto business interests that would benefit from such a policy, and they played an important role in keeping the Tories in office until 1896.

A protectionist policy was not the first choice of Canadian manufacturers. The ideal for them would have been a unified North American market where they could freely compete with American manufacturers. Despite a brief experiment with free trade in the Canadian-American Reciprocity Treaty before Confederation, the Americans were intent on pursuing a strongly protectionist policy, with tariffs higher than Canada imposed under the National Policy.

With such high American tariffs, Canadian firms could not compete in the United States, but American firms could enter Canada. Canadian producers were particularly hurt by US producers dumping surplus goods at below cost on the Canadian market, so as not to lower prices in the United States.

The policy was introduced in the budget on March 14, 1879, and it created high tariffs on the import of most manufacturing goods. At the same time, the tariffs on raw materials were lowered also to help manufacturers. The tariff was not as high as that in the United States, however. The Canadian government was dependent upon revenue from customs, and too high a tariff would have cut off almost all imports, thus depriving the government of revenue.

The policy quickly became one of the most central aspects of Canadian politics, and it played an important role in keeping the Tories in power until 1896, when Wilfrid Laurier and the Liberals campaigned on a promise to keep the National Policy in place. While many Liberals still supported free trade, the National Policy was too popular in Ontario and Quebec to end. When the Liberals campaigned on free trade in the 1911 election, they lost the election.

While the policy was popular in central Canada, it was extremely unpopular in western Canada. The policy forced farmers to buy Canadian agricultural equipment at higher prices, but they also had to compete on the international market for grain. This opposition to the National Policy played an important role in the rise of the Progressive Party of Canada in the 1920s. Its platform was entitled the "New National Policy", and it advocated free trade.

The National Policy was slowly dismantled under the many years of Liberal rule under William Lyon Mackenzie King and Louis St. Laurent. At the same time, the United States was lowering its tariffs. Economic integration surged during World War Two, and in the 1950s the automobile industry in the two nations became fully integrated. Complete free trade was not achieved until 1988 with the Canadian-American Free Trade Agreement brought in by Brian Mulroney's Progressive Conservative government.

Eden and Molot (1993) argue that there have been three national policies in Canada: the "National Policy" of defensive expansionism, 1867-1940; compensatory liberalism, 1941-81; and market liberalism, starting in 1982. The defensive expansion phase relied on the tariff, railway construction, and land settlement to build the country. The second national policy combined a commitment to the GATT system, Keynesian macroeconomic policies, and the construction of a domestic social welfare net. Current national policy relies on Canada-US free trade and NAFTA free trade, market-based policies, and fiscal restraint. They argue the for a fourth policy called "strategic integration." It would consist of free trade, both external and internal; the building of a national telecommunications infrastructure based on the development and diffusion of information technologies; and human capital development.

The assessment of the National Policy is mixed. In general, some economists argue that it increased prices and slightly lowered Canada's standard of living as a cost of being independent of the United States. By not becoming merged into the larger, more efficient American economy, Canada had too many monopolistic firms, and too many small inefficient companies. The overall impact was not large because the policy applied to small manufacturing firms which played a relatively small role, compared to agriculture, fishing, transportation, mining, lumbering and services, which were not affected by the National Policy. Historians tend to see the policy in a more positive light, viewing it as a necessary expense to create a unified nation independent of the United States. They also see the policy as increasing Canada's population and encouraging the development of cities and urbanization.

In the years right after the policy was introduced, Canada experienced the same type of economic boom that many other nations experienced, as well as the construction of a manufacturing base and the development of the nation, which is generally what the Tories and economic nationalists use to justify the policy.

[edit] References

Clarence L. Barber. "Canadian Tariff Policy" in Canadian Journal of Economics and Political Science, Vol. 21, No. 4 (Nov., 1955) , pp. 513-530 explains concept of the effective rate of protection
Eden, Lorraine and Molot, Maureen Appel. "Canada's National Policies: Reflections on 125 Years" Canadian Public Policy 1993 19(3): 232-251. Issn: 0317-0861
Vernon C. Fowke, The National Policy and the Wheat Economy (Toronto, 1957
V. C. Fowke. "The National Policy-Old and New" Canadian Journal of Economics and Political Science, Vol. 18, No. 3 (Aug., 1952) , pp. 271-286
Vernon C. Fowke. "National Policy and Western Development in North America" Journal of Economic History, Vol. 16, No. 4 (Dec., 1956) , pp. 461-479