Before being overtaken by events of 11 September 2001, the topic of the Free Trade Area of the Americas occupied much attention in the us and Canada. The subject was approached as primarily a trade barrier agenda. However we here argue that globalisation and open markets have also been facilitated by issues of currency exchange rates and the fight against inflation. This, in turn, forces considering of the enduring hegemonic status of the us dollar as world numeraire. Floating exchange rates arrived when, in 1971, us President Richard Nixon unilaterally closed the Gold window at the Fed. This effectively ended the postwar Bretton Woods system of the dollar-gold relationship. That action also gave rise to the raging inflation of the 1970s. As inflation has been a problem for economic alignment, we need to look closely at how matters financial - as well as those of trade - affect prospects for the Free Trade Area of the Americas.
Our key premise is that there is a relationship between trade, inflation and the events of August 1971 which ended the fixed exchange rate world of the Bretton Woods agreements.. Certainly the inflationary 1970s were traumatic for Canada, but - just like the Free Trade Area of the Americas today - August 1971 was initially seen as a trading agenda. This is because Richard Nixon's actions in 1971 also included tightening trading relations/protectionism via an 'import tax surcharge'. This remains the dominant interpretation in some quarters (Kinsman 2001). Admittedly, issues on the Free Trade Area of the Americas almost always lead us to lines such as 'underwritten by the constraints of gatt and the wto'; we suggest they can as easily lead to consideration of inflation and exchange rate issues.
Let us first consider why the trade aspect seems to dominate - especially for Canada and Britain - when dealing with the usa. From a British perspective, the historic issues in trade have tended to focus on just how much North American Business their firms are obtaining. That is, bilateral arrangements between the usa and Canada or Britain and Canada - only latterly, as we shall see, has multilateralism taken over. Inevitably, bilateral issues tended to veer between imperial free trade and us protectionism.
Canada, trade and bilateralism
The fundamental development of economic activity in Canada was always synonymous with external trade - symbolised by the Hudson's Bay Company, founded in 1670. Trade remains of primary importance to Canada into the twenty-first century, with foreign trade regularly accounting for about 30 per cent of the country's gross national product (gnp). In terms of trading partners, the early preoccupation with colonial/imperial trade between Canada and the United Kingdom persisted for a substantial period. Inevitably, however, the usa came to dominate Canada's economic sphere - though periodically mediated by imperial free trade. The key difference is that trade as a percentage of gdp was always much lower in the us than in Canada. This enduring effect can never be ignored and is largely why the trading interpretation is the one to which analysts first turn. The balance, then, is usually between the conflicting forces of free trade and fear of us protectionism, such as led to the Reciprocity Treaty of 1854 to 1866 . There is a clear line to be traced right up to the 1994 North American Free Trade Agreement (nafta) signed by Canada, Mexico and the usa. Yet underlying all is that key difference between Canada and the usa: that the usa always believes that it can fall back upon its huge internal economy. Or perhaps that takes intentionality too far - it is simply that many ordinary Americans have not the slightest need to look beyond domestic/state issues. That said, many are aware of a growing dependence upon oil imports.
To return to our tale: by 1870, trade with the usa accounted for 51 per cent of Canada's external trade, while trade with the United Kingdom accounted for 38 per cent; still enough to require Canada to avidly monitor both sides of the Atlantic. …