The prevailing interpretation of Canadian-American relations in the 1960s emphasizes the fundamental differences that came to divide these close cold war allies during a decade of rapid change. For most historians, relations under Prime Minister Lester B. Pearson and President Lyndon Johnson were typified by mutual hostility, the product of Canadian nationalism and profound differences over the war in Vietnam.(f.1)
But this is only part of the story. At a time when economic nationalists began to flex their muscle in Ottawa, Canada and the United States developed a framework for economic co-operation that drew the two countries more closely together than ever. A series of working agreements and official-level committees emerged during the decade to oversee financial relations between the two countries. During the Kennedy Round of the General Agreement on Tariffs and Trade (GATT), which opened in May 1964, bilateral negotiations reduced or removed tariffs on $3 billion-worth of North American trade.(f.2) In January 1965, the two countries signed the Canada-United States Agreement on Automotive Products, or autopact, a conditional free trade arrangement that tried to come to terms with the implications of the highly interdependent economic relationship that had developed since the 1940s. The autopact is a particularly important example of Canadian-American interaction, and its evolution casts a very different light on relations between Canada and the United States in the mid-1960s.
The United States was a tolerant ally, responding to the economic nationalism that underlay unilateral Canadian efforts to deal with its perennial trade deficit in automotive products in an imaginative and thoughtful manner. Although it was determined not to sacrifice its legitimate interests for the sake of bilateral harmony, the United States was ready to seek an equitable arrangement for sharing the North American automotive industry in a way which acknowledged the unique conditions confronting Canada, the smaller neighbour of an economic giant. Washington tried hard to persuade Ottawa to resolve their differences over automotive products in a co-operative manner that stressed their common economic interests. In doing so, it posed a fundamental question for Pearson's government: should Canada agree to the further integration of the two North American economies in exchange for the benefits that greater access to the United States market would make possible?
The issue divided the cabinet and pitted so-called continentalists against economic nationalists. One wing, led by the nationalist minister of finance, Walter Gordon, hesitated to endorse any measure that would lead to closer economic relations with the United States. A second faction, represented by Mitchell Sharp, the minister of trade and commerce, reflected more traditional liberal views: as a country whose prosperity depended on international commerce, Canada should encourage those developments that promised to reduce tariffs and expand trade. In late 1964, the debate came to a head. In accepting proposals for a closely integrated continental automotive industry, Pearson's cabinet confirmed and strengthened the North American orientation of the Canadian economy.
The autopact's origins lie in Canadian efforts to overcome the limitations imposed on the growth of the automotive industry by the nature of its development in Canada. Erected behind the high tariff walls of Sir John A. Macdonald's National Policy, the industry was dominated by American branch plants, principally the subsidiaries of Ford, Chrysler, and General Motors. During the 1930s, British Commonwealth preferences encouraged a substantial export trade to Australia, New Zealand, and the United Kingdom. This trade declined at the end of the Second World War as American manufacturers established production facilities overseas and the major Canadian automotive producers concentrated on supplying the domestic market, importing many of the vehicles necessary to round out their narrow Canadian product range. …