Terence Corcoran: Coming soon — maybe — to North America: A new Canada-U.S. trade deal

The success of 1965's auto pact provides hope for a reimagined and peaceful North American trade environment

Published Jan 22, 2025  •  Last updated 0 minutes ago  •  4 minute read

To frame the recent trade rhetoric between Trump and Canada as a “conversation” could be interpreted as a major change in attitude, writes Terence Corcoran. Photo by GAZETTE FILES

United States President Donald Trump, only days in office, must be chortling over his trade and tariff strategies. After successfully triggering weeks of anti-Trump political hysteria in Canada over the threat of 25 per cent tariffs on imports from our nation, Trump pulled a predictable fast one by failing to drop the promised trade bomb. Instead of turning the Canada-U.S. border into a war zone, he launched a peaceful review of U.S. trade deficits and policies.

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Then, a few hours later, he revived the 25 per cent tariff confrontation by saying he would bring it in on Feb. 1, not over trade issues but over immigration and fentanyl border problems.

Exactly where this leaves Canada-U.S. trade is unclear, but it is possible to speculate that we are heading for a re-imagined and peaceful North American trade environment that, in the end, will be endorsed by Canada. We have been there before.

Almost 60 years ago exactly, on Jan. 16, 1965, at the LBJ ranch in Johnson City, Texas, president Lyndon B. Johnson and Canadian prime minister Lester B. Pearson signed the Canada-U.S. Automotive Products Agreement — known as the Auto Pact — the first in a chain of trade deals that later produced the North American Free Trade Agreement (NAFTA) in 1992 and the 2018 U.S. Mexico and Canada (USMCA) trade agreement.

The USMCA is up for review in 2026. Could the friendly words exchanged at the Johnson ranch in 1965, after a couple of years of bitter wrangling over auto trade issues, echo in talks next year?

“Two years ago,” said Johnson, “it appeared that our two countries might have grave differences in this great field of trade. We faced a choice between the road of stroke and counterstroke and the road of understanding and co-operation. We have taken the road of understanding.”

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Pearson, accompanied by Paul Martin Sr., who negotiated the agreement as Canada’s minister of external affairs, agreed: “Mr. President, I share completely your satisfaction as we are able today to sign this automotive agreement … This is one of the most important accords ever signed between our two countries in the trade field.”

It is not impossible that similar exchanges could be on the political horizon over the next year or two. Before Trump revived the tariffs with a Feb. 1 target date, a bit of optimism also emerged out of Ottawa. Energy Minister Jonathan Wilkinson told CBC radio that it was “obviously positive” that Trump did not impose tariffs on Monday as threatened, and that “we are at the beginning of this conversation” with the Trump administration, “not the end.”

To frame the recent trade rhetoric between Trump and Canada as a “conversation” could be interpreted as a major change in attitude.

Ironically, the 1965 Auto Pact agreement came about after Canada, under Conservative prime minister John Diefenbaker, had been sounding Trump-style alarms over the existence of a massive automobile and auto parts trade deficit that favoured the United States. Canada imported $600 million (about $6 billion in 2024 dollars) more from the U.S. than the U.S. imported from Canada. In 1962, Diefenbaker imposed a 25 per cent tariff on imported automatic transmissions. To encourage manufacturing in Canada, the tariff could be offset, via a duty remission, if the transmissions were installed in auto production that was in turn exported to the United States.

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But that policy was challenged by U.S. industry, and it was left to the government of Liberal prime minister Pearson (elected in 1963) to negotiate the Auto Pact that, in time, turned the trade deficit issue around. Veteran Canadian economic journalist David Crane reported that the Auto Pact boosted Canada’s share of North American auto production from 7.1 per cent in 1965 to 11.2 per cent by 1971.

The Auto Pact was followed by free trade deals that created an even more dynamic North American auto industry. Canada-U.S. trade in 2023 approached $200 billion, with Canada in the trade deficit position exporting $77 billion to the United States while importing $118 billion.

The problem now is to figure out what Trump’s real objectives are and how deep he intends to go into the Canada-U.S. trade relationship. What does it mean when he blends two different policies into a nationalist homegrown Made in America auto strategy? In one promise he talked about ending the U.S. “Green New Deal” and revoking electric vehicle (EV) mandates, thereby “saving our auto industry and keeping my sacred pledge to our great American autoworkers.” In other words, Trump told Americans, “you’ll be able to buy the car of your choice.”

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Removing electric vehicle mandates would certainly upset the global auto industry. If EVs are not mandatory, then the great threat of cheap Made in China automobiles would disappear, thereby protecting U.S. industry and jobs. But imposing tariffs to keep Canadian and foreign-made cars out would not allow Americans to buy the car of their choice. Trade barriers and tariffs reduce choice.

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But these economic snowballs — and his latest revival of the 25 per cent tariff plan — may all be part of the Trump trade war machine that will melt away over time. His real objective, conveyed in his allusions to a North American economic union, is to draw Canada even deeper into a trade system that reflects the ambitious project launched at president Johnson’s ranch in Texas 60 years ago.

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