The 1989 Canada-US Free Trade Agreement REDUX

In January of 1992 I published an academic paper, the title of which was Free trade on television, the triumph of business rhetoric. (Canadian Journal of Communication Volume 17, Number 1)  

The paper was the result of a panel discussion at Simon Fraser University, that included panelists from the Fraser Institute, a far right think-tank, and academics who opposed the Fraser’s pro-business view. 

As the title of my article implied, my concern was that the greatest consequence of the successful campaign conducted by Tory Prime Minister Brian Mulroney to sign a bilateral free trade agreement (FTA) with the United States was the promotion of the idea, advanced by the Canadian big business lobby, that the FTA was about Canada “daring to compete” (Canadian Manufacturers Association’, June, 1989). 

The great success that the business lobby had achieved in promoting its idea of so-called “competitiveness,” as they defined it, was that Canada, by adopting an aggressive, business stance, and in “adjusting to win”, would be permanently transformed, in a positive way (Adjusting to win: Report on the Advisory Council on Adjustment, March, 1989). The success of this triumphalist rhetoric, I then believed, and still do, was the true outcome of that campaign. It came to dominate and bury Canada’s identity as a caring welfare state, with an advanced industrial relations set up that protected workers’ jobs and wages, through a well-functioning public sector that was a counter-balance to its private sector.

At the time, Pierre Trudeau, whom Mulroney had succeeded as PM, himself concluded, after the campaign to enact the agreement, that the US-CANADA FTA had been a “monstrous swindle”. ( Towards a just society : the Trudeau years by Axworthy, Tom, 1947-; Trudeau, Pierre Elliott)

The swindle was that its enactment meant not just tying the Canadian economy to that of the US, but in the way it was doing so, it was transforming Canada’s national identity, the way it managed its natural resources and its well-regulated welfare state, into something that would become unrecognizable. 

In becoming economically integrated with the US, if its sovereign identity survived at all, it would be as a proto vassal state, with little gained in return. In fact, this had been the argument put forward by the Canadian Tories all the way back to the 1960’s, when, led by the Prairie Radical, John Diefenbaker, it defied John Kennedy’s argument in favour of a continental-wide union.

Somewhat ironically, the very person who appointed Canada’s former Minister of Finance, Donald McDonald, in 1982, to create the Royal Commission on Economic Union and Development Prospects for Canada was Pierre Trudeau; the intention to explore the prospect for free trade with the US.  

  The way it was initially sold, was that consumers would be the great beneficiaries of free trade as it would make American goods cheaper. And to a good extent, in the short term, that became the reality. 

But the real purpose of the free trade agreement can be better understood, by understanding the logic found in William Stanbury‘s book on business lobbying, Business Government Relations in Canada (1985). His advice, itself controversial when it became publicly known, was for business to become more aggressive, more assertive in specifically targeting the ideas of the national interest, or the public interest. 

Therein Stanbury argued that the business lobby needed to effectively counter this moral-ethical ethos, which was all too persuasive, and had become consensus among Canadians, with the idea that the private interest was far preferable than the idea of the public interest. He therefore argued that businesses needed to develop campaigns of outreach, through so-called “public affairs” divisions, to influence public policy. These divisions, among other things, would improve business’ image, and provide the means to intervene in public policy debates and ultimately legislation. 

Stanbury complained that Canada had a “closed” system whereby, in effect, business was prevented from bribing legislators, whereas in the United States, they had a so-called “open” system, where this was permitted. 

Of course, most likely, it was not Trudeau Sr.’s intent, neither to surrender our sovereignty to the US, externally, nor to allow our national identity to be defined, nearly exclusively, by big business. But unfortunately, as we saw, in fact things had begun to change under Trudeau‘s mandate, circa 1975, when he agreed to be influenced by many of the arguments big business was putting forward, in the realms of both monetary and fiscal policies. 

Thereof, in particular, public sector spending, on social programs, that allegedly “crowded out”, private investment, should be dramatically curtailed, while the power of unions needed to be controlled. Ultimately, establishing the McDonald Royal commission on free trade, that acceded to this business logic, created a venue for the very conditions Trudeau later abhorred when they came to pass.  

The turn to monetarism and austerity

The turn truly began with Trudeau’s government’s decision to maintain high interest rates to ensure high unemployment in Canada, circa 1975; the argument then being put forward by the business lobby, that high interest rates would create enough unemployment to curtail inflation (See NAIRU). This meant targeting (high) union wages that were blamed, by business theorists, for inflation. Once this set of such arguments was accepted, the path down the road to the McDonald Royal Commission was inexorable. And once the McDonald Report was in turn concluded in 1985, dissenting opinion was virtually shut out. 

The Canadian Centre for Policy Alternatives, led by Daniel Drache and Duncan Cameron, countered the report with an argument that McDonald’s report was biased against the public sector and the welfare state and that the true outcome of the free trade agreement would undermine the welfare state, Canada’s public sector and the prospect for free collective bargaining. None of their arguments seemed to be given any consideration by McDonald.

The successful 1988 electoral campaign for free trade

The success of the political campaign was achieved with the great help of the Canadian media, and with considerable trickery. 

With the backdrop of the so-called Shamrock Summit, in March of 1985, barely days after Mulroney taking power, he and US President Ronald Reagan were featured singing When Irish eyes are smiling, albeit screechingly off-key. 

The warning signs were already there of what the intended resulting outcome of an FTA accord might look like: not just economic integration but also the achievement of a proto-militarist foreign policy. 

In the meantime, the major media, especially CTV and the Globe and Mail, promoted this absurd idea, that even with all the money behind it and major business lobbies campaigning for free trade, that the free trade campaign was akin to the “little tugboat that could”. The idea that the free trade campaign was the underdog that kept chugging along, gaining ground, had the major media cheering it on. 

If we look even at the CBC at the time, its main reporter on the free trade campaign was Mike Duffy. Duffy characterizes the opposition to free trade in Canada in the following way: “[t]hey dot the shores of the St. Lawrence River in Eastern Ontario. United Empire Loyalist towns. Visible symbols of the Loyalist determination not to become Americans” (CBC News, 8/24/87) As was later made apparent, Duffy was a proponent of the FTA and a supporter of the Mulroney government. Here his characterization of opposition to free trade makes opponents appear to be hayseed fuddy-duddies who are opposed as they are seemingly out of step with modern times. This turned out to be quite an influential perspective. He went on to become a Tory senator, appointed to the Senate in 2009.  

To typify the coverage of the free trade campaign, on TV, I excerpted the business segment from CTV’s morning public affairs program, CanadaAM. This ran just prior to the seven o’clock news.  Therein we see Tom D’Aquino, of the Business Council on National Issues, and John Bulloch, of the Canadian Federation of Independent Business, being “interviewed” by Nancy Wilson, in a supposed combination “debate and consultation” on the 1988 (Michael) Wilson budget and the Tory’s government’s economic record that preceded the FTA campaign.

“D’Aquino: Canadians are still spending, we should remember, $29 billion more than we are taking in and that is not good news. Now Mr. Wilson has made progress and will continue to make progress but Canadians must continue to be aware that our record in relation to our other trading partners is not particularly good….

Bulloch: If I were Mr. Wilson I’d take a minute to blow my own horn. We’ve had probably the best job creation and economic growth in the Western world in the last year and we have an incredible year coming up. I mean, the economy is just bubbling out there…. We should spread the good news.

Nancy Wilson: Sounds like what you’re looking for is just an economic statement; just a progress report on how the economy is doing and an update on some of the projections.

Bulloch: Well this is very important. We have to tell the country we’re on target for deficit reductions. This will settle down the capital markets. We had a stock market crash. It’s having no effect on the economy….We’ve got a new free trade agreement. Every single one of those tariff cuts is going to mean a new company formed. So we’ve got all kinds of excitement ahead and that’s what we should be talking about. (Canada AM, 1/25/88)[emphasis in original]”

Bulloch, and D’Aquino, representing Canada’s two main business lobby organizations during the segment, are pretending to somewhat disagree on specific nuances. But they both agreed that “tax reform” and that the free trade agreement would bring about all kinds of positive outcomes, especially for Canadian workers, and that Canada’s deficit, attributed to social spending, would be better controlled. 

Quite typically we see that the main employers in Canada have an open road, effectively unopposed, except in Parliament, while promoting themselves as being the great benefactors of the “working class”, workers everywhere, and the national interest, while the Canadian media promoted these ideas by standing idly by. This would eventually become in large measure the “populist” argument put forward by American conservatives that is largely credited for Donald Trump’s eventual success. 

The negative effect on labour

It should be noted that at the time prior to the free trade agreement, the rate of unionization in Canada was 40 per cent. Today it is about 32 per cent. In Quebec it was 47 per cent and today it is in the mid -high 30s. 

Indeed, the entire purpose of the free trade arrangement was to target high wages, and also quite specifically the great manufacturing centre of Ontario that employed auto workers that were then protected by the Autopact. This had successfully tied car production to the employment of Canadian workers for decades. By great contrast, an enduring memory is of Mulroney proclaiming that the protection of social programs, such as health care, which were rumoured to be under threat of being “harmonized” with American social programs, was “a sacred trust”. And the idea that American corporate head offices would flee Canada, which became obvious the day the agreement was enacted, was vigorously denied by Mulroney in advance of the election. The religious tonality of his promises should not be ignored. For in fact, the subsequent betrayal of these promises was indeed a sacrilege.
As mentioned, if we look at the rhetoric that was used to champion the cause of free trade, with terms such as the “aggressive economy” or “daring to compete”, this was all replete with fearmongering warnings that unless Canada “adjusted” to the realities of international competition, we were doomed. Meanwhile, a panel discussion on national television was organized, made up of some dozen panelists. Eleven or so of them were mainstream economists, all of whom supported free trade; then there was the one single holdout: a philosophy professor whose argument was described as a “moral” one. And that tells you as much about the run up to the free trade election as you need to know.

In the meantime, the Fraser Institute was screaming that the mainstream media was actually hostile to free trade, largely basing this argument upon the fact that the coverage of free trade featured a 2:1 ratio in favour of the opposing side. (See the Fraser’s newsletter On Balance) Indeed nearly 60 per cent of Canadians did seem to oppose free trade. (Mulroney won with a 43 per cent mandate, but because of first-past-the-post, he achieved a majority.) 

Even so, the 2:1 ratio in the coverage was best explained by the fact that in covering elections the mainstream media, as a standard electoral protocol has it, defers to quoting party leaders. And in this case, both the NDP, led by Ed Broadbent, and the Liberals, led by John Turner, opposed the agreement, while only the Conservatives were in favour. But beneath this superficial façade was the reality that the whole ethos of “competitiveness”, and also the waves of excitement concerning the prospect of integration with the American economy, became paramount.
Another important factor was the fact that the NDP, had a very different vision of Canada, both in terms of its concern for Canadian sovereignty and national identity, and workers’ rights, really should have been leading the charge against free trade. 

It had previously argued in favour of an industrial corridor running throughout Canada’s interior. Such a corridor would have ensured that raw materials, natural resources, and such things as beef and hog production, could be converted into consumer goods, rather than continuing to outsource manufacturing to the US Mid-West. 

Instead, leadership against free trade was left to John Turner, who, while fighting the good fight, seemed a bit unsteady on his pins, and a little too anxious to outdo Mulroney. 

The NDP’s. vision, a very different one back then, is one that ironically today is being championed by Mark Carney, and to a lesser extent, Pierre Poilievre, concerning the urgent need for “infrastructure” projects, albeit with a militaristic bent.
Another important factor here was how Ed Broadbent, leader of the NDP, bless his good heart, was busy with a “Main Street versus Bay Street” campaign that was utterly missing the moment. This was in large measure due to the unfortunate reality that competent left economists within the NDP’s ranks were effectively purged from the party by David Lewis, who Broadbent had replaced as leader. The legacy that the NDP does not appear to have, or bona fides on matters of the economy, is something that haunts the party consequently to this day.

And the legacy since

Now, since the initial free trade agreement that was enacted in 1989, we have seen its being replaced first by NAFTA, as part of the World Trade Organization, and then by CUSMA, in July of 2020. About the latter, it should be noted that then Ohio senator Sharrod Brown, whom I always admired greatly, had stated that CUSMA was the first free trade agreement that met with his approval. 

Thereof he felt that the unfair advantage that Mexico had under NAFTA, with Mexican workers being dramatically underpaid, had been largely remedied by CUSMA, the Trump-era agreement. But the irony here is that, in supporting CUSMA, what Brown was in effect saying was that CUSMA was a better agreement for the United States, its workers and its manufacturers. This in turn set up expectations, into the Biden administration, of what came to pass, with the focus turned towards a kind of “America first” trade nationalism. This of course was then resurrected, albeit far more fiercely, by the Trump regime take two’s tariffs regime.

And so we have to understand that the fix that we are in currently, because of the negotiations over the draconian tariff threats emanating from the White House, goes back to the initial free trade agreement of 1989. And perhaps the greatest outcome was this idea that somehow, a businessman was perceived to be the best person to shepherd the economy, to run a government most efficiently, as a business. Arguably then, this all seems to stem from the original US-Canada FTA itself that championed such rhetoric. 

The horrible irony is that this strategy, of “aggressivity”, can be adopted by either party in a bilateral negotiation. And today we see that in fact, Donald Trump embodies this better than any other leader since the strategy was proposed by the CMA and the advisory council on “adjustment”. And Canadians of all regions and political stripes, whether they support unions in collective bargaining or not, now have a taste, a very bitter one, of what “concession bargaining” looks like, as our country has been victim to Trump’s, proto-typical big boss employer behaviour, treating us like his underlings, his employees, too often the way large and small employers do in the process of negotiating labour contracts. And we see, in turn, this through Musk’s DOGE interventions, through Project 2025, and through macho rhetoric about “aggressivity”, of being fiercely competitive, to the point of being combative, in trade warfare and as in actual warfare. So that the overall picture concerning the original free trade agreement, even if some of the outcomes of free trade proved to be positive, in the short-run, the overall impact’s longer run outcomes seem, on balance, to be questionable.

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