In 1927, Edsel Ford and his 64 year old father, Henry Ford and Charles Sorensen (backseat) drove the Fifteen Millionth Model T out of the Highland Park Plant in Michigan.
Dimitry Anastakis is the Wilson-Currie Chair in Canadian Business History at the University of the Toronto, and the author of Auto Pact: Creating a Borderless North American Auto Industry, 1960-1971 (University of Toronto Press, 2005).
As usual, when it comes to tariffs, U.S. President Donald Trump displays as profound an ignorance of economic policy as he does of history. He keeps saying that Canadians “stole” the American auto industry, “they stole it because our people were asleep at the wheel.”
Nope, not even remotely close to the truth.
In fact, what really happened is that, starting in 1965, the American auto industry – with the support of the American government – decided that having a continentally integrated North American auto sector, one that made the industry more efficient and took advantage of the close political and economic ties between the two countries, was in the United States' best interest.
Far from being stolen by Canadians, American leadership willingly (and profitably) helped to create an integrated sector.
In 1964 and 1965, the U.S. and Canadian governments, along with the industry itself, negotiated and passed the Canada-U.S. Auto Pact. As the first duty-free North American trade treaty, the pact removed tariffs for the Big Three automakers operating on both sides of the border, as long as their American-owned Canadian assembly plants continued to build as many vehicles as they sold in Canada, maintained basic Canadian investment, and ensured that 50 per cent of the cars or parts they exported to their U.S. parents were “North American” content, that is made in Canada or the U.S.
The auto pact revolutionized the industry, made it more efficient and productive, and fully integrated the two countries’ auto sectors. Since 1965, American companies (and, admittedly, offshore manufacturers since the 1970s and 80s) have benefited immensely from the specialization, economies of scale and proximity to the U.S. market their Canadian facilities provide.
After six decades of seamless, borderless operation, there is no “national” industry in Canada, as there is no “national” industry in the U.S. It is a North American sector, one originally made so primarily to benefit the American Big Three, who wished to continue operating their plants in Canada, yet more efficiently, by rationalizing all of their North American operations. Today, that integration is being threatened by tariffs on automobiles originating from Canada and Mexico (which were paused for 30 days on Wednesday. On Thursday, tariffs on most goods were pushed back to April 2.)
In fact, none other than Henry Ford II was critical to the creation of the integrated industry. From 1945 to 1979, “The Deuce” revived and ruled Ford Motor Co., and its Canadian subsidiary. In 1964, when it had become clear the best way to avoid a brewing auto trade war was to integrate and rationalize the two national industries into one North American whole, Mr. Ford II made it clear to then-president Lyndon Johnson that he was in favour of the auto pact, since it would benefit his company, the industry and, ultimately, the United States.
Mr. Ford II was persuasive and Mr. Johnson was convinced. With Mr. Johnson’s support, the auto pact passed in Congress (the Senate voted 53-18). At the treaty’s January, 1965, signing with then-prime minister Lester Pearson at his Texas ranch, Mr. Johnson stated: “Two years ago, 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.”
During a 1966 speech in Toronto, Mr. Ford II remarked that when it came to the benefits of close Canada-U.S. relations, he could “think of no better illustration… than the automotive trade agreement between Canada and the United States. My country had the good sense to recognize that it could help itself by helping Canada to solve its automotive trade problems, and together the two governments worked out the terms of the agreement.”
Later, in 1971, when then-president Richard Nixon attempted to unilaterally terminate the auto pact, U.S. officials hastily realized that such a move – similar to Mr. Trump’s tariffs today – would abruptly disintegrate and disrupt the North American sector, wreak havoc on supply chains and send the broader economy into chaos.
A half century on, it’s clear that Mr. Trump knows nothing of the role that U.S. leadership played in creating an integrated North American auto sector. And while he may have no interest in understanding history, he’s nonetheless about to learn a sharp lesson: that maintaining – and even strengthening – the integrated auto sector remains in his country’s best interest, whether he likes it or not.