THE position of Canada vis-a-vis the United States is becoming extraordinarily difficult. So long as Great Britain was an economically powerful nation, Canada was not too greatly controlled by either Britain or the United States; and it caused no trouble that she systematically sold to one and bought from the other.

But the United States is now the most powerful nation in the world; and economically it seems to Canadians to be pursuing the same policy as after the First World War. It is rushing, Canada fears, and taking the world with it, down a steep slope to the sea of world depression, entirely on account of the fact that no other nation has any hard money.

The Canadian balance of trade with the United States is currently running at a rate which, if maintained, would put the Dominion 900 millions in the hole by the end of the year. Canada’s balance of trade with the world as a whole is quite all right; but because the favorable part of it is with nations which cannot pay in hard money, or money which can be converted into U.S. funds, it does nothing to redress the balance with the United States.

Canadians are therefore faced with the urgent necessity of reducing this balance by any possible means. Ultimately, of course, it would reduce itself by natural means, but the only natural means is a severe depression. As long as Canadians have good incomes and good business prospects, they will go on spending money heavily in the United States, which is the chief source of most of their luxuries (including travel) and of a large part of their capital goods and imported raw materials.

Canada, like most countries in the present precarious state of the world, will do anything rather than face a severe depression. She will consequently resort to artificial means of reducing the adverse balance of trade with the United States, and hope that they will work.

The most promising of these means is some form of stimulus to gold production, which has been as high as 200 million dollars a year, but fell off sharply with the rise in labor costs and the loss of the 10 per cent premium after the war. Gold is about the only article the export of which to the United States is susceptible of great and rapid increase. Demands for the re-establishment of the premium have been vigorous and insistent, and unless some alternative method of reducing the trade deficit is found, it is hard to see how these demands can long be resisted.

Back to barter?

During the war Canada’s industrial capacity was increased by something like 100 per cent. But very little of the added product is salable in the United States, since it consists of goods identical with the products of American industry. Few of the other possible customers for it are in a position to pay U.S. funds. There are indications of a resumption of the barter transactions which characterized the period before World War II, and recently the governments of Canada and Argentina made a deal for the delivery of Canadian newsprint against Argentine oils and fats.

A great expansion of the system of international barter, or of the next thing to barter, — namely, a system of trading financed by soft money not convertible into U.S. dollars, — will be of use to Canada only if she can obtain from such soft-money sources all of that part of her present purchases from the United States which she cannot pay for without reducing her reserve of U.S. dollars — all, that is, which is not offset by her sales to the United States of goods, services, and securities. And the soft-money countries are largely those which have been ravaged by war and will not be able to export on a big scale for several years.

Canadians hope that by some method or other the United States will make a greatly increased supply of American dollars available in the other countries of the world.

Conada’s near-socialism

The Liberal Party under Mackenzie King has practically controlled the affairs of Canada since 1921, the first election after the First World War. The five-year interval of Conservative rule under R. B. Bennett was a product of the depression and reversed no Liberal policies. In fact, it started several policies, such as the nationalization of the Bank of Canada and of the broadcasting system, which the Liberals carried further.

Both the old parties were chiefly concerned during this period to block the progress of the Socialist Party without having to coalesce into a single party themselves, and both naturally adopted the method of enacting as much socialism as they thought would suffice to keep the electors from demanding a socialist government.

But the more advanced near-socialist, measures which the Liberal Party has lately incorporated in its program threaten to put such a strain on the taxes that the Conservatives have been able to fight them without admitting that they are opposed to the measures themselves — an admission which would be fatal to the party’s prospects.

There is obviously a limit to the total amount that can be taken out of a limited national income by way of taxes on personal and corporation income and inheritance. And the Conservatives in Ontario and their allies, the purely French-Canadian party called Union Nationale, in Quebec are taking the ground that the Liberals are destroying the autonomy of the provinces by taking away their sources of revenue.

This looks like a difficult matter to get the electors excited about, but the two provincial governments, whose provinces represent nearly two thirds of the population and even more of the wealth of the country, are working with tremendous effort in close cooperation with the Dominion Conservatives. They have at last found an issue upon which the French of Quebec and the Conservatives of Ontario can combine with some degree of plausibility.

Canadian Democrats

The curious thing about it is that the Liberals were originally — as were the Democrats in the United States — the party maintaining the rights of the local sovereignty as against the national sovereignty. But they have been so long in power at Ottawa, and have committed themselves to such immense national welfare schemes, that they have become centralizers by pure force of circumstances and cannot now withdraw.

They have committed themselves to the proposition that a uniform level of social welfare should prevail throughout the nation, and to that end the major welfare schemes should be financed out of the national treasury in order that the-poorer provinces may enjoy the average level at some expense to the richer ones. This is highly popular with the Atlantic coast and prairie provinces, but they have less than a third of the votes; Ontario and British Columbia are “rich” provinces, and Quebec is about average in taxable wealth and is intensely attached to provincial rights.

The Conservatives have not for many years past expected to do much in any of the poorer provinces anyhow, and their problem has been to reconcile the French of Quebec and the somewhat imperialist Conservatives of Ontario so that they could combine against the Liberals, a thing which they have not done since they threw out Laurier in 1911. It looks as if the present tactics might have some prospect of succeeding, though if they do, it will be largely because of the weaknesses which always develop in a party which has been long in power. Mr. King’s health, which is uncertain, is a major factor in the situation.

Canada at Uncle Sam’s side

Should the Conservative-Union Nationale combination come to power in the near future, it will probably take over about nine tenths of the Liberal policies, dropping only the more extreme of the Liberal social welfare ideas, and even these it will declare to be excellent in themselves but proper for execution by the provinces and not the Dominion. It may even adopt a system of grants-in-aid to help the poorer provinces.

The truth is that all the traditional policies of the Conservatives have ceased to be useful. They were the high-tariff party; but a high tariff against British goods is now impossible because the British owe Canada money and must be permitted to repay in goods, and a high tariff against American goods is useless on the classes of goods which Canada does not produce and ineffective on the classes ot goods which are already made in Canada by branches of American corporations. There is no sign that the tariff will be even mentioned as a campaign issue.

The Conservatives were the strong-British-connection party; but it is no longer possible to talk (except sentimentally) about “Canada at Britain’s side” without keeping in mind the fact that Canada will henceforth be of no use there unless she is also at the side of the United States at the same time. The external policies of Canada are fast becoming a nonpartisan matter, and may be entirely so in the next election. The Conservatives were usually the centralizing party as long as provincial rights meant chiefly the preservation of the special privileges of Quebec; they are now the most vociferous of provincialists.

The burden of controls

The great advantage the Conservatives have, outside of the Dominion-provincial relations question, is that they can promise, and should be better able than the Liberals to effect, a real reduction of the horde of officials and bureaus and regulators and inspectors who dug themselves in during the war and whom the present government has not the courage to throw out.

The Liberals have had to apply to Parliament for a continuation of the special powers which enabled them to operate these controls during the war and for two years after it, but the Conservatives put up a good fight for a much greater reduction of the controls, than the government was willing to accept,, and this attitude is undoubtedly popular with the country.

On the other hand the governments of both Ontario and Quebec are unpopular with labor on account of their attitude during the recent strikes, and their unwillingness to adopt more modern labor legislation now that the ending of the war has thrown the labor problem back into the provincial arena. The Quebec government had a new labor bill ready during the past session, but organized labor regarded it as unacceptable and it was not even introduced.

There is a general belief that the political power of labor is very much less than it was before the public realized the extent to which the Communists have infiltrated into the unions; but this belief still remains to be tested. The Communists have just provided themselves with a daily newspaper in Toronto, but its influence is not likely to be great except in the more leftist unions.

Both in economics and in international politics Canada is, for geographical reasons, very closely tied in with the United States. That is not very surprising at a time when the whole world, both for its prosperity or depression and for its peace or conflict, is more dependent on what the United States does than it has ever been on the policies of a single nation before.

But the tie-in of Canada is closer and more intimate than that of any other nation. It is well that there is so great a similarity between the characters, the habits, and the political ideals of the two peoples.