Canada, the United States and the World Economy

Relations between Canada and the United States have become more strained than at any time in recent memory. There have been many earlier periods of tension, but the policy orientations of the two capitals in late 1981 appear to be far more divergent than in the past. The two governments seem to be on a collision course, in a context that political leaders cannot fully control.

Under the Reagan Administration, Washington is currently intent upon further liberalization of the economy, domestically and internationally, and upon reducing the distorting role of government intervention in key sectors. Ottawa seems to be seeking means to insulate itself, not only from the U.S. economy but from other undesirable external economic forces, while moving to enhance rather than reduce the government role in shaping the Canadian economy. As we shall see, Canada has its own varied list of complaints and grievances against the United States. But it is the list of American complaints that has now become both long and much more focused on basic policy differences.

The most contentious issues are the new Canadian National Energy Program (NEP), the expanding role of the Foreign Investment Review Agency (FIRA), the recent establishment of new official bodies to insure adequate benefits to Canadians of major energy and other natural resource projects, and various other efforts to discriminate against outsiders and favor Canadians. Some of these policies and official activities so boldly challenge U.S. government policies and private industry interests that some members of Congress and representatives of private firms have pressed for strong counteraction. The Department of Commerce has taken a broad survey of American business to identify grievances, and the U.S. Trade Representative has said that the initiation of a comprehensive investigation of Canadian policies is being considered, under a section of the law that authorizes retaliation if it is found that another government's policies unfairly affect U.S. commerce.

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