Want to get really angry about cross-border pricing? Think binder twine

September 26, 2011

American inventor Cyrus McCormack devised a rude horse-drawn harvester in the 1830s but found himself cursed for the machine's defects for decades. For one thing, it required a crew of three: one farmhand to drive the horse, two (often women) to walk behind, gather the grain or the hay into bundles and bind them with wire. For another thing, pieces of wire littered the bundles, a lethal threat to the cattle that ate them. It wasn't until 1879 (according to agricultural historian Ivan Glick's account in The History of Twine) that McCormack perfected an automated reaper. Amongst other advances, it replaced wire with binder twine. Large quantities of this cord, made from tough natural fibres, quickly became a survival tool on every North American farm.

    U.S., Canadian politicians taking new look at tariffs
  
In the very same year, quite coincidentally, John A. Macdonald's National Policy went into effect, imposing high tariffs on manufactured goods to protect Canadian industries from American competition. The tariffs worked, retrospective spin notwithstanding, disastrously. In 1892, the Westminster Review, a British journal founded by English philosopher Jeremy Bentham, published a riveting contemporary assessment. It concluded that Macdonald's tariffs had vastly enriched a small number of manufacturers – some of them, ironically, U.S. manufacturers who ran surreptitious subsidiaries in Canada. Farmers, though, faced bankruptcy and foreclosure.

The National Policy, the Westminster Review said, had rendered agriculture an existential struggle at a time when most Canadians were farmers. "Harassed and handicapped by the daily cares of a precarious avocation, Canadian farmers have been impoverished by heavy tariffs on the implements they use, the clothes they wear, the light they burn and the seed they sow." Canadian agriculture was "mortgaged to the hilt." Canadian farmers were fleeing their farms, "annexing themselves to the United States."

American farmers paid eight cents a gallon for high-quality coal oil. Canadian farmers paid 25 cents a gallon for low-quality coal oil. They paid an 80-per-cent tax on iron and a 25-per-cent tax on typewriters. Perhaps worst of all, they paid a tax of three cents on every pound of binder twine. Most of this tax, the Westminster Review said, went directly to Canadian Cordage, a subsidiary of an American company that sold Canadian-made twine for three cents a pound less in the U.S. than in Canada.

In 1890, Canadian Cordage reported a profit of $1.5-million, an extraordinary amount of money, almost all of which the company distributed to shareholders. In the same year, only $6,000 of twine-tax revenue made it into the public treasury. (Incidentally, Canada Cordage – "North America's premier rope supplier for the past 150 years" – survives to this day as a private company with its principal manufacturing plant in Winslow, Me., and a Canada-wide distribution centre in Kitchener.)

This is ancient history – but it's current events, too. By now, Canadians should be used to paying more than Americans for the same products. We've been doing it for 144 years – long enough to take it mostly for granted. Aside from occasional bursts of annoyance (see J. Crew), we rarely protest against high Canadian prices and we almost never rebel against them. Finance Minister Jim Flaherty's recent request for a Senate study of cross-border prices was as radical as we get.

The Westminster Review noted that Canada was perfectly well-equipped to compete with Americans. Five million Canadians, it said, would have done exceedingly well by selling their goods to 60 million Americans, most of whom were "fond of good living and almost prodigal in their expenditures." Canada's best years came before Confederation, the journal said, when Canadian GDP increased three-fold in a single decade – a decade of wide-open reciprocity.

But free trade, by itself, isn't enough to deliver the price-cutting that a continental economy should ensure. Government regulations abound, propping up retail prices on domestic goods and imported goods alike, especially on cars. By some estimates, car prices impose a buy-in-Canada penalty of $5,000 a vehicle. Some U.S. dealership restrictions are blatant examples of restraint of trade. Many U.S. dealers, for example, are not permitted to sell to individual Canadians but are free to sell to dual-citizenship Canadians – and single-citizenship Canadian car dealers.

Canada's high prices are, in fact, a rogue sales tax. Think binder twine. Lest we forget.

NEIL REYNOLDS
From Monday's Globe and Mail


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