The Chargé in Canada (Boal) to the Under Secretary of State (Phillips)
Dear Mr. Secretary: In view of the approaching visit of the Prime Minister9 to Washington it occurs to me that it may be timely if I set down for you a summary of the last few talks I have had with him, and especially of a recent quite long one in which he discussed his coming trip to Washington. I have concluded that as these conversations were on a personal basis and contained a good many expressions of a confidential character it would be better to deal with them in a letter to you than in a despatch.
In these conversations the Prime Minister has stressed, first, the great difficulties of the present moment in Canada; second, Canada’s dependence on a considerable amount of tariff protection; third, the desirability of an economic agreement with the United States and the disastrous effect which sudden changes in the American tariff have in the past had upon the commercial fortunes of Canada.[Page 45]
The Prime Minister has pointed out the importance of export trade to Canada. He says that even in the United States, where exports are less than 10 per cent of the nation’s business, they are known to be a vital factor without which prosperity cannot exist. How much more true is this of Canada, he says, where the export business is close to a third of the total. He has then explained that Canada developed a wartime industrial organization which has since had to be protected. He has stressed his high opinion of the Canadian as an industrial workman, pointing out as an instance that the Canadian industries made shells during the war at a considerably lower cost than did corresponding industries in the United States. I have gathered from what he said that he felt that the Canadian manufacturer must continue to receive extensive protection in spite of the great importance of developing Canadian exports. I imagine that he realizes that, in some branches of industry at least, Canada is not able to produce goods anything like as cheaply as the United States, but I have not attempted to argue out this subject with him. He recently said to me, speaking of the Canadian House of Commons, “If they only knew it, there are few men in that House more reluctant to bring in high tariffs than myself, but I have had to do so as a matter of necessity—the necessity of preserving Canada.” He then went on to explain the necessity under which Canada has been to defend itself by the instrument of tariffs from foreign competition, not only from the United States but more particularly from the European countries, especially the United Kingdom.
The Prime Minister has made it clear, first, that the burden of adversity in Canada during the last few years has been very great, and that because of the more centralized character of the Canadian economic and financial structure the impact of the problems and difficulties has really been greater on his Government than they have been during a like period in the United States on our Government. He pointed out that the depression began in Canada before it began in the United States. He does not believe the depression to be over. He does believe that if far-reaching international solutions are not arrived at this year between the principal governments of the world, then the orthodox line of action which has been at the basis of his practice of government in Canada must be abandoned. He has stood for the fulfillment of Canadian obligations and the maintenance of Canadian credit, but he tells me that if an agreement is not reached this year this line of action will no longer be possible. He tells me that he has already drafted a plan of action to be taken in the event of failure of the World Economic Conference—a plan of which even his colleagues in the Cabinet have no knowledge. I gather from what he said that it would probably involve inflation and of necessity the abandonment of Canada’s present [Page 46] determination to pay its foreign obligations, and that it would of necessity launch Canada into a number of untried social and economic experiments the outcome of which no one at the moment could foresee.
The Prime Minister apparently feels that there is some ground for a certain amount of achievement by direct reciprocity in the lowering of tariff rates. He pointed out, for instance, that feeder cattle imported from Canada in the unrestricted years constituted only 2 per cent of the cattle consumed in the United States; and then he went on to point out that there was no reason why a country of 120 millions should be so fearful of the effects of importations from a country of 10 millions.
I pointed out, however, that production both in Canada and the United States was largely a regional matter, and that for some given product, such for instance as cattle, there might be almost the same number of Canadians producing this product as Americans. He conceded that this was sound but went on to say that he felt that there was considerable ground for reduction in favor of Canadian natural products. He said, however, that he, for one, would not expect to go to the United States with any kind of exorbitant demands. He would go as a realist seeking to attain a practical objective. He was not an economist and was inclined to agree with “Jimmy” Thomas that “the opinions of the first half dozen of ’em cancel out the opinions of the second half dozen of ’em”. He described himself as just a working man who would like to get something done.
The Prime Minister remarked that the modus vivendi which he has just concluded with Germany was subject to immediate change (30 days) in case it became necessary, and that the French agreement was not yet concluded and he was holding out firmly for French concessions on a couple of important items. I take it that he was holding out for provisions favoring the importation of Canadian wheat and Canadian canned salmon into France. I inferred from these remarks that he did not expect to conclude the French treaty until after his return from Washington, where he would have explored the possibilities of the general economic situation.
He has never at any time made the statement to me that the Ottawa agreements were not subject to change. He has said that they were made in a binding form because of the fear that a change in government in Russia might bring Russia back into world economy in such a way as to make later agreements impossible, and because he felt that within the Empire at least the Canadian producer must be able to count on some kind of tariff stability during the next five years. He feels it essential to attain as great a measure of tariff stability as possible, for if constant changes of tariffs and currency values continue no substantial international business can be done. Furthermore, he has indicated [Page 47] that he would not exclude from consideration alterations of the Ottawa agreements, not only as to what lower tariffs might be given to the United States by Canada, but also as to what lower British tariffs Canada would agree to in favor of the United States. I want to make clear that he has made no commitment on this point, although he has had the idea in mind and has stated it as follows: “If, for instance, Canada were allowed to enter 100,000 bushels of Canadian wheat into the United States at a low rate of duty along the lines of the British preference, then the United States might ship 100,000 bushels of American wheat to the United Kingdom at a rate equivalent to the British preferential rate now granted to Canadian wheat.” Thus he has indicated that he is prepared to consider this idea as a sort of extension of scope of a part of the Ottawa Agreements. He has certainly not indicated that he is prepared to favor it. The Prime Minister has made it clear that it was at his instance that the Ottawa agreements were made for a duration of five years.
He has also expressed his conviction that a prerequisite to the success of any trade agreement reached must be measures which will ensure a stable relationship between American and Canadian currency. He points out that Canada’s gold production has helped out Canada to an extent out of all proportion to its volume. He suggests that it would help it still further if a reduction of the gold content of the dollar (both dollars I presume) could be agreed upon. This would appreciate the value of gold and make it easier to make payments abroad, especially in the United States. I think you may count him as a proponent of the idea of the reduction of the gold content and that he will advocate a value of about $30 an ounce for gold.
On the question of the necessity for an agreement with the United States, the Prime Minister has been most definite. It is his thought that it would send the World Conference off to a good start if an agreement, even a small partial agreement but in fact an agreement, could be reached between the United States and Canada before the World Economic Conference. His greatest problem, he says, is to meet the need for stability in Canadian-American economic relationships. He has related to me a conversation which he had with Mr. Arthur Meighen some years ago in which he said to Mr. Meighen: “Give me the control of the tariff policy of the United States for a period of ten years and I can do more for the welfare of Canada than I could do for it as Prime Minister.” After some thought Sir Arthur agreed with him that this was true. The Prime Minister remembers when he was a boy in the Maritime Provinces the ruinous blows which fell upon the fishing and shipping trades with which he was familiar as a result of the abandonment of reciprocity between the United States and Canada. [Page 48] The first requisite of any agreement that he could make with the United States would be something that would prove an assurance of stability in the economic relationship which was arrived at. If the entire agreement is to be subject to destruction, probable destruction, at the end of each administration in the United States and at the end of each administration in Canada, the situation will continue to be hopeless. Furthermore, he said, whatever the duration of any agreement that could be arrived at, he would wish its end not to coincide with an election in Canada. He does not want to have to fight his elections on the issue of reciprocity with the United States. (The Bennett government does not have to go to elections before the summer of 1935, and every indication now is that they will not go to elections until that time.)
On this subject of duration I remarked to the Prime Minister that possibly an agreement could be made more likely to endure if it were supplied to some extent with the quality of flexibility so that it could be adapted to circumstances from time to time if necessary, without the necessary destruction of the whole fabric. He seemed to agree that this might be a method of attaining his object which was worth exploring.
The Prime Minister’s present plans are to leave for Washington so that he may arrive in time to spend with Mr. MacDonald10 the last day of his visit there. He feels that he wants to allow Mr. MacDonald freedom to start his conversations entirely without reference to him, since, as he puts it, he thinks he is not going to be able to agree with Mr. MacDonald on four out of five subjects. At the same time, although he has not said so explicitly, it is clear from his manner that he feels that he can, by his presence, be of considerable assistance to the progress of British-American negotiations. He implies that while the British have complained a good deal about the firmness of his methods; that while they had not been accustomed to receiving from Colonial Ministers the kind of language which he has used with them, they respect him. He tells me that they have had to admit that he was right about the inadvisability of the Neville Chamberlain language on the war debts question. He says that he knows how difficult they are to move along paths which they have not themselves chosen, and that it has been his lot to move them in such paths in the past. The implication is that he has the combination for moving them along in the future and expects to use it when necessary during the coming negotiations.
In past letters and despatches I have expressed the feeling that the present Canadian government has everything to gain and nothing to lose from a prompt agreement with the United States. I think that if we are prepared, as Mr. Bennett suggests, before the World Economic Conference meets to make even a limited agreement, subject to later [Page 49] enlargement, we will probably have in him a strong ally at the World Economic Conference. As you know, it is in his character to force the issue with the British when he deems it necessary, and it seems to be quite certain that if there is one thing above all others the United Kingdom cannot afford during the coming year it is an open rift with Canada. The Prime Minister’s willingness to press forward vigorously for the measures in which he believes, if availed of by our representatives during the Conference, might, I should think, strengthen our position, and in some instances make it possible to obtain acceptance of our views without our having to make an issue of them ourselves.
In conclusion, I may say that the Prime Minister has several times indicated that he is aware of the obstruction to the flow of international trade which results from the Canadian system of valuation of imports and other customs practices. He has expressed a willingness to negotiate for the purpose of simplifying customs procedure, but he probably realizes that the stringent control which his government has of imports is due to the valuation system rather than to any tariff rates and that unless we can do away with that present system changes in tariff rates in our favor will really be of little avail. Very likely he will be disposed to talk about tariffs and currencies rather than about methods of valuation and other administrative restrictions to importation. I feel, however, that in order to obtain an agreement he should be willing to make concessions in the latter field in order that the American and the Canadian practices in these matters may become substantially similar.
With all best regards [etc.]