In the early 1960’s the Canadian automotive industry faced a growing crisis of a seemingly uncontrollable decline in the production and sales of American brand vehicles, which was a major industry in Southern Ontario. Several domestic and international factors had contributed to this economic crisis and the task of stabilizing it fell upon the shoulders of the federal government. Official inquiries were established and several economic policies were put into place to help remedy the situation, but it was not until the monumental passing of the Automotive Products Trade Agreement of 1965(APTA), signed by Prime Minster Lester B. Pearson and President Lyndon B. Johnson, that significant reorganization of the entire North American auto sector could take place. Commonly known as the Auto Pact, this treaty essentially allowed for the free trade of automotive products across the Canada-US border, given that certain industry requirements had been met. Through analyzing the history and the weaknesses of the Canadian automotive industry in the late 1950’s and early 1960’s, this essay will affirm that the Auto Pact was a necessary restructuring of the North American car industry that inherently benefited Canada’s continental automotive trade with the United States.
The Auto Pact of 1965 was a free trade agreement that allowed for the movement of both automotive parts and finished vehicles across the border, tariff-free, under the condition that automobile production levels would not fall below 1964 levels, essentially preserving the Canadian auto industry. Prior to the agreement, the automotive manufacturing sector was in a state of uncertainty; plagued with decreasing exports and a flood of imports, both overseas and south of the border, the car industry was deteriorating, with the Union of Automated Workers reporting record membership lows for the decade.
To investigate the matter, Prime Minister John Diefenbaker requested for Vincent Bladen, an influential economist and Dean of Arts at the University of Toronto, to determine the exact causes of the shrinking automotive sector and provide recommendations to save it. Bladen’s Royal Commission determined several key factors, both domestic and international, that contributed to the industry downsizing. Domestically, it was clear to the commission that the Canadian market was essentially too insufficient to support itself; market demand did Canada alone did not justify large scale production plants, which inherently restricted any gains through economies of scale. The United States, on the other hand, maintained a capacious market, which allowed the industry to be self-sustaining, manufacturing for its own population.
The case for imports was also of trouble concern, prior to the induction of the Auto Pact. Following the end of World War 2, many surviving economies feared a coming recession. The last few years had virtually all of production supplying various goods for the military, and the automobile...