The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1876. After Macdonald led the Conservatives to victory in the 1878 Canadian federal election, he began implementing his policy in 1879. The protective policy had shown positive responses in the economy with new industries flourishing Canada's economy in the 1880s. John A. Macdonald combines three elements as a strategy for the post-Confederation economy, calling in for high tariffs, infrastructure, and population growth on imported manufactured items to protect the manufacturing industry. The building of the Canadian Pacific Railway, and the fostering of immigration to Western Canada. Macdonald campaigned on the policy in the 1878 election, and defeated the Liberal Party, which supported free trade. It lasted from 1879 until sometime in the early 1950s.
John A. Macdonald, previously the inaugural Prime Minister of Canada from 1867 until he resigned in 1873, returned to power in 1878 after his electoral victory that year, which enabled him to put the National Policy into place. The policy had a three-part plan in improvising and expanding Canada's future, including:
Macdonald influenced Canadians to buy Canadian products to promote Canada's economy. The problems were that the railways were easily importing goods and products from the United States that were much cheaper than Canadian-made goods. Macdonald proposed to put tax or tariffs on American imported goods and products.
When British Columbia joined the Confederation, Canada promised a railway system to connect British Columbia with the east of Canada. Macdonald promised the railway to facilitate the transport of goods and services from the west to the east of Canada.
Macdonald made a promise to improve the farming industries in the west. This action was to highlight the west as the main producer for agriculture production in Canada. Macdonald planned to bring European immigrants to the west of Canada by negotiating free land. These settlers would produce goods and services for exportation as well as buy products from the Canadian industries. The settlement of the west was a key objective of the National Policy.
The term National Policy originally aimed in aiding Canada to create a true country with a national economy. Macdonald figured that, while the political framework had been created in 1867, the economy would only last as long as the election lasted. To maintain a permanent strong national economy for the Confederation, Macdonald needed to engrave these factors for the future of the economy. These means the future was relied upon Canada's development towards the West. Without east-west development, the Americans would over rule the west, taking away Canada's peace and order in economy and society. Over time, the term became associated with the entire Tory platform for developing the economy, especially increased immigration to Western Canada and the development of the Canadian Pacific Railway's transcontinental line. However, the National Policy also had hidden consequences for the economy of Canada. A barrier was created over the acceptance of products and goods that were allowed to pass into Canada.
Macdonald hoped that by creating a strong manufacturing base in Canada, the nation would become more secure and less reliant on the United States. He was also closely linked to the Montreal and Toronto business interests that would benefit from such a policy, and they played an important role in keeping the Tories in office until 1896.
Despite a brief experiment with free trade in the Canadian–American Reciprocity Treaty before Confederation, the Americans were intent on pursuing a strongly protectionist policy, with tariffs higher than Canada imposed under the National Policy.
With such high American tariffs, Canadian firms could not compete in the United States, but American firms could enter Canada. Canadian producers were particularly hurt by American producers dumping surplus goods in Canada to avoid lowering prices in the United States. Tariffs were put on goods coming into Canada, which made American goods more expensive.
The policy was introduced in the budget of March 14, 1879, and it created high tariffs on the import of most manufactured goods. At the same time, the tariffs on raw materials were lowered also to help manufacturers. The tariff was not as high as that in the United States, however. The Canadian government was dependent upon revenue from customs; an income tax had not yet been introduced, largely because it was feared that it would reduce immigration when Canada was already having difficulty attracting immigrants. Too high a tariff would have cut off almost all imports, thus depriving the government of revenue.
The policy quickly became one of the most central aspects of Canadian politics, and it played an important role in keeping the Tories in power until 1896, when Wilfrid Laurier and the Liberals campaigned on a promise to keep the National Policy in place. While many Liberals still supported free trade, the National Policy was too popular in Ontario and Quebec for it to end. When the Liberals campaigned on free trade in the 1911 election, they lost the election.
John A. Macdonald's national policy became a huge public issue once the Liberal government led by Alexander Mackenzie failed to raise the budget on tariffs in 1876. Once Macdonald came back into power in 1878, a higher tariff was introduced in the budget of Canada and business. The purpose of high tariffs were solemnly for the expansion of the base of Canadian economy and to project a more confident country for development in Canada. Tariffs were raised for goods and services on a majority of manufacturing goods that were made outside of Canada. The raise of tariffs on foreign manufactured goods was to protect Canadian made products and Canadian manufacturers.
Although the policy was popular in central Canada, it was extremely unpopular in western Canada. This opposition to the National Policy played an important role in the rise of the Progressive Party of Canada in the 1920s. In its platform, the "New National Policy", it advocated free trade.
The National Policy was slowly dismantled under the many years of Liberal rule under William Lyon Mackenzie King and Louis St. Laurent. At the same time, the United States was lowering its tariffs. Economic integration surged during World War II, and in 1965 the automobile industry in the two nations became fully integrated. However, complete free trade was not achieved until 1988 with the Canada–United States Free Trade Agreement brought in by Brian Mulroney's Progressive Conservative government. Later, as the push for Canada continued, western Canada became very deprived of resources and suffered poverty and depression.
The assessment of the National Policy is mixed. In general, economists argue that it increased prices and lowered Canada's efficiency and ability to compete in the world. By not becoming merged into the larger, more efficient American economy, Canada built too many monopolistic firms and too many small inefficient factories with high prices for consumers. Historians tend to see the policy in a more positive light by viewing it as a necessary expense to create a unified nation independent of the United States. There was, however, a boon to the citizens as there was no income tax, making the slightly higher price of manufactured goods easier to bear.
In the years right after the policy was introduced, Canada experienced the same type of economic boom that many other nations experienced, as well as the construction of a manufacturing base and the development of the nation, which is generally what the Tories and economic nationalists use to justify the policy. However, Canada also suffered a net population outflow, as more people emigrated from Canada (usually to the United States) than arrived as immigrants. This population overflow was initially a result of the success in the National Policy. The National Policy took a broader perspective for the Conservative party, it advanced the policy with its larger development strategies. The Canadian Pacific Railway (1880) and the Dominion Lands Act (1872) provided new immigration policies and easy transportation of immigrants.
After Wilfrid Laurier led the Liberal Party to power in the 1896 election, the Liberals adapted to this governing system and principles of the National Policy. The National Policy tariffs and the tariffs principles stayed at similar high rates. Laurier's governments also agreed with the United States, and made little to few adjustments on the importation duties and manufacturing goods. Natural products and customer duties were remained at lower prices, those of which that were manufactured in Canada.
Eden and Molot (1993) argue that there have been three national policies in Canada: the "National Policy" of defensive expansionism, 1867–1940; compensatory liberalism, 1941–81; and market liberalism, starting in 1982. The defensive expansion phase relied on the tariff, railway construction, and land settlement to build the country. The second national policy combined a commitment to the GATT system, Keynesian macroeconomic policies, and the construction of a domestic social welfare net. Current national policy relies on Canada-US free trade and NAFTA free trade, market-based policies, and fiscal restraint. They argue for a fourth policy called "strategic integration." It would consist of free trade, both external and internal; the building of a national telecommunications infrastructure based on the development and diffusion of information technologies; and human capital development.