When Newfoundland charged tariffs on Canadian goods, the cost of living was through the roof

The year was 1948, and Newfoundland was in the midst of a cost-of-living crisis. Despite government price controls, the average expenses of a family living in St. John's had nearly doubled in just 10 years.

Several factors, including the cost of shipping and distribution to Newfoundland's widely dispersed rural communities, helped drive up prices. But proponents of union with Canada heaped the blame on one cause in particular — tariffs.

Before Newfoundland joined Confederation on March 31, 1949, the small country charged import duties on Canadian goods.

While some priority items like fresh fruit were duty-free, most were subject to an average tariff of 25 per cent, and some were assessed at even higher rates – 30 per cent on cattle, 35 per cent on poultry, 40 per cent on shoes and clothing, 55 per cent on most vegetables, and 60 per cent on biscuits and bread.

Then as now, Newfoundland was heavily reliant on foreign products to meet its residents' needs, and more than half of all imports came from Canada. Even so, although Newfoundland charged lower tariffs on commodities made in the United Kingdom and Jamaica, there were no discounts for its closest neighbour.

Tariffs, of course, aren't paid by the exporting country. They're absorbed by consumers in the importing country, and as a result, prices on essentials were much higher for Newfoundlanders than they were for Canadians.

In August 1948, Canadians were only paying, on average, 9 cents for a loaf of bread, 17 cents for a quart of milk, and 66 cents for a pound of beef, whereas Newfoundlanders were shelling out 18 cents for bread, 29 cents for milk, and 90 cents for beef.

Father of Newfoundland Confederation Joey Smallwood is famous for the "baby bonus" campaign that persuaded thousands of rural Newfoundlanders to vote in favour of union with Canada, so they could receive the monthly payments the Canadian government made to parents.

But Smallwood extolled a second benefit of Confederation, too. It would dismantle Newfoundland's tariff wall and lower the price of many goods.

According to historian Raymond B. Blake, "Smallwood had been a proponent of free trade since the 1920s, arguing that bringing down the tariff barriers would significantly lower the cost of living of working people and the costs of production in the fishery."

Confederation with Canada wasn't strictly necessary to end the tariffs. Newfoundland could have repealed them at any time for the benefit of its citizens, but there was a strong internal incentive to keep them.

We might survive but never prosper in isolation.- Joey Smallwood, in 1948

Countries have different motivations for levying import duties. U.S. President Donald Trump has cited protectionism (the desire to shelter domestic companies from foreign competition) and diplomatic leverage (the use of tariffs to pressure foreign nations into policy changes) as key factors in his recent push to impose tariffs on Canada, Mexico, and China.

For early 20th-century Newfoundland, on the other hand, tariffs were primarily a source of revenue. In the years before Confederation, Newfoundland derived more than half its income from tariffs, and that figure had soared as high as 82 per cent during the Great Depression.

In a country where many residents had low or seasonal incomes, the government viewed tariffs as a more effective means of generating revenue than income tax or property tax.

When Newfoundland ultimately entered into Confederation and the tariff wall fell, there was a marked change in the local economy.

Within the first year, cost of living had dropped by eight per cent. Retail prices on some imported goods declined by a third or more, and, although Newfoundlanders now had to pay Canadian sales tax, the duty-free base prices more than made up the difference.

The cost of some locally made merchandise dipped, too, to match their Canadian competition. Not all Newfoundland manufacturers could survive in the new marketplace, however, and some businesses folded, laying off their employees.

Still, Smallwood and his fellow Confederationists believed Newfoundland's people and economy would benefit in the long term from the market competition and the new export opportunities for Newfoundland products like fish, paper, and minerals.

It's impossible to make a direct comparison between Newfoundland's tariff policies in 1948 and the United States's proposed tariff policies today, but there are still some lessons to be learned.

Newfoundland in the mid-20th century was much more dependent on Canadian imports due to its small size and limited internal production capacity, but the U.S. does rely on Canadian goods in some critical sectors.

Canada is the leading foreign source of U.S. energy, forestry and wood products, metals and minerals, and North American manufacturing is more entwined than ever before. Some products cross and recross the border, which would require the payment of multiple duties, before ever arriving on store shelves.

Just as cost of living was higher for Newfoundlanders behind the tariff wall, cost of living will rise for Americans if the U.S. proceeds with its proposed tariffs on Canadian, Mexican, and Chinese goods. The non-partisan Tax Foundation estimates that the average U.S. household would pay $800 more at the register in 2025 alone.

Joey Smallwood opposed tariffs because he believed that freer trade benefited both parties by streamlining production, opening up new markets, and creating opportunities for co-operation.

At the national Liberal leadership convention in 1948, fresh off the referendum where Newfoundlanders voted by a slim margin to unite with Canada, ending decades of tariffs and trade restrictions between the two countries, he observed: "We might survive but never prosper in isolation."

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