As Canada frets over Trump's threats, a look at the time when it was in a tariff war against Newfoundland

Soon after US President Donald Trump came back to the White House, Canada has been trying to navigate through his 25 per cent tariff threats. However, there was a time, when a “rock” in the Atlantic Ocean used to charge its North American neighbour up to 60 per cent of tariffs on several goods.

The year was 1948 when Newfoundland was struggling with a cost of living crisis and also trying to keep itself separated from Canada. Despite the island government’s effort to control the prices, the cost of living in St. John’s had nearly doubled in just 10 years. Many factors contributed to the price hike such as the cost of shipping and distribution to Newfoundland’s widely dispersed rural communities. However, many believe that it was the tariff on Canadian goods which was shooting up the prices in the region.

Before Newfoundland joined the Confederation on March 31, 1949, the small country used to charge massive import duties on Canadian goods. While some priority goods such as fresh fruits were duty-free, most were subject to an average tariff of 25 per cent. The figure reached 60 per cent in regard to Canadian biscuits and bread.

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The impact and the idea of “baby bonus”

The tariffs were imposed at a time when Newfoundland was heavily reliant on foreign goods, especially on Canadian products. While half of all imports of the island came from Canada, Newfoundland charged lower tariffs on commodities made in the United Kingdom and Jamaica.

In usual circumstances, these high tariffs are not paid by exporting countries, instead, the burden lies on the consumers of the importing nations. Hence, essential goods started to cost much more for Newfoundlanders than they were for Canadians. According to CBS, 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.

In the midst of all this, the Father of Newfoundland Confederation, Joey Smallwood, initiated a “baby bonus” campaign, arguing that Newfoundlanders would receive the monthly payments the Canadian government made to their parents. It is argued that the initiative eventually persuaded voters to support the island entering a union with Canada.

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However, Smallwood also emphasised that there are other benefits of being part of the Canadian Confederation. He argued that the move would dismantle Newfoundland’s tariff wall and lower the price of many goods.

It is pertinent to note that Newfoundland was not obligated to join Canada to end the tariffs. The island could have simply repealed them at any time for the benefit of its citizens. But there was a reason why the government of Newfoundland was not willing to do so.

Why Newfoundland had high tariffs on Canadian goods

Nations around the world have different motivations for imposing tariffs on foreign goods. For Trump, high tariffs on Canada, Mexico and China (America’s top three trading partners) would protect domestic companies from foreign competition. Not only this, the Republican firebrand has often used it as a tool to pressure foreign nations into policy changes.

Meanwhile, for Newfoundland, tariffs were seen as the primary source of the erstwhile nation’s revenue. Before the island joined the confederation, half of the Newfoundland government’s income came from tariffs. That figure eventually soared to a whopping 82 per cent during the Great Depression.

One of the major reasons for this dependence was the fact that the residents of the country had low or seasonal income. Hence, the government saw tariffs as a more effective way of generating revenue than income tax or property tax.

Ultimately when Newfoundland joined the Canadian Confederation, the tariff wall fell and this led to major changes in the local economy.  Within the first year, the cost of living on the island 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.

There were some negative consequences as well. With the price dip on Canadian goods, the cost of some locally made merchandise dipped, too. As a result, not all Newfoundland manufacturers could survive in the new marketplace and several businesses saw mass layoffs. Despite all this, Smallwood argued that joining the confederation would help the island in the long run.

The lessons from the past

While it would be criminal to draw a direct comparison between Newfoundland’s tariff policies in 1948 and the United States’s proposed tariff policies today, the case offers some crucial lessons for the world. Newfoundland in the mid-20th century was much more dependent on Canada than the United States.

However, Washington still relies on its northern neighbours in critical sectors. Canada continues to remain a leading foreign source of US energy, forestry and wood products, metals and minerals. If Trump followed through with his plan to impose tariffs on Canadian, Mexican, and Chinese goods the cost of living in America would have automatically increased.

The Canadian Tax Foundation estimated that the average US household would have to pay $800 more at the register in 2025 alone if Trump imposes the tariffs he has often warned of imposing. The economy was one of the key issues of the 2024 US presidential elections, which Trump ultimately won. Hence, if Trump imposes tariffs on foreign goods, he might automatically break the trust of millions of Americans who have voted him to power.