Lyndon Johnson ignored Mike Pearson. Over lunch, the president talked on the phone and ordered his aides about while Canada’s 14th prime minister, Lester B. Pearson, waited for the outburst he knew was coming. Since being summoned to Camp David that morning in April 1965 to answer for a speech that dared to question American bombing in Vietnam, Pearson had dreaded the encounter. After their meal, the tower- ing Texan took Pearson by the arm and led him into the garden. From a distance, Canadian ambassador Charles Ritchie watched the pantomime as the two men talked in the sunshine. The president ”œstrode the terrace, he sawed the air with his arms, with upraised fist he drove home the verbal hammer blows…from time to time, Mike attempted a sentence ”” only to have it swept away on the tide.” For many Canadians, this compelling image of bilateral conflict neatly and indelibly captured the fundamental differences that seemed to divide Canada and the United States during the 1960s.

Pearson’s confrontation with Johnson, however, was only a single episode in a much more complex story of economic integration and political differentiation. At a time when eco- nomic nationalists began to flex their muscles in Ottawa, Canada and the United States developed a framework for economic cooperation that drew the two countries more closely togeth- er than ever. In helping to create this framework, Washington showed itself a patient and tolerant ally. As Pearson’s government tackled the structural weaknesses in Canada’s economy by unilateral action that targeted its trad- ing and financial relationship with the United States, the Kennedy and Johnson administrations responded in imaginative and thoughtful ways. Though determined not to sacrifice its legitimate interests for bilateral har- mony, Washington was ready to seek equitable arrangements for sharing the North American economy in ways that acknowledged the unique conditions confronting Canada, the smaller neighbour of an economic giant. In doing so, it posed the fundamental question that Pearson’s government confronted in determining its approach to economic relations with the United States: should Canada agree to the further integration of the two North American economies in exchange for the material benefits that greater access to the United States mar- ket would make possible?

In accepting American proposals for closer economic part- nership, did Pearson’s government sacrifice Canada’s political independence? This question, too, is a central one. The collapsing postwar political order of the 1960s offered Ottawa numerous opportunities to distinguish itself from its American neighbour on the world stage. Carefully and with due regard for genuine American interests, Pearson’s government adopted new military and diplomatic roles for Canada that were designed to reflect a unique perspective on international affairs. Here too, in responding to these Canadian initiatives, Washington was a tolerant ally. It acknowledged these developments as legitimate and inevitable, adjusting its attitudes and policies accordingly. As a result, Canada and the United States found ways to accommodate each other’s diverging political interests without seriously impairing bilateral cooperation.

Canada emerged as an important United States ally in its own right in the years just after the Second World War. Canadians, anxious to avoid the mistakes of the interwar years, looked to and encouraged Washington to play a leading role in the search for an effective means of collective security. While Western Europe struggled to recover from the war, Washington came to count on Canada as a close and reliable North Atlantic partner. When the nascent United Nations proved ineffectual in the face of Soviet aggression, Canada helped the United States create the North Atlantic Treaty Organization (NATO). At the peak of the Canadian military effort in 1953- 54, Canada spent 8.8 percent of its gross national product (GNP) on defence, the fourth largest defence budget in NATO. Canada was there when it mattered. In 1950, Canadian troops challenged communist aggres- sion in Korea; in 1954, Canadian diplomats took on the Western burden to help France escape from Indochina; and in 1956, it was a Canadian, the secretary of state for external affairs, Lester B. Pearson, who helped prevent the Western alliance from tearing itself apart during the Suez Crisis. Certainly, Ottawa and Washington sometimes differed ”” over NATO, over Asia, and over continental defence ”” but these differences were mostly tactical and easily reconciled.

During the immediate postwar period, the wartime changes in the economic relationship between the United States and Canada were cemented into place. Britain was exhausted, and the prewar North Atlantic triangle, within which Canada balanced its imports from the United States with its exports to Britain, was gone forever. In the future, American imports would have to be paid for with dollars earned by exports to the United States and imports of American capital. Investors in the United States, which emerged from the war with the world’s strongest econo- my, were happy to oblige, delighted at the prospect of investing in their safe, familiar, and profitable neighbour.

Unimpeded, American capital flowed northward, and the economy boomed. Canadians cheered C.D. Howe, the ubiquitous ”œminister of everything” who trumpeted the bene- fits of North American economic cooperation, and they elected majori- ty Liberal governments in 1945, 1949, and 1953. The GNP grew steadily from just over $15.4 billion in 1945 to $21.5 billion in 1955. By the mid-1950s, American investment in Canada totalled $10.2 billion, up from approx- imately $5 billion in 1945. In 1955, American-owned com- panies accounted for 73 per- cent of Canada’s oil and gas production, 55 percent of its mining and smelting opera- tions, and 42 percent of its manufacturing.

Cross-border trade grew as well. In 1945, Canada sent 38.7 percent of its exports, worth $878 million, to the United States. By the mid-1950s, this trade had increased to $2.54 billion and repre- sented almost 60 percent of Canada’s exports. The buoyant economy fed the sense of national self-confidence that had developed during the war. United under the tranquil, if uninspired, lead- ership of Prime Minister Louis St Laurent, Canadians lapped up American magazines and movies and books without questioning who or what they were. As one of Canada’s leading syndicated columnists pointed out, the answer was evident: Canada was ”œtomorrow’s giant.”

Still, in many quarters there was an imprecise but disturbing sense that too cosy a relationship with the United States was somehow not good for Canada. In 1951 Vincent Massey’s Royal Commission on National Development in the Arts, Letters and Sciences dismissed American movies, advertising, and television as ”œalien.” The anticommunist witch hunts of Senator Joseph McCarthy disturbed Canadians, who were outraged when one of their diplomats, Herbert Norman, leaped to his death in 1957 in the wake of allegations that he was a communist. Many Canadians, espe- cially the roughly 45 percent who were British in origin, waxed nostalgic for the receding imperial connection, and they recoiled at St Laurent’s refusal to support Britain during the Suez Crisis. John Diefenbaker, the Progressive Conservative leader, touched this anti-American nerve in the federal election of June 1957 and drove the Liberals from power after 22 years in office.

During his first three years as prime minister, Diefenbaker pursued a policy towards the United States that hardly differed from the one followed by his Liberal predecessors. His anti- Americanism remained more apparent than real, a matter of style rather than substance. The deep admiration he felt for President Dwight Eisenhower, who had served as supreme allied com- mander in Europe during the Second World War, and who carefully cultivat- ed the prime minister’s friendship, tempered his hostility. The Conservative leader’s only attempt to reverse the postwar pattern of eco- nomic relations was a whimsical promise to divert 15 percent of Canada’s trade from the United States to Britain. Uttered spontaneously in the emotional aftermath of Diefenbaker’s first Commonwealth prime ministers’ meeting, it was a pledge that he disavowed when he learned how disastrous it would be for the Canadian economy.

Under Diefenbaker several pieces of important, unfinished defence business with the United States were quickly settled. In 1957 he signed the agreement establishing the joint North American Air Defence Command (NORAD), which replaced the ad hoc bilateral measures for continental defence then in effect with a formal, integrated system for defending the continent. Later that year he agreed that NATO forces would accept tactical nuclear weapons. The Conservative government accepted the implications of this arrangement in deciding to equip the Canadian Air Division in Europe with nuclear-armed CF-104s and to arm Canadian ground troops with a battery of Honest John missiles, weapons that also relied on nuclear warheads. Similarly, in replacing the ill- fated Avro Arrow (CF-105), a Canadian fighter that was cancelled in 1959 after huge cost overruns, the prime minister adopted the Bomarc B missile, which was effective only when armed with nuclear warheads. The negotiations to determine the conditions under which Canada’s NATO and NORAD contin- gents would receive American nuclear weapons initially went well.

Relations between Ottawa and Washington began to deteriorate in 1961, however. Howard Green, Diefenbaker’s secretary of state for exter- nal affairs, was an ardent champion of nuclear disarmament. Convinced that Ottawa’s capacity to advance this cause would be reduced by accepting American nuclear weapons, Green pressed the prime minister to repudiate his commitment to equip Canadian forces in Europe and North America with atomic weapons. Caught between his secretary of state for external affairs and his minister of defence, who urged him to cooperate fully with Washington, Diefenbaker played for time.

But John F. Kennedy, Eisenhower’s successor, had little time to spare. He and his advisors were deter- mined to increase the West’s capacity to confront the Soviet Union, and they did not under- stand or sympathize with Diefenbaker’s predicament. Personal animosity soon exac- erbated the differences over Canada’s ambiguous nuclear weapons policy. Diefenbaker resented the American’s popularity and felt slighted when Kennedy gossiped at length with Lester Pearson, then the opposition leader, during a presidential visit to Ottawa in 1961. Kennedy found the prime minister boring; later, when Diefenbaker refused to return a note from Kennedy’s briefing book, the US president dismissed him as con- temptible. Relations reached their nadir during the Cuban missile crisis in October 1962. Diefenbaker’s hesitant response to Washington’s request for help in stopping the Soviet Union from basing nuclear weapons in Cuba was, from the American point of view, wholly inadequate.

Even more disturbing for future relations between Canada and the United States, the postwar economic order started to crumble between 1957 and 1963. Canada’s resource boom, fuelled by the Korean War, NATO rear- mament, and European reconstruc- tion, ended in 1956 and revealed disturbing structural weaknesses in the Canadian economy. The dollar and its floating exchange rate were vulnerable to movements in American capital, which pushed the Canadian dollar to artificially high levels, encouraging imports, deterring exports, and driving unemployment to over 7.5 percent by 1960. In June 1962 the investors and their American dollars finally fled, sparking a Canadian financial crisis.

The Liberal Party that was returned to power in 1963 was not the party that had been defeated in 1957 and 1958. Diefenbaker’s triumph in the 1958 general election had reduced the Liberal s to 49 seats, ravaged the party’s leadership, and forced it to rebuild both its organization and its platform. ”œMike” Pearson, who had succeeded St Laurent as leader in January 1958, turned to Tom Kent and Walter Gordon for advice. Kent, an Englishman who had edited the liberal minded Winnipeg Free Press from 1954 to 1956, warned Pearson that ”œ[l]iber- alism must ”˜mean’ something if was to survive.” The new opposition leader, who had often supported progressive social causes in St Laurent’s Cabinet, was easily convinced. He delighted in Kent’s enthusiasm for government, and welcomed his proposals for new federal initiatives in health, education, and welfare. By 1960-61 the Liberal Party was armed with an expensive program for social spending, with obvious implications for Canada’s defence budget.

Gordon, who had helped ease Pearson’s transition from bureaucrat to politician in 1948 and who had organ- ized his leadership bid in 1958, also exerted a profound influence on the Liberal Party and its leader in opposi- tion. His principal preoccupation, which had developed during the early 1950s and was confirmed by his work as chairman of the Royal Commission on Canada’s Economic Prospects of 1957, was American investment in Canada. In his view the level of US investment since 1945 had produced a host of ills. Gordon argued that American subsidiaries concentrated their research and decision making in the United States, favoured American suppliers, and refused to compete with their parent companies for exports to third countries. Most worrying of all, he contended, this close economic relationship must inevitably give way to political union.

In March 1960 he made it clear that his continued support depended on Pearson’s willingness to address this issue: ”œI am unhappy about the grad- ual economic and financial take-over by the United States, or rather by the owners of United States capital that is taking place, and if I were in public life I would wish to urge some modest steps to counteract what is presently going on in this direction.” Gordon was also vaguely concerned with defence policy and the more general question of Canada’s approach to the world: ”œI am becoming more of the opinion that Canada should begin to take an independent line … I do not profess to know too much about this subject or all its implications, but I assume that this line of thinking might lead to the cancellation of the NORAD deal and thus to a full dress argument, or showdown, with the Americans.”

Pearson needed Gordon’s help. The Toronto businessman was a talented fund-raiser and organizer. The suc- cessful Study Conference on National Problems of 1960, an important meet- ing of liberal thinkers that he attend- ed, made Gordon the acknowledged leader of the party’s progressive wing. Pearson, according to Gordon, prom- ised his support. ”œMike called,” he wrote. ”œHe said he agreed completely with my ideas.”

But while Pearson did share Kent’s interest in social policy, he did not in fact fully accept Gordon’s views on American investment or Canadian for- eign policy. The Liberal leader was never an economic nationalist. Pearson was concerned about too great a dependence on American markets and capital but was inclined to seek a solution in a broader North Atlantic context. As secretary of state for external affairs from 1948 to 1957 (and under-secretary from 1946 to 1948), he was one of the main architects of Canada’s postwar economic and political rela- tionship with the United States. This partnership might need adjusting from time to time, but the structure was sound. Pearson recognized that Canada’s central foreign policy objec- tive was to secure sound and friendly relations with the United States. To achieve this goal, Pearson overcame his own opposition to equipping Canadian forces with nuclear weapons and declared in January 1963 that a Liberal government would honour Diefenbaker’s unfulfilled pledge.

Pearson’s decision angered many Liberals, including Gordon, who was not consulted. But it was supported by many in the party who had served under St Laurent. This group also wielded influence and power in Pearson’s Liberal Party. For six years they had confronted and baited Diefenbaker in Parliament, pointing up the contradictions in his policies and driving him to distraction. While Kent and Gordon drafted policy papers, they had stumped the country, riding by riding. Like Gordon, Paul Martin and the ”œold guard” were a valuable source of advice, and they reinforced Pearson’s views on the importance of good relations with Washington. Martin, who had often filled in for Pearson at the United Nations and at the Cabinet table under St Laurent, shared his leader’s views on Canadian foreign policy almost completely.

An ambiguity, then, characterized the Liberal Party’s approach to its relations with Washington in the spring of 1963. Uneasily, Pearson held together the two wings of the party. During the federal election that year, one of the few Canadian contests in which for- eign policy played a major role, the party repeated its promise to accept Canada’s nuclear commitments and assured voters that it would improve the country’s relations with the United States. At the same time, Liberal candi- dates promised to take steps to reduce the level of American investment in Canada. Gordon grumbled that the Liberal leader was paying too much attention to foreign policy questions, and perhaps he was right. By election night, Diefenbaker’s formidable cam- paigning abilities had sharply reduced Pearson’s popular support. On 8 April the Liberals drew just 41 per- cent of the popular vote and won only 129 seats. The Tories retained 95 seats. The two smaller parties, Social Credit and the New Democratic Party, held the balance of power with 24 and 17 seats respectively.

Historians are ambivalent about bilateral relations in the 1960s. Good relations between Ottawa and Washington, were not automatic under the new Liberal government. Though Pearson and Kennedy, who met at the president’s retreat in Hyannisport in May 1963, respected and liked each other, this was not enough to ensure bilateral harmony, even in the short period before Kennedy’s assassination. Finance Minister Walter Gordon’s first budget, which included provisions to reduce foreign (American) ownership of the Canadian economy, angered the American administration. At the same time, Washington’s efforts to reduce its own balance of payments problems threatened the Canadian dollar and worried Ottawa. While Washington redoubled its efforts to seek a renewed basis for continental partnership, Ottawa was determined to seek greater economic independence. It expanded Diefenbaker’s automotive duty remis- sion scheme and unilaterally tried to alter the balance of trade with the United States. On the eve of Kennedy’s death, two competing visions for the future of the North American econo- my seemed destined to collide.

Lyndon Johnson’s accession to the presidency delayed this confronta- tion. The president and the prime minister initially got on well together, and Washington tried hard to per- suade Ottawa to resolve their differ- ences over automotive products in a cooperative manner that stressed their common economic interests. At the same time, Canada was offered the chance to improve its access to the United States market by negotiating extensive bilateral tariff reductions under the General Agreement on Tariffs and Trade (GATT). Finding a solution to the automotive dispute and developing a position on tariff negotiations forced the Pearson gov- ernment to decide if it was prepared to accept further integration of the two North American economies in exchange for the improved standard of living that greater access to the United States market would make possible.

This question, which pitted economic nationalists against ”œcontinentalists,” also lies at the centre of Canadian- American financial relations during the Pearson era. American efforts to stem the flow of United States dollars abroad accelerated between 1963 and 1968. Ever more elaborate measures were erected to limit the circulation of American dol- lars overseas. While Pearson’s govern- ment was able to protect Canada’s access to American capital, Washington exacted its price. Canada was exempted from the American bal- ance of payments measures on condi- tion that it too regulated the flow of American dollars, a situation that effectively created a common North American capital market by 1968 and reinforced the view of many policy- makers that Canada’s economic securi- ty lay with still closer relations with the United States.

Nationalist fears that closer eco- nomic integration would eliminate Canada’s capacity to pursue its own foreign and defence policy were unfounded. Under Pearson, Canada adopted a defence policy that empha- sized new international roles in keep- ing with the altered foreign policy environment. Both the State Department and the Pentagon pos- sessed an acute understanding of the influences on Canadian policy. Washington adjusted its expectations to meet Canadian realities. Consequently, by the time Pearson left office in the spring of 1968, the two countries had started to refashion the close political and military alliance that had developed during the height of the Cold War.

Not all differences could be recon- ciled, however. Johnson’s decision in 1965 to take the United States to war in Southeast Asia reflected the perspec- tive of a world power, a perspective that was alien to the Canadian experi- ence. Squeezed between American demands for support and growing popular opposition to the conflict, Ottawa had little room to manoeuvre. Still, Paul Martin, the secretary of state for external affairs, exploited every available opportunity to advance the prospects for a negotiated settlement in Indochina. This was a risky strategy, one that seemed likely to provoke a direct confrontation with the United States. As the war intensified and the scope for Canadian diplomatic initia- tive narrowed, Pearson assumed responsibility for Canada’s Asian poli- cy, overcoming his minister’s temptation to pursue a course too independ- ent of Washington.

The sixth and final chapter explores how policymakers in Ottawa and Washington worked hard to pre- serve cooperative relations in the face of rising nationalist sentiment in Canada. The two countries successfully con- tained and resolved their differences over legislation to protect Canadian magazines from American competition. This experience is implicitly contrasted with the crisis that resulted when Ottawa tried to stop a large American bank from taking over a smaller Canadian one. The virulent strain of Canadian nationalism that this confrontation released forced Pearson to adopt a more critical attitude to American policy in Southeast Asia. Nevertheless, Pearson made sure that the change in Canada’s attitude was gradual and carefully managed. When Canada finally ques- tioned United States policy in Vietnam ”” with a muted and ambiguous call for a bombing halt in September 1967 ”” it hardly registered in Washington, where the admin- istration was by then almost impervious to criticism.

Over five years, Pearson’s government virtually redefined the parameters of postwar Canadian-American relations. The economic relationship was increasingly ground- ed in a shared recognition of the value of formalized structures for continen- tal cooperation. These in turn were slowly uncoupled from political con- siderations. Rather than compromis- ing Canada’s independence, Pearson’s pursuit of closer economic relations with the United States rescued Canada from the parochial influence of Walter Gordon and his nationalist allies.