Although ad-valorem Canadian tariffs on US exports averaged only 8.7% prior to the CUSFTA, tariff reductions led to large increases in Canadian imports from the US. Along with cutting non-agricultural tariffs to zero, it harmonised standards, ensured non-discrimination in services regulations, and created a bilateral panel of adjudication to resolve disputes. The agreement came into effect in January 1989. 1 The FTA was the primary issue in the federal election in November 1988, in which Conservatives won enough seats for a majority, leading to the passage of the agreement (Lileeva and Trefler 2010, Sears 2012). Although the Agreement was signed in January 1988, ratification was uncertain in Canada where, like today, trade policy was a politically contentious issue.

The negotiations that led to the CUSFTA began in September 1985 with free-market-oriented leaders in both Canada and the US seeking improved market access in the face of slow progress in the multilateral trading system (Morici 1990). Similarly, Canadian workers in industries that obtained increased access to US markets experienced short-run gains, but these effects had largely disappeared by 2004. Yet, in a recent paper (Kovak and Morrow 2022) we find starkly different effects than implied by the previous literature: while Canadian workers suffered short-run displacement and earnings losses in response to increased import competition, long-run labour market outcomes such as years worked and cumulative earnings were largely unaffected. This agreement reduced tariffs (taxes on imports) to zero on nearly all non-agricultural trade between the two countries and led to changes in trade flows that were at least as large as those studied in prior research. Given this evidence, one might expect that the 1989 Canada–US Free Trade Agreement (CUSFTA) generated tremendous labour market disruption. This has led to growing pessimism among both academics and policymakers regarding whether the classic gains from trade are worth the accompanying labour market disruptions. (2014), Utar (2014, 2018a, 2018b), Autor (2017), and Dix-Carneiro and Kovak (2017a, 2017b) document persistently depressed labour market outcomes in response to increased import competition. However, recent empirical findings in Autor et al. While international economists have long studied the distributional consequences of trade liberalisation, traditional approaches assumed full employment and costless worker transitions (Stolper and Samuelson 1941).

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