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When the surcharge is finally lifted, Canada stands to benefit from both a pickup in the U.S. economy and the revaluation of other currencies, especially the Japanese yen. Of far greater concern to Ottawa at the moment are two Nixon Administration bills that passed the House of Representatives last week: an investment tax credit of 7% for companies buying equipment made in the U.S. and a bill setting up a Domestic International Sales Corp. DISC, as it is called, would give U.S. companies generous tax benefits to produce items for export inside the U.S., thus eliminating any incentive to expand their foreign subsidiaries. Since roughly half of Canadian manufacturing is U.S.-owned, Ottawa fears that the bill, if it passes the Senate, could calamitously slow down Canada's economic growth.
Ottawa is also disturbed by Washington's increasingly hard line on the 1965 auto pact between the two countries, which was designed to integrate car manufacturing and let Canadians build as many autos as they buy. It has worked more to Canada's advantage than anyone expected, helping to turn Canada's longstanding trade deficits with the U.S. into a $1 billion surplus last year (though such items as interest payments and dividends to U.S. corporations tipped the overall balance the other way, to a deficit for Canada of $60 million). The pact contains so-called "transitional" safeguards for Canada that Washington is now anxious to abolish. Ottawa is willing to negotiate but not under duress.
The result has been a growing irritation on both sides. Trudeau may face a general election next year, and any party might find it tempting to ride to power on anti-Americanism—directed largely at U.S. corporations' $17 billion of direct investment in Canada. Perhaps some of that feeling will dissipate when the surcharge is removed, if it does not remain in effect too long. In addition, Nixon plans to visit Ottawa next spring; the trip could serve, as did his meeting with Emperor Hirohito in Anchorage, as a symbolic reaffirmation of U.S. good will. But such is the disrepair of the once easy relationship between Ottawa and Washington that it will take more than symbols to convince Canadians that the U.S. is not out to improve its trade at the direct expense of its closest economic partner.