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At the time of the American Civil War, Canada did not yet exist as a federated nation. Instead, the territory consisted of the United Province of Canada (parts of modern southern Ontario and Quebec) and the separate colonies of Newfoundland, New Brunswick, Prince Edward Island, and Nova Scotia, as well as a crown territory administered by the Hudson's Bay Company called Rupert's Land. Britain and its colonies were officially neutral for the duration of the war. Despite this, tensions between Britain and the United States were high due to incidents on the seas, such as the Trent Affair and the Confederate commissioning of the CSS Alabama from Britain.
Canadians were largely opposed to slavery, the preservation of which was one of the main goals of the Confederate States of America, and Canada had recently become the terminus of the Underground Railroad. Close economic and cultural links across the long border also encouraged Canadian sympathy towards the Union. Between 33,000 and 55,000 men from British North America enlisted in the war, almost all of them fighting for Union forces. The conservative press in Canada East supported the secession and ridiculed the Yankees as lacking in morality. French Canadians in particular were very highly sympathetic to the Confederacy in the Southern U.S. There was talk in London in 1861–62 of mediating the war or recognizing the Confederacy. Washington warned this meant war, and London feared Canada would quickly be seized.
In November 1861 tensions escalated between Washington and London when an American warship stopped the British mail ship RMS Trent on the high seas and seized two Confederate diplomats, James Mason and John Slidell. London demanded their return and an apology, and to signal its intention to defend its possessions sent 14,000 combat troops to Canada, while the colonials planned to raise 40,000 militia. The crisis ended when President Abraham Lincoln released the diplomats; he did not issue an apology. The British decided that colonial union was now a high priority, as it would relieve London of the need to defend Canada.
Rising concerns over the security of railways in Canada while the Civil War raged in the United States led to the 1862 creation of the Grand Trunk Railway Brigade. This unit of Canadian Volunteer Militia recruited amongst railway employees had infantry and artillery companies deployed along the railway lines in Canada East and Canada West.
Because of Canada's location and sympathy for the Southern cause, Confederate operators secretly used Canada as a base, in violation of British neutrality, particularly in the Maritimes. The Maritimes' struggle to maintain its independence from Canada, led some Maritimers to be sympathetic to the South's desire to maintain its independence from the North. For example, Halifax merchant Benjamin Wier (1805-1868) acted as Halifax agent for many of the Confederate blockade runners active during the Civil War. In return for ship repair facilities in Halifax, the Confederates supplied him with valuable cotton for re-export to Britain, a lucrative but hazardous course for Wier which required severing his business connections with New England.
On 7 December 1863, while the new Union tug Chesapeake was preparing for service in the South Atlantic Blockading Squadron, 17 Confederate agents disguised as passengers seized it off Cape Cod, Massachusetts. Word of the takeover reached Portland on the morning of 9 December and quickly spread from there. The news prompted federal officials at northern ports along the coast to speedy action.
On 17 December, the recently captured blockade runner Ella and Annie — which had been hastily manned, armed and sent to sea — finally caught up with the Chesapeake at Sambro, Nova Scotia. Shortly thereafter, the Northern gunboat Dacotah arrived on the scene; and its commanding officer prevented Ella and Annie from taking the recaptured tug back to Boston, lest such action seriously undermine relations between the United States and the British Empire. Instead, to observe diplomatic protocols, he escorted Chesapeake to Halifax where he asked Canadian colonial Admiralty court to restore it to its owner. The court ruled the Confederate attack was illegal and returned SS Chesapeake to its Union owners but the Confederate sympathizers escaped with the help of some Halifax citizens, creating tensions that received international attention.
On August 18, 1864, the Confederate ship CSS Tallahassee under the command of John Taylor Wood sailed into Halifax harbour for supplies, coal and to make repairs to its mainmast. Wood could only stay 48 hours under neutrality laws and began loading coal at Woodside, on the Dartmouth shore. Two Union ships were closing in on the Tallahassee, the Nansemont and the Huron but had not yet arrived at the harbour approaches. Wood slipped out of the harbour under the cover of night. It is believed he departed by the seldom-used Eastern Passage between McNab’s Island and the Dartmouth Shore to avoid Union warships in case they had arrived. The channel was narrow and crooked with a shallow tide so Wood hired the local pilot Jock Flemming. The Tallahasse left the Woodside wharf at 9:00 p.m. on the 19th. All the lights were out, but the residents on the Eastern Passage mainland could see the dark hull moving through the water, successfully evading capture.
The most controversial incident was the St. Albans Raid. Montreal was used as the secret base for a team of Confederates attempting to launch covert and intelligence operations from Canada against the United States. To finance their cause in October 1864, they robbed three banks in St. Albans, Vermont, killed a citizen, and escaped back across the border with $170,000. They were pursued by Union forces over the Canadian border, creating a diplomatic incident. The Canadians then arrested the Confederate raiders, but the judge ruled the raid was an authorized Confederate government operation and not a felony which would permit extradition via the Webster-Ashburton Treaty.
The best recent estimates are that between 33,000 and 55,000 men from British North America (BNA) served in the Union army, and a few hundred in the Confederate army. Many of these men already lived in the United States; they were joined by volunteers signed up in Canada by Union recruiters.
Canada refused to return approximately 15,000 American deserters and draft dodgers.
Calixa Lavallée was a French-Canadian musician and Union officer during the American Civil War who later composed the music for "O Canada", which officially became the national anthem of Canada in 1980. In 1857, he had moved to the United States and lived in Rhode Island where he enlisted in the 4th Rhode Island Volunteers of the Union army during the American Civil War, attaining the rank of lieutenant.
Canadian-born Edward P. Doherty was a Union Army officer who formed and led the detachment of Union soldiers that captured and killed John Wilkes Booth, the assassin of Lincoln, in a Virginia barn on April 26, 1865, 12 days after Lincoln was fatally shot. Canadian born Sarah Emma Edmonds was a noted Union spy.
Anderson Ruffin Abbott was a Toronto-born son of free people of color who had fled Alabama after their store was ransacked. Canada's first Black physician, he applied for a commission as an assistant surgeon in the Union Army in February 1863 but his offer was evidently not accepted. That April, he applied to be a “medical cadet” in the United States Colored Troops but was finally accepted as a civilian surgeon under contract. He served in Washington, D.C. from June 1863 to August 1865, first at the Contraband Hospital which became Freedmen's Hospital. He then went to a hospital in Arlington, Virginia. Receiving numerous commendations and becoming popular in Washington society, Abbott was one of only thirteen black surgeons to serve in the Civil War, a fact that fostered a friendly relationship between him and the president. On the night of Abraham Lincoln's assassination, Abbott accompanied Elizabeth Keckley to the Petersen House and returned to his lodgings that evening. After Lincoln's death, Mary Todd Lincoln presented Abbott with the plaid shawl that Lincoln had worn to his 1861 inauguration.
The Civil War period was one of booming economic growth for the BNA colonies. The war in the United States created a huge market for Canada's agricultural and manufactured goods, most of which went to the Union. Maritime ship builders and owners prospered in the wartime trade boom.
The American Civil War had decisive political effects on the BNA colonies. The tensions between the United States and Britain, which had been ignited by the war and made worse by the Fenian Raids, led to concern for the security and independence of the colonies, helping to consolidate momentum for the confederation of the colonies in 1867.
In this regard, the conflict also had an important effect on discussions concerning the nature of the emerging federation. Many Fathers of Confederation concluded that the secessionist war was caused by too much power being given to the states, and thus resolved to create a more centralized federation. It was also believed that too much democracy was a contributing factor and the Canadian system was thus equipped with checks and balances such as the appointed Senate and powers of the British appointed Governor-General. In reaction a guiding principles of the legislation which created Canada – the British North America Act was peace, order, and good government. This was a collectivist antithesis to American individualism that became central to Canadian identity.