Letting go of China’s money – the price Canada must pay for its principles

Open this photo in gallery:

Todd Hirsch is a Calgary-based economist, author and public speaker, He is also the director of the Energy Transition Centre and the former chief economist of ATB Financial.

Remember the 1990s? It was an innocent time when globalization was lifting all boats. Massive, multilateral trading agreements were all the rage. And any trade disputes were modest irritations that could be smoothed over with a few glasses of chardonnay.

Fast forward to the 2020s, and everything has shifted. The brave new world of neoliberal economics has been rocked to its core. And now geopolitical tensions are sparking some very unpleasant shocks to global trade.

Canada’s most recent setback involves China (yet again), this time a direct hit to the tourism industry. In August, China released its updated list of countries that are “approved” as international travel destinations for Chinese tour groups. Canada was conspicuously omitted from the list. It’s terrible news for an industry that was devastated by the pandemic and had hoped to regain its footing. China has been a major source of tourism to Canada; now that’s all in jeopardy.

China’s move raises an uncomfortable question for Canada: What is the economic price of being principled?

Of course, political spats have resulted in economic pain in the past. Canada has experienced all manner of trade disputes with its largest trading partner, the United States, over everything from softwood lumber to steel to agriculture. But while these quarrels have been serious and at times economically painful, they’ve never threatened a complete breakdown in political and economic ties. They’re more akin to teenage siblings on the couch, fighting over the remote control.

What we’re seeing increasingly with China is different. It is no longer just about a trade dispute, which is typically triggered by an industry seeking a protectionist advantage. What we are seeing now is geopolitical discord increasingly splitting the global economy roughly in two: those within China’s sphere of economic influence and control, and those in the sphere of the United States.

And rather than protectionism, it is now about principles. China is clearly unhappy with Canada’s principled stand on a number of fronts. From the disputes over tech giant Huawei and the detention of the two Michaels, to more recent accusations of interference in Canadian elections, to even basic critiques of human rights violations – China seems to be running out of goodwill toward Canada.

Unfortunately, it is likely to get worse before it gets better. Growing tensions between China and the U.S. – and by extension Canada and all other Western democracies – seems to be moving in a troubling direction. Any actual military aggressions around Taiwan could easily pull us into an even larger principled stand against China. And that would spell even more economic sanctions and pain.

The question facing Canada is daunting. Do we actively engage in diplomacy and polite chatting with China in an effort to diffuse their irritation? Or do we even bother? Arguments could be made either way, but the balance of reason seems to be tilting toward the latter. Is the effort of diplomacy even worth it at this point? And does cozying up too closely to China now represent a political liability with our other economic partners, particularly the U.S.?

The present dilemma would have been hard to imagine in the 1990s and early 2000s, when China was playing nicely in the global economic sandbox. It had arrived as an economic superpower. It joined the World Trade Organization. And there was a growing hope that China’s economic growth would hasten the end of its communist regime.

That was then. Today the picture is bleaker. Rather than lightening up on its brand of authoritarianism, President Xi Jinping seems more determined than ever to tighten his grip on China’s nationalistic and economic direction.

The price of principles is steep. Canada and our economic allies will be tested in the months and years ahead. Do we compromise to accommodate China’s positions and actions? Or do we stand firm to our valued principles of democracy, liberty and human rights – even if it means a certain sacrificing of parts of our economy?

Usually protecting the economy carries the day. But now, all bets are off.