We want and need them. But we also mistrust and fear them.
So what to do about the Chinese?
In the uneasy aftermath of the tentative United States-Mexico-Canada Agreement, the question has new urgency.
Continuing U.S. protectionist threats demonstrate that Canada needs to make new friends in the world of trade and to break its unhealthy dependence on a single customer.
Engaging in trade talks with China – the world’s No. 2 economy and main engine of growth in Asia – is the obvious way to do that.
And this week Prime Minister Justin Trudeau said Canada is ready to shift its attention to China now that it has secured a renewal of its mostly tariff-free access to the U.S. market. But he also cautioned about the pitfalls.
“We have to be very thoughtful about the way we do that, and not for external reasons, but for our own internal reasons and values,” he told The Globe and Mail in an interview this week. “We know there are real challenges involved in trade with China. And being alert to those ... is completely logical.”
The risks are significant. It is not always clear that China is our friend. There are concerns about national security, the behaviour of Chinese state-owned enterprises, China’s skirting of trade rules, and the interplay of human rights and the rule of law in China.
And there is the USMCA, which may be an impediment to getting a free-trade deal with China. The agreement gives the United States and Mexico, or any two signatories, the ability to boot out a member country on six months’ notice if they don’t like the details of any trade deal negotiated with “a non-market country,” such as China.
One option is to coax China to join the Trans-Pacific Partnership, a free trade area that covers Canada, Mexico and nine other Pacific Rim countries. Beijing is reportedly showing renewed interest in this regional pact amid deteriorating trade relations with the United States, which quit the TPP last year.
There are other possibilities short of full free-trade talks with Beijing. A new report by the Ottawa-based Public Policy Forum urges the federal government to pursue more limited “sectoral agreements,” starting with agriculture, food and natural resources, according to the report, Diversification Not Dependence. Doing so “offers a model for diversifying more rapidly, getting wins on the board, building capacity and avoiding the risk of attempting to leap before we can walk,” says the report, which incorporates input from more than 80 Canadian business leaders, academics and public policy experts.
But easing regulatory burdens on selling soybeans or lumber in China is a long way from free trade. As the report points out, World Trade Organization rules bar countries from offering tariff breaks to other countries unless they are part of a broad agreement covering “substantially all trade.”
Canada need to be ambitious if it is serious about diversifying away from the United States – the destination of nearly three-quarters of this country’s merchandise exports.
U.S. President Donald’s Trump’s assault on the global trading order offers a rare opportunity to make inroads in China, where Canada has been losing market share for more than two decades. The U.S.-China tariff war gives Canada leverage it didn’t have a year ago. We offer China an alternative source for many essential resources and agricultural it now buys from the United States.
Strategically, both countries are more motivated than ever to reduce their reliance on the United States. And Beijing may not be as picky about the details as it was last year when efforts to launch formal free trade talks stalled over Canadian demands that the pact include labour, environmental and gender rules.
Perhaps the best reason to pursue a deal with China is to test what the USMCA’s “non-market country” clause is really about.
Canadian officials insist that nothing in the agreement limits what Ottawa can do, including pursuing free trade with China. They insist the clause is there mainly for domestic U.S. consumption and to encourage the three North American partners to share information about their trade dealings.
If that’s so, Canada should seize the moment, assert its sovereignty and explore just how far China is willing to go to open its markets.
We’ll soon find out what Beijing really wants from us, and whether it’s worth the bargain.