Canada is missing an agricultural opportunity if we bluntly box out China

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Carlo Dade is the director of the Canada West Foundation’s Trade and Investment Centre and the co-author of the new report, When interests converge: Agriculture as a basis for re-engagement with China.

Beijing’s hostage diplomacy and human-rights violations in places such as Xinjiang have Canadians rightly concerned and debating the nature of Ottawa’s potential response. But narrow national conversations focused only on these issues ignore other elements of the relationship critical to both – and ignoring those other issues does little, if anything, to advance Canadian interests and values.

This may seem surprising or even unpatriotic to say in the current climate in Canada. But elsewhere, it is just common sense.

Canada’s allies are also Canada’s competitors for the Chinese market, and they continue to engage China on the full range of their interests. Australia and New Zealand, for instance, have not walked away from existing bilateral trade agreements with Beijing, despite high-profile trade tensions and public attacks Beijing; indeed, they’ve just doubled down on trade with China by signing the new multi-party Regional Comprehensive Economic Partnership. The United States, for its part, recently signed a Phase One trade agreement with China, even while telling Canada, in NAFTA renegotiations, not to engage with China – positioning itself to take market share from Canadian farmers.

Not engaging China on the full range of Canadian interests, including trade, does not advance Canadian values and interests, and it only helps our competitors. Nowhere is this dynamic clearer than in agricultural trade. China will be the world’s largest market for these products by 2050, and agri-food is Canada’s fastest-growing and third-largest export to China. Canada’s overall agricultural exports to China have been growing at a steady average annual rate of 15 per cent.

China’s export restrictions on canola and soy in 2019 harmed Western Canadian farmers and captured national attention. But what received less attention is this year’s recovery of overall agriculture exports, which grew by 37 per cent from 2019 to reach 83 per cent of 2018′s record-setting exports. For a country wanting to increase exports on the back of agriculture and continuing to invest billions in projects like irrigation for Lake Diefenbaker to increase production of crops for which China is the largest market, China is impossible to avoid. For a country that needs every export dollar it can generate for COVID-19 recovery, the speed of China’s economic recovery and its agricultural import demand – especially contrasted with dire forecasts in the U.S. – make China an even more important market.

Meanwhile, recommendations from parts of Canada to disengage or diversify from China further ignore market realities. Despite drastically reallocating canola exports to 10 markets after China’s 2019 restrictions, Canada was still unable to find new markets for about one quarter of that crop. Further, Canada is not a centrally planned economy; governments do not determine where products are sold. Businesses move product based on market signals – not politically aspirational goals of market diversification. Canada’s inability to significantly diversify from the U.S. softwood market, despite massive government assistance and longer and more severe challenges than those posed by China, is an object lesson in this reality.

So, what can Canada do? China will not help Canada solve its trade problems nor honour its agreements unless it’s in China’s interest to do so – but ironically, they might find common ground in the U.S.-China Phase One trade agreement.

That deal imposes what U.S. Trade Representative Robert Lighthizer calls new “structural changes” to the rules of trade to prevent the type of unilateral Chinese actions that have bedevilled Canadian, Australian and other exporters. The changes are a boon for the U.S., but they threaten the competitive viability of Canadian agricultural exports, and potentially make China more dependent for food on an openly hostile U.S., which has a history of using food as a political weapon, including refusing to sell grain to China during its deadliest famine in the 1950s. (Canada, on the other hand, defied that U.S. embargo.)

Suddenly, Canada and China have a new, shared problem, dealing with the harms each country faces from the agreement. That could signal an opportunity for Canada and China to work together again, on agricultural trade. After all, China recently entered a soybean pact with Russia, most likely to prevent dependence on the United States. Why shouldn’t Canada be in the mix?

As a secure net agriculture exporter, an agreement with Canada with contractual arrangements similar to the U.S. agreement would put Canadian exporters on equal footing with U.S. competitors and, in so doing, dilute China’s dependence on the U.S. That is a new type of conversation worth having.

If China declines to have it, Canada will face even tougher choices. But at least we’ll be able to do so with all options and interests on the table and better evidence with which to make decisions.

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