There are four reasons why Canadians should have reservations about the Trudeau government’s enduring desire for a free-trade agreement with China – and one reason to be thankful for U.S. President Donald Trump, who has inadvertently given Ottawa the perfect excuse for cooling its ardour.
The first reason is that Canada already has something close to free trade with most of the world, China included – at least when it comes to goods moving from China to Canada.
It’s why so many of the things in your home are likely to read “Made in China.” Chinese exports to Canada generally face low or no import duties, and that’s a good thing. The ability of Canadians to buy products from overseas for less than it costs to produce them at home is one of the key benefits of trade.
However, while Chinese exporters generally enjoy a low Canadian tariff wall, or no wall at all, many Canadian exporters to China are facing a Great Wall.
That’s part of the reason why Canada runs extremely large trade deficits with China. Our trade is more or less free in one direction, and less rather than more free in the other.
Like every government before it, the Trudeau government wants to fix that. All else equal, it’s a perfectly reasonable objective. But all else is not equal. What China wants in return, among other things, is freedom for Chinese state-owned companies to invest in Canada.
And that’s the second major reservation that Canadians should have: A free-trade deal with China won’t just be a free-trade deal. It will be an investment deal, too.
If the state-controlled investor in question were, say, Norway’s sovereign wealth fund, that wouldn’t be a concern. But Beijing isn’t Oslo. And there’s our third reservation: China isn’t like our other major trading partners.
Canada does business with all sorts of non-democratic, totalitarian societies. This country sold wheat to the Soviets. We’re selling military vehicles to Saudi Arabia. To engage with the world is to engage with its many unsavoury regimes.
But Canada has never had as a leading partner a government and system whose values are so at odds with our own. Our primary relationships have always been with liberal, democratic, rule-of-law societies. The People’s Republic of China is not a regime that lives according to the rule of law. A law in Canada is enforceable, even against the government. A law in China is a piece of paper.
That’s not a theoretical concern. It’s a driving force behind the trade frustrations with China coming from the European Union and the United States. When China was brought into the World Trade Organization, the assumption was that it would be bound by the rules. That’s not exactly how things have worked out, which is in part why the United States is undertaking a series of sweeping trade retaliations against China.
Can Canada negotiate a system of rules binding on China? Will we end up with rules binding on Canada, but not necessarily on the other side? What recourse will the much smaller party have?
That brings us to the fourth thing to be worried about, namely whether Canada has the leverage to get a good deal, and to make it stick. The problem of size, and our lack of it, preoccupied previous generations of Canadian diplomats and leaders. Their solution, when dealing with a larger partner across the table, was to look to multilateral forums.
If the goal is to open the Chinese market, wouldn’t Canada be better off working with our European and American allies to pressure Beijing to follow international trade rules, rather than trying to go it alone?
Over the last couple of years, Ottawa has often appeared to be fearful of doing or saying anything that might cause Beijing to lose face. Saying “no” to a trade and investment pact is the kind of blunt talk the Chinese leadership will not appreciate.
However, the Trump administration insisted on putting a clause into the pending United States-Mexico-Canada Agreement (USMCA) that seems designed to prevent Canada from doing such a deal with China. The clause has been widely condemned as nationally humiliating, though the wording is vague and it’s hard to say exactly what it means.
But lemons can also be used to make lemonade.
Thanks to Mr. Trump, Ottawa has the freedom to go slow on free trade and investment negotiations with China, armed with an ironclad alibi.