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The Globe and Mail

Free trade with China is Canada’s next natural step

Bill Downe is chief executive officer of BMO Financial Group.

Trade and tariffs have been defining issues in at least three Canadian elections (1891, 1911 and 1988) and played a role again in the most recent campaign. It wasn't always the case, but for the past 25 years, at least, Canada has come down on the side of free trade – and did so again in 2015.

We have concluded trade agreements with our largest trading partner, the United States, and with our next largest trading partner, the European Union. Indeed, when the comprehensive economic and trade agreement is ratified, Canada will be the sole Group of Seven country with privileged access to the world's leading trading blocs.

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And now we have reached agreement on the Trans-Pacific Partnership, which, if concluded, would make Japan a free-trade partner, among others. Yet, while Japan may be, by some measures, the third-largest economy in the world, it is not Canada's third-largest trading partner.

That distinction goes to China.

Our official dealings with China, however, have been underdeveloped over the past decade, even as trade with China has steadily increased, and even as China has become the largest contributor to global growth.

While we cannot ignore recent events in the world economy, any notion that China will play a diminished role in the growth of the global economy is clearly misplaced. The demands of a growing middle class in the world's most populous country will continue to be the major factor influencing the world's economic growth for the foreseeable future.

As my colleague Kevin Lynch wrote recently, what group of experts – back in 1980, when China was just emerging from its Cultural Revolution – would have predicted that it would chalk up an unprecedented 35 years of growth that would make it the second-largest economy in the world? Similarly, we would be wrong now to underestimate China's ability to deal with the challenges of the next 35 years.

Specifically, is it really reasonable to be concerned if China's economy is not growing at a double-digit pace?

Even at 6 per cent, the low end of growth estimates, China will add $625-billion to global demand next year – that's more than the United States will contribute, even if the United States achieves 3-per-cent growth – the high end of current estimates. It is still the case that China will almost certainly become the world's largest economy, by any measure, in less than 15 years.

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In other words, when President Xi Jinping speaks about a "new normal," this is the right way to look at the issue. The pace may have changed, but the outcome has not.

Now is the time to take advantage of the change in leadership in the House of Commons and shift the nature of our official engagement with China, beginning with the pursuit of a bilateral free-trade agreement.

Achieving this would put Canada in an enviable position compared with our G7 economic partners, enhancing our competitiveness as a trading country significantly.

Beyond the potential for bilateral trade, Canada could become a valuable gateway to the Americas for China – and that would be of enormous benefit to both our countries.

For, public perceptions notwithstanding, our relationship with China goes well beyond energy and natural resources.

In fact, our economies are complementary. There are significant areas of opportunity for both countries that would only be enhanced by a free-trade agreement.

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China faces the same environmental challenges as every other country in the world, but given China's sheer size, these challenges are daunting – especially dealing with that most precious of all resources: water. There is a clear opportunity for Canada's "clean tech" industries to help.

Canada is already a destination for the children of China's expanding middle class. Shouldn't Canadian students be studying in China as well? Imagine how much more we could do to encourage educational exchanges.

And in financial services, we have already forged close relationships with China. Bank of Montreal (China) Co. Ltd. has been granted full banking powers in the People's Republic of China, and we have strategic partnerships with major Chinese banks to expand their presence in North America – but there is still more that could be done.

Perhaps the biggest opportunity for mutual benefit from a free-trade agreement may be in the world of agriculture. For China, food security is a major policy focus – as it was in the 1960s. Improving the quality and safety of food supplies are top priorities. Canada's expertise in production, processing and packaging responds perfectly to these needs.

Canada's relationship with China is like no other. It is rooted in a tradition of being there – sometimes, when no one else was willing – and anticipating where the most good could be done.

Canada was there when wheat was urgently needed. We opened the door to China when others wouldn't. And we have been good and reliable trading partners for years.

With a new government in Ottawa, what better time than now to reawaken a historic relationship? It's the natural next step in the evolution of Canada's role as a free trader in the global marketplace.

Mr. Downe spoke this week to the annual general meeting of the Canada China Business Council in Shanghai.

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