Andrei Sulzenko is a former trade negotiator and is currently an executive fellow at the School of Public Policy, University of Calgary.
Even though Donald Trump is widely criticized as being impulsive and unhinged, he clearly has some smart advisers who occasionally succeed in channelling his aggressive instincts into productive long-term directions. The jury is still out on North Korea, but the recent announcement of the intention to apply punitive tariffs on Chinese imports in response to chronic trade and investment transgressions is a strategically important milestone for international economic relations.
Here's why Canada and other Group of Seven countries should be quietly applauding.
A major step in China's push to modernize and become a full participant in globalization was its accession to membership in the World Trade Organization. This was achieved in 2001 after a 15-year negotiation. It took that long because the price of entry involved significant policy changes toward a market-based economy.
Despite some misgivings about readiness for WTO accession, China had become too important to ignore and was already enjoying many of the benefits of membership without any of the obligations.
In retrospect, however, China has been able to have its cake and eat it too – in practice, this has meant having relatively unfettered access to global markets while maintaining its system of state-owned or controlled capitalism. That system has been used to dictate the terms of foreign access to the Chinese market and to seek out leading-edge technologies by all available means through its international entities.
The ensuing tilting of the playing field is most evident in China's shabby treatment of foreign intellectual property rights, especially with respect to advanced technologies, the lightning rod for Mr. Trump's recent announcement.
Canada has also had some experience with China's unrelenting thirst for access to advanced technologies. As a result, the previous federal government put in place special provisions designed to limit investment access to Canada by state-owned or controlled firms, much to the relief of our security community.
Despite the fact that China's behaviour has often been against both the spirit and laws of open and fair market-based dealing, the international community has been reluctant to confront that behaviour for fear of retaliation through arbitrarily reduced access to its huge market. No country was brave enough to lead the charge and then lose ground to competitors who kept quiet – until now.
It is ironic that an avowedly protectionist U.S. administration is leading on a strategic issue critical for all Western countries. Although most countries probably support the thrust of the U.S. initiative, they would rather not say so for fear of Chinese retribution. Notice the lack of public outcry about the current U.S. trade volley targeted against China compared with the recent much broader steel and aluminum tariff threat. That's in part because the steel and aluminum action was overtly protectionist with a national security fig leaf, while the current action in large measure is legitimate. It's also about narrow national self-interest.
While on the subject of self-interest, depending on how the U.S.-China confrontation shakes out, there is potential opportunity for other countries to exploit restrictions by the United States and China against each other to capture increased market share. For example, Canadian agricultural exports could displace U.S. exports to China. "Free-riders" are probably hoping for a prolonged dust-up, so long as it stays bilateral.
What will not be clear for some time is whether the United States and China will take this confrontation as an opportunity to negotiate a necessary recalibration of their economic relationship, or to spiral into a trade war that hurts both parties. Certainly, the usual knee-jerk reaction of financial markets has been driven by fear of the latter.
It is obvious which path should be taken – calm, considered negotiation. The United States process actually hits the pause button for long enough to do that. However, this process does not control the risks posed by the egos of a President anxious about being able to finish out his first term and a newly minted President-for-life.
Hopefully the technocrats will take over. Besides, Mr. Trump now has another triumphant tick mark beside an election promise. The details of what actually happens do not matter so much for purposes of the Twitter feed.
In any event, the U.S. threat of trade action against China will be looked back upon as a seminal event in 21st century international economic relations, with long-term implications for the global community. The possibility of those relations becoming fairer and freer compared with the status quo is worth the effort.
From Canada's perspective, we can stay interested bystanders, for the time being at least. Isn't it fortunate, though, that we did not take the Chinese bait to enter into bilateral free-trade negotiations? Otherwise, we would be in an uncomfortable position right now. In this case, traditional Canadian caution helped us dodge a bullet.