On China, economic reality bites

With the return of the Two Michaels, attention in Canada on relations with China will now have to shift to the unavoidable issues that have been put off to lurk in the background. Chief among these is how does trade-dependent Canada navigate a global economy where China is the world’s largest economy. Reality is that China, like it or not, has for the last four years been the world’s largest economy and post-COVID is projected to grow even faster. Specifically, for Canada, China is also the largest producer and or consumer of many of Canada’s key exports such as oil and gas, wheat, plant protein, and is overall a larger agricultural exporter than Canada. Its economic reach, influence and potential to affect Canadian interests is global, extending well beyond the Chinese market. Bottom line is that even if Canadian exporters manage to run away from China, they will still run into China in other markets. So, what does Canada do? First, drop the fixation on diversification out of the Chinese market (currently Canada’s second-largest export market) as any sort of easy fix. This is a convenient political sound bite but not a serious policy response. Diversification, if it were even possible, would only substitute the risks of dealing directly with China in the Chinese market for dealing with Chinese influence in other markets. While one may be better than the other, it is not a solution. In the markets that the Canadian government has prioritized for new trade agreements—Indonesia, the Association of Southeast Asian Nations (ASEAN), India and even in-our-neighbourhood-Brazil—China, not the U.S., is the top trade partner, the leading foreign investor and often the regional political power. The issue for anyone trying to sell in those markets becomes how to deal with a China that not unlike the U.S. is not shy about throwing its weight around for commercial gain. Fortunately for Canadian exporters, every five years China publishes detailed information at the national and regional level of goals and measures to manage its economy, including actions that impact foreign markets. Yet, knowledge of these five-year plans in Canada outside small, specialised circles, is largely that they are plans and they are five years. Deliberate ignorance is not a winning strategy for dealing with an unavoidable reality. Engaging China to understand what it is doing is not supporting what China does, it is simply self defence. Second, is to acknowledge that despite political tensions and negative public opinion polling which will persist even with the Michaels returned, Canadian consumers and businesses have been and continue to willfully increase their trade with China. Over the last five years, with Canada-China relations at an all-time low, Canadian imports from China grew by an average of 4.5 per cent while imports from the U.S. declined by one per cent. When Chinese consumers are angered at the behaviour of a country, they organize boycotts. Canadian consumers, on the other hand, not only don’t protest, but in the case of China they increase their purchases. Canadians tell politicians and pollsters one thing, but their spending decisions say something else. Governments in Canada find themselves stuck in an unwinnable bind trying to appease a public that demands government get the country out of a dependency hole that the public, not the government, keeps digging deeper. The only way to manage this situation is to replace the political pandering with frank talk. The third reality may be hardest for Canadians to hear and to tackle: in dealing with China, the Americans are not our friends. When our political and security interests align, which they more often than not do, we are allies. But when money is on the table in the Chinese market or elsewhere, the Americans will run Canada over without remorse or consideration. With negotiations for a new North American trade agreement the U.S. tried to intimidate Canada from considering trade talks with China by inserting a last-minute clause into the new NAFTA. Yet, at the same time, the Americans were negotiating their own trade agreement with China, one that essentially shivved Canadian farmers in the back. While keeping an eye on China, Canada also needs to keep an eye on the Americans. Cooperation on security matters or doing extradition favours will not equate with considerations in areas where we compete. This is lesson that goes back to the 1950s when prime minister John Diefenbaker fought the U.S. grain embargo on China to protect Canadian agricultural interests while also fighting the Cold War with the Americans. Now that the election is over, hard truths on China and the U.S. await. Carlo Dade is director of the Trade and Investment Centre at the Canada West Foundation and honourary senior fellow in the School of International Development and Global Studies at the University of Ottawa. The Hill Times