China Brief: China, the Indo-Pacific and Canada’s West
Issue 104 | July 2024

In this issue: U.S. gives a masterclass in managing relations with India; a severe drought in China could open the door for Western Canadian ag exports; Canada’s China EV tariff announcement; Saskatchewan and the feds cooperate on rare earth minerals and more! 

A U.S. masterclass in juggling values and interests

As Canada, including Saskatchewan (as noted in our last issue), wrestles with its relationship with India, some interesting ideas on how to do this come from down south.  

On June 17, the U.S. government made a dizzying show of juggling what President Biden calls “a values-based as well as practical-based alliance system” through two very different press releases. A comparison of the two pressers highlights how the U.S. is confronting the alleged affront to its sovereignty and values while not only putting guardrails around the strategic relationship but also advancing it. Here are three lessons from the recent U.S. actions in dealing with India. 

Lesson One: the matter and meaning of words 

First, the Department of Justice announced that it has extradited and charged an Indian national – Nikhil Gupta – whom it alleges is connected to an assassination conspiracy involving an Indian government employee. The DOJ presser offers a summary of the charges and the argument behind them. While quotes from the various U.S. officials all refer to the involvement of an “Indian government employee,” it is worthwhile to note the subtlety of this language.  

By characterizing the unnamed co-conspirator (also known as CC-1) as an “Indian government employee” the U.S. is keeping open an exit ramp to not directly implicate the Indian government itself. Labelling it this way doesn’t necessarily imply that the Indian government directed the killing, even though the surrounding narrative in the press release outlines what could be seen as possible political motives. Instead, the DOJ’s “employee” wording paves the way for the U.S. to tacitly accept the Indian government’s own investigation, which concluded that  rogue elements within the ranks of the intelligence agency were behind the foiled plot. Contrast this with the Canadian Prime Minister’s September allegations that referenced “agents of the Government of India” and the fact that agent means working on behalf of…  

Lesson Two: to name or not to name?

A bombshell Washington Post investigation goes deeper than the DOJ presser to not only name CC-1 as Vikram Yadav, an officer in India’s intelligence agency’s Research and Analysis Wing (RAW), but also to suggest that other senior Indian officials were “probably aware” of the assassination plot, though with the caveat that “no smoking gun proof has emerged.” The piece also points to how the Biden Administration sought to manage this without risking broader fallout in the strategic relationship it is cultivating with India. This includes decisions taken in deliberation with the White House to not name and charge Yadav. 

The Washington Post piece leads us to the second press release, issued by the White House. U.S. National Security Advisor Jake Sullivan sat down with his Indian counterpart, Ajit Doval, who was named in the Post piece as one of the senior officials that was “probably aware” of the plot. Moreover, The Post writes that “CIA analysts have assessed that Doval probably knew of or approved RAW’s plans to kill Sikhs his government considered terrorists.” But this meeting wasn’t a reprimand, rather it was jamboree of announcements on collaboration for critical and emerging technologies. The list of areas where the two countries will work more closely together includes “space, semiconductors, advanced telecommunications, artificial intelligence, quantum, biotechnology, and clean energy.”  

This list of high-tech collaboration would make competitors like China salivate, which makes it all the more telling of where the U.S.-India relationship is headed. While China isn’t mentioned, the readout notes that the two countries are “resolved to prevent the leakage of sensitive and dual-use technologies to countries of concern.” Tellingly, the U.S. also grouped India in as a “like-minded” partner with a “shared commitment to democratic values and respect for universal human rights.”    

Lesson Three: the politics of enduring relationships

These two pressers reveal that while the U.S. “will not tolerate attempts to silence or harm American citizens,” neither will the foiled plot eclipse the broader strategic relationship because the U.S. sees that “the future security and prosperity of the Indo-Pacific will hinge on the strength of the U.S.-India partnership.” This juxtaposition brought to mind Andrew Hodgson’s thoughts on poetry where he wrote that “the most enduring poems often demonstrate the difficulty of coming to an unconflicted position; they show us that life involves maintaining a balance between opposed perspectives and phenomena.” While this ain’t poetics – its politics – we’d argue that Hodgson’s point applies equally to international relations. Canada, too, should learn to act with some rhyme and rhythm in this sense. 

Chinese drought raises the spectre of a food security crisis – could Western Canadian grains step in? 

Six months after China’s new food security law was introduced (see China Brief 101) northern China – the country’s breadbasket region – has been overtaken by a severe drought at the same time as heavy flooding in the rice rich south. This has already disrupted the planting schedule, which ag-savvy Western Canadians know could spell serious trouble come harvest. This is worrying Chinese farmers… and the government.  

While China is known internationally for its manufacturing prowess, it’s traditionally an agrarian society and remains an agricultural powerhouse.  Rural folk make up roughly 36 per cent of the population and produce around 24 per cent of global grains output. However, unlike Western Canada, most farms are quite small (a few hectares). One Chinese corn farmer is worried that they “have planted the corn too late, even after the autumn, it will not mature in time.” Should these predictions bear fruit (pardon the pun) then China’s agricultural output would drop. Some analysts already predict that China’s wheat output could fall by 1.24 per cent during the 2025 marketing year.   

How could China respond? 

With the potential for a double whammy of lost income for farmers and less food for the country, the government is compelled to act. It’s turning to a variety of relief measures, including USD $126 million in funding, releasing water from reservoirs and artificial rain (which upset some concert-goers who got stuck in a downpour). The Minister of Public Security also weighed in citing the need to protect against food security risks, vowing to crack down on agricultural crimes as the drought worsens. This highlights that the government sees potential risks to “social stability” that could stem from the drought’s economic and food security fallout should grain production take a hit.  

One approach in China’s toolkit is to draw down from or expand the buffers provided by its national strategic reserve system. This includes not only critical supplies of food but also minerals and manufacturing inputs. Most countries have strategic petroleum reserves…and Canada has a strategic maple syrup reserve. While the exact extent and status of China’s strategic reserves is a national secret, here’s an illustrative and non-exhaustive estimate:

Copper  1.5 million to 2 million tonnes 
Aluminum  800,000-900,000 tonnes 
Zinc  250,000-400,000 tonnes 
Grains  660 million tonnes (1 yr of consumption) 
Corn  200 million tonnes (2017, since depleted) 
Pork  1 million tonnes 
Petroleum  220 million barrels  
Coal  120 million tonnes (goal to reach 400 million) 
Source: Reuters 

Increasing imports is also a part of the calculus, though China will face some difficult choices as to whether to procure reliable supply of high-quality agricultural commodities or prioritize its geopolitical confrontation with liberal market democracies. Through its food security law and the general push towards self-sufficiency, China has been trying to wean itself off of imports and some observers see a trend to do so. Furthermore, as trade wars kick into a new gear over clean tech products and EV’s, China will face increasing pressure to retaliate, including via the ag sector.  

Retaliation on the horizon?

Indeed, Canada just launched consultations on how to respond to the spectre of Chinese EV dominance. And as a flavour to the times, the announcement is chock-full of rhetoric and reads like the conclusions have already been drawn including actions on tariffs, surtaxes, incentive programs, and even investment restrictions.  And with the EU looking like it’s already rethinking the veracity of its approach, having entered into consultations with China and lowering it’s interim tariff rate in the wake of retaliation against its pork sector, Canada might find itself an easy target if it implements the full extent of what’s been signaled. 

With all that said, there is still an opportunity for Western Canadian ag exports to make some additional inroads and help patch over the looming supply shortage, particularly in wheat. Western Canadian governments should welcome the new Chinese Ambassador, Wang Di, who is on a mission to mend ties. Indeed, when we recently met with the Ambassador, ag trade and the importance of Canada to China’s food security were at the top of the agenda.  Hence, we should leave the electric battery bickering to Central Canada while reminding China that food security is a shared interest. (Note: See Canada West Foundation report on China-Canada alignment of interests on – you guessed it – food security.)  

In case you missed it!

Canada’s big EV news…We briefly mentioned Canada’s EV announcement above but given this is the big China news in Canada right now we should give you a few more pieces. Greg Mordue, an expert in advanced manufacturing policy, looks at the “historical pattern” of government policy and investment in the auto sector to suggest Canada might find itself teary-eyed when the dust settles. This is because he sees Chinese investment into local auto manufacturing as way out of the milieu. But Mexico and the U.S. may be more likely to catch this FDI for cost competitiveness and political reasons. In a separate piece, China’s Ministry of Commerce Minister suggested Chinese investment as a path forward in its dispute with the EU. One must wonder then what kind of 3D chess Canada thinks its playing when it announced that it’ll consider possible investment restrictions as part of the package.

Amidst all the tariff talk, The Conversation ponders the future of the EV market in Canada. Given that tariffs will raise prices, they look at the economics of EV ownership including low re-sale value and life-cycle questions to ask if a policy re-think is needed.  

And lastly, what does China think about Canada’s move? After Bloomberg scooped the announcement, the Global Times ran a piece that weighs the low market penetration of Chinese EVs in Canada against Canada’s “long and complex relationship” with the U.S. to conclude that for these tariffs “the political symbolism exceeds the practical efficiency.” It suggests that, given “anemic growth …Canadian politicians should maintain strategic sobriety and give top priority to developing its own economy, instead of succumbing to US pressure.” That was before foreshadowing the potential retaliatory repercussions because “China will take all necessary measures to safeguard its legitimate rights and interests” which should be a “wake-up call for Ottawa.” Some Canadians too are calling attention to the perceived lack of policy independence. Nicolas Lamp and Wolfgang Alschner question Canada’s proposed use of Section 53 of the Custom Tariff, which is essentially Canada’s version of the U.S.’ notorious Section 301 (see China Brief 103 for more on that!).

New port speeds delivery…Chinese-invested ‘mega-port’ Port of Chancay in Peru is in the news as construction nears a close. COSCO Shipping is behind the port, which is enticing not just Peru but exporters in the neighbouring countries. Peruvian President Dina Boularte says “from now on, Colombia, Ecuador, and Chile will be able to bring their goods directly to China. The port of Chancay will reduce waiting times and increase cargo capacity for trade between Asia and the region.” The U.S. has also noticed this overture in South America, and it appears that Peru may be playing both sides. The Peruvian government is now pitching another port project, the Corio Port, for investment, but this time to the U.S.

A June 14th U.S. congressional committee – A June 14th U.S. congressional committee – the China Economic and Security Review Commissionspeculated how or what China could do to stockpile and prepare for conflict (yikes!). And it heard some interesting testimony from a U.S. Department of Agriculture official on how ag and food issues could come into play, including how the U.S. could “effectively exploit the PRC’s dependency on food imports as part of broader economic statecraft.” Agri Investor ran a good piece outlining the new dimensions of geopolitical risk in the ag sector.

Profiling a complicated man…The Globe and Mail ran an piece on the murdered B.C. resident and Canadian citizen Hardeep Singh Nijjar, profiling the complicated life of the man at the centre of an affair that has sent Canada-India relations into a downward spiral. It details some ties to Sikh extremists and concerns that these may have generated amongst Indian officials, while at the same time acknowledging that “much about Mr. Nijjar and his aims remain in dispute.”

Government tag team…Natural Resources Canada and the Saskatchewan government got together to thwart the sale of rare earth minerals from the Nechalacho mine to a Chinese buyer by offering $500K over the Chinese bid. Saskatchewan Minister Jeremy Harrison helped orchestrate the sale via the Saskatchewan Research Council, a crown corporation, which will process the minerals at its rare earth minerals processing facility. While it’s great to see the province and the federal government working together in line with Canada’s Critical Minerals Strategy, N.W.T. industry proponents also raised a good point about “a lack of policy development to support Canadian mineral supply projects and [concerns that] this [is] a one-off situation” because projects are “struggling to raise financing to fill in that early part of the supply chain, to find the mines and get them developed.” 

The other communist country in Asia with which we trade is in the cross hairs again as U.S. Lawmakers to Raimondo: Don’t ‘reward’ Hanoi for unfair trade practices.

And finally, we put out another op-ed in the Globe & Mail, this time to remind Canadians of the geopolitical clout that Western Canada’s energy and resource economy brings to the country on the world stage. The piece was picked up by QR Calgary/630 CHED. You can listen to the segment here. And if you missed it last month, we also had a piece in the Toronto Star that used the Three Body Problem, a science-fiction novel by Chinese author Cixin Liu, as an analogy for interpreting the history and contemporary dynamics of Canada’s international trade relations.  

Jeff Mahon, Executive in Residence, Trade and Trade Infrastructure

The China Brief is a compilation of stories and links related to China, the Indo-Pacific and relationships with Canada’s West. The opinions expressed in the links are those of the articles’ authors and don’t necessarily reflect the views of the Canada West Foundation and our affiliates.