China Brief: China, the Indo-Pacific and Canada’s West
Issue 105 | October 2024

This is the last China Brief from CWF

Six and a half years ago, the Canada West Foundation undertook an experiment to share with Western Canadians what we saw and learned as we sifted through vast amounts of research, reporting and analysis on China that could be of interest and importance to Western Canada.

The idea for the brief and the original work came from a bright, young policy analyst, Sarah Pitman. We were discovering China with a fresh perspective and doing our best to explore these issues objectively. We knew the West and what was most important for the region. We could clearly see the impacts of changes in the China-Canada relationship. But we did not have that same knowledge about China.

In the charged atmosphere around China today, that turned out to be a blessing. We took nothing for granted and questioned every piece of evidence, every argument and treated conventional wisdom with reflexive skepticism. The resulting China Brief quickly gained a following inside the West and with those in Ottawa, foreign governments and customers keen to learn what was of interest and concern in the West and in China and the Indo-Pacific that could impact Canada’s engagement with the region.

An important role that the China Brief evolved to play was a signal to China and the Indo-Pacific that there was thoughtful analysis and interest in Western Canada beyond short-term, transactional, purely commercial engagement, of which there is an abundance. For Western Canada, CWF provided analysis and dissemination from a Western perspective instead of information cobbled together or drawn from perspectives outside the region.

A publication where geography, not ideology, drove the analysis turned out, according to the feedback and continually rising readership, to be a good idea. Unfortunately, it did not turn out to be a self-sustaining idea despite its growing popularity. It is for that reason alone that the China Brief comes to an end. But note, we will continue to engage China and Indo-Pacific issues that matter to Western Canada. We extend our thanks to Jeff Mahon who took over the Brief earlier this year, and who will remain part of the CWF family. And should financing appear, the Brief could some day return…

For this last issue we take a slightly different approach from our usual format to appraise where the West stands in its relationship with China through the lens of China’s recent retaliation to the federal government’s EV tariffs.

EV tariffs, canola retaliation and the uncertain future of Canada-China relations

Canada-China relations were further knocked off balance in recent weeks when the federal government followed U.S. and EU leads in launching tariffs to protect the development of the nascent electric vehicle industrial base from an onslaught of cheap Chinese imports. (This al-Jazeera piece is good for those needing a refresher.)

China waited a week before it responded (see their press release here) with an anti-dumping investigation on canola. Western Canadian farmers and exporters are rightfully worried about where this could end up. These investigations and the dispute process take, on average, over a year. Thus, it injects new uncertainty for farmers who will begin contemplating next year’s planting decisions after the current harvest wraps up.

More generally, tit-for-tat trade moves could quickly spiral out of control if both countries choose not to exercise restraint. With federal government consultations taking place on Chinese economic practices in additional strategic sectors – critical minerals, semiconductors and solar panels – we’re fast approaching another juncture.

Westerners under the electric bus

The federal government’s EV decision was no surprise – the initial consultation’s press release left little to the imagination for where things were going. And indeed, there are legitimate reasons for Canada to take protective action: Chinese EVs are a fraction of the cost of North American production having been supported by various forms of government subsidies; EV’s represent an important opportunity to breathe new (cleaner) life into the country’s manufacturing base; and the future of our automotive supply chain essentially hinges on alignment with and at the pleasure of the Americans.

The federal government chose to race ahead with Article 53 instead of buying time and legitimacy with a WTO-embedded process for anti-dumping investigations. It also opted to attach very aggressive rhetoric to its policy decision. These actions make it more difficult to reach a common understanding on a tricky issue that’s not going away anytime soon. Despite the reasonable expectation that China would retaliate, the feds took action without having tools to deal with the fallout.

Indeed, we can’t find any evidence that the Canadian government was prepared for inevitable retaliation. Given that fall harvest was underway on the Prairies, it is fortunate that China chose to take the longer path of building a case, even if only a perfunctory one, at the WTO.

This approach raises concern out West because actions speak louder than words – and the audience here is Western Canada. When existing trade in canola is threatened to protect against a potential, though plausible, threat from EV imports, Westerners –  who just a few years ago were encouraged to go to China by federal governments seeking to diversify Canadian trade from the U.S. – can rightfully ask where their interests fit into the federal government’s calculus concerning trade-offs when pursuing today’s policy objectives. This is especially troubling given that the West leads not only our trade with China but also the broader Indo-Pacific.

Writing on the wall

As China Brief readers know, the EV saga didn’t come out of left field. We first signalled the coming fight over cleantech in China Brief 102. We then laid out how France and the EU were using diplomacy to urge China to separate the EV issue from food security and agricultural trade in China Brief 103.

We also put out an op-ed ahead of the decision urging the government to use restraint and embed the decision in development rationale that China also uses – because otherwise China would be blatantly hypocritical. Such an approach could’ve capitalized on recent high-level engagements to set the table for finding a more constructive resolution of what’s surely to be an on-going affair over how our very different economic and political systems can interact.

There are some that think it is naïve to believe that the outcome would be any different if Canada had acted more diplomatically. But the EU’s experience suggests otherwise.

A counterfactual supported by facts

This is important for Western Canada (and the federal government) as it highlights how nuanced tactics can be deployed to balance interests and mitigate risks. The EU – which has strong ag export interests in China – opted to take the WTO-sanctioned route when it launched its investigation into Chinese EVs last year. China retaliated with a symbolic investigation of its own into EU, mainly French, brandy. The investigation approach, instead of immediately revoking market access, sent a signal that China wanted to negotiate. Since both sides utilized investigations, it bought crucial time to engage in parallel-track diplomacy by senior political officials.

First off was EU Agriculture Commissioner Janusz Wojciechowski who led a massive delegation to Beijing in April of this year to send a clear message to China that the EU wants “both sides to remain open to each other’s agricultural products even as other industries grow fractious,” suggesting that “food products should be excluded from problems in other sectors.”

While France clearly supports this message, President Macron sought to secure France’s interests and invited President Xi to Paris where agriculture was the belle of the ball. Macron won a pledge from Xi to not apply provisional tariffs while China was finalizing its investigation into brandy. Others, including Spain, have made visits to China to urge cooperation and restraint (check out this Reuters piece breaking down who has what at stake if a trade war between EU and China were to unravel over the EV issue.)

Following its investigation, the EU proposed a 38 per cent tariff (albeit lower than the 100 per cent tariffs imposed by Canada and the U.S.), which was put to a vote on October 4th. Ahead of this, China may have been signalling a new tactic in that after completing its brandy investigation – the weekend before it launched a retaliatory investigation into canola – it decided that despite finding evidence of dumping it will withhold applying tariffs. This dangling sword of Damocles added a sense of urgency to the parallel EU-China negotiations over alternatives to tariffs.

In the end, the October 4 vote narrowly squeaked by in favour of tariffs. A week later China delivered on its threat to hit brandy with anti-dumping duties. However, this hasn’t spelled the end of negotiations. On October 14 German Chancellor Shulz expressed his hope that a deal would be reached by the end of the month while EU President von der Leyen signaled that all options “are on the table,” including some form of compensation in place of duties or new price commitments or investments into EU production.

Diplomacy as a tool to protect western Canadian interests (which are also Canada’s interests)

While this drama is still playing out, it’s more than just theatre. Our trade difficulties with China are a national concern with immediate, real-world impacts that fall most heavily on Western Canada. Last time we saw this rodeo was in 2019 when total canola export values tanked before they rebounded in 2020. The rebound was in part due to canola traversing third-party markets before being re-sold to China. However, that initial drop in value was more than a mere statistic, it had a real impact on Western Canadian farmers and families.

Source: Statistics Canada

Exercising diplomatic discretion when announcing policies doesn’t equate to kow-towing to China. Canada has the right to protect its development interests and China need not resort to retaliation given that Canada is much more open to Chinese imports than China is to Canadian exports. For its part, the Chinese government is doing more harm than good to its own long-term interests – as defined in recent statements by President Xi on food security. Indeed, CWF conducted in-depth research to make the case to both sides that when it comes to agriculture, Canadian and Chinese interests converge.

These challenges aren’t going away anytime soon and are set to pick up again as Canada completes its latest round of consultations and subsequent trade policy decisions. Westerners hope that both governments can find a way to engage diplomatically and exercise restraint in the coming weeks and months, seeking out constructive ways to co-exist and manage differences.

Insights from recent Taiwan visit on opportunities for Western Canada

This summer the Taipei Economic and Cultural Office in Vancouver graciously invited (and paid for) the Canada West Foundation to participate in the US-Canada Visiting Leaders Program. This is the third Taiwanese-government sponsored trip to the island for CWF staff.

This visit showcased the economic and cultural opportunities that the island economy has to offer – and participating in a joint-delegation with Americans from state-level governments and business also afforded an opportunity to size up the competition.

Before we get to the engagement opportunities, we should recognize that Taiwan is, of course, a politically complicated place (for more on this check out this essay by the Globe and Mail’s Ethan Lou for a thoughtful and recent overview). A fundamental implication of this is that Canada’s engagement with the island is bounded by the federal government’s One China Policy (OCP).

But what the heck is Canada’s One China Policy? And what are the implications for Western Canadian governments, businesses and citizens?

When we put the question to Global Affairs Canada, we were politely pointed to a little known document delivered last year to the Chair of the House of Commons Special Committee on the People’s Republic of China. This document addresses the federal government’s responses to recommendations that the Committee made to the government – because remember folks, the government is different than the parliament!

Canada’s One China Policy

The response document offers a wealth of insights on multiple issues surrounding Canada’s unofficial relations with Taiwan and the scope for commercial and cultural exchanges.

In brief, Canada’s formulation of its One China Policy (OCP):

  1. “Canada recognizes the People’s Republic of China (PRC) as the sole legitimate government of China, taking note—neither challenging nor endorsing—the Chinese government’s position on Taiwan.”
  2. Canada seeks to “advance unofficial but valuable economic, cultural and people-to-people ties with Taiwan.”

A plain-language reading of the framework is that Westerners (and all Canadians) are free to engage in economic, cultural and people-to-people ties.

Pursuing OCP aligned activities opportunities for Western Canada

Taiwan’s economy has a lot to offer, but currently not much is being realized. It’s population of roughly 23 million is barely a whisper of the mainland’s 1.3 billion, but it does punch above its weight. It is home to some of the worlds most advanced technologies and is the number one manufacturer of world economy’s most important component: semiconductors.

However, while Taiwan isn’t necessarily a global innovation leader an earlier visit by Carlo Dade highlighted that it excels at commercializing ideas. It has a massive, robust and well-funded infrastructure of research centres and industrial parks to do this. Turning innovation into something useful and affordable for the masses is, to put it mildly, not a Canadian specialty or strength. We are fortunate to find this capacity in a friendly economy with strong rule of law, intellectual property protection, good infrastructure and direct air connection to Canada and the broader Indo-Pacific, all on the doorstep of the immense market on the mainland.  This warrants more attention from Western Canadian firms looking to develop products for Asian markets.

The local government is also keen to partner with foreign firms in a nimble fashion to develop mutually advantageous projects. One such example involves Canadian firm Northland Power’s involvement in the Hailong Offshore Wind Project, which is pursuing the triple objectives of zero-emission power generation, economic development and pushing technological frontiers.

Beyond high-tech, Taiwan has a relatively rich consumer class that likes Canadian brands. Lifestyle brands such as Roots are having great market success and agricultural and meat products are also consumed en masse. However, there is much more work to be done to get a stronger Western Canadian trade footprint in the market.

That’s why in addition to the Canadian Trade Office in Taipei, the only provincial governments in Canada to set up trade promotion offices in Taiwan are from the West. Alberta and British Columbia are actively seeking opportunities to grow exports and support market development.

Stiff American competition from U.S. states

The U.S. is gung-ho on advancing commercial relations with Taiwan. Indeed, the majority of delegates on this trip were American, with several holding senior positions in their state government’s economic development and trade promotion departments. And whereas the Canadian federal government pointed us to a committee document hosted on the House of Commons webpage to get the facts on what the OCP means for engagement, the U.S. federal government sent a joint letter from the departments of commerce, agriculture and state to both U.S. state governors and business leaders to clarify that the U.S. OCP “allows for commercial, cultural, and other engagement with Taiwan across a range of issues,” and that the “departments encourage this cooperation and stand ready to help navigate delicate issues.” This letter seems to have had an impact. Since the letter was released in March 2023, 10 new state offices opened bringing the total number to 23.

In case you missed it!

  • It’s not just Canada, the U.S. or the EU (or… pretty much every liberal market democracy on the planet) that are grappling with how to handle their relationships with China. CWF’s pal Stephen Nagy put out this piece outlining how Japan is navigating this challenge while offering up lessons for other countries.
  • For trade infrastructure buffs, the Council on Foreign Relations released a new interactive map on Chinese seaport investment and operational partnerships providing insights into these critical nodes of globalization. The Centre for International and Strategic Studies followed up with their own take on the geopolitics of port security.
  • Our previous issue highlighted some drought induced threats to China’s agricultural output. A few months later and the arrival of torrential rains have compounded earlier problems, check out this New York Times piece for the latest.
  • While not limited to China or the Indo-Pacific, Policy Options released a special series this month on trade in an era of global insecurity, which explores how changing global currents are challenging trade and commercial policies and offering ideas for debate.
  • We published an op-ed in The Hub to mark the one-year anniversary of the collapse of Canada-India relations following the prime minister’s House of Commons announcement that the government was investigating the potential involvement of “agents of the government of India” in the assignation of a Canadian citizen. The piece puts forward concrete steps that both governments could take to get the relationship back on track. However, the government has since opted for a different approach. With a fresh slew of allegations released on Thanksgiving Monday and both countries having expelled each other’s High Commissioners, official relations with India will remain in the deep freeze for the foreseeable future.

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.