IN THIS EDITION: China’s market impacts global container supply, Experts weigh in on U.S. China policy and western Canadian implications

Register for the CWF Arthur J.E. Child POP UP POLICY  session “The impact of China’s fifth plenum and the five-year plan on western Canadian trade” on February 10 at 5 pm MT. Brett Stephenson, Public Affairs Lead for North Asia with UPS and Policy and Government Relations Chair, Canadian Chamber of Commerce in Hong Kong; John Gruetzner, Partner at Intercedent Limited and one of the 24 original founders of the China Policy Centre in Ottawa; and Sharon Zhengyang Sun, Trade Policy Economist, Canada West Foundation will discuss how the plenum and the subsequent five-year plan will impact Canadian and western Canadian businesses.

China’s market impacts container supply

Shipping container demand faces a twofold problem in Canada which is impacting container supply. With China’s rapid recovery from the pandemic in comparison to the rest of the world, the country is paying top dollar for containers to export its goods. Companies currently make more profit from sending empty shipping containers to China rather than full. At the same time, Canadian exporters are facing increased global demand for agricultural products. This shortage combined with demand has meant a build-up of food products, particularly pulses and lentils, for shipment in the Port of Vancouver and tight container packing timelines. Before the surge, workers would have a day or two to load a container – they now have about four hours to pack.  

China’s 2021 economic outlook

Prepare for “a wild ride of economic data” for China in early 2021 as the country continues to recover from the COVID-19 pandemic. As China experienced the bulk of its economic lockdown in Q1 2020 while other countries experienced lockdowns in Q2, economists are working to devise alternative comparisons to show how recovery is going as year-over-year comparisons don’t reflect the nuances.  

The country’s official Manufacturing Purchasing Manager’s Index (PMI) was 51.3 in January 2021, the worst for January since 2012, and a drop from 51.9 in December 2020. This metric suggests China’s manufacturing sector is cooling as new lockdowns are put in place. The non-manufacturing PMI also dropped from 54.8 in December 2020 to 51.1 in January. 

The International Monetary Fund recently cut its predicted GDP growth for Canada from 5.2 per cent to 3.6 per cent. For China, the IMF predicts 8.1 per cent growth in 2021. 

Peas, canola and barley still see strong Chinese demand

Chuck Penner from LeftField Commodity Research predicts pea demand from China will stay strong in 2021 while the restrictions in India on peas remainWhile green peas typically perform well, yellow peas have seen prices as high as $9 per bushel recently. 

Canola also saw a bump in prices over the past few weeks to the highest in 13 years thanks to China. The country is stockpiling, and Canada is supplying China directly with 1.2 million tonnes exported to China in December 2020. The EU and the United Arab Emirates, who are Canada’s backdoors to China, have also increased demand.   

With Chinese tariffs on Australian barley in place, China has purchased most of Canada and France’s new barley crop. One estimate suggests China has purchased at minimum one million tonnes of Canada’s 2021-2022 crop.  

What is the story with wheat?

The last China Brief looked at wheat and whether China was executing another “great grain robbery” to ensure food security in the face of shortages. Dalton Henry, vice-president of policy with U.S. Wheat Associates, adds some more perspective on the wheat issue. He sees China’s uptick in wheat imports resulting from a shift in policy, rather than market dynamics. Henry points to the WTO tariff rate quota program, which China is now fully using due to the impacts of a recent WTO decision on domestic policy. As a result, he expects to see wheat continue trading with China at these levels in the long term, which could create a whole new market for wheat.  

Everything Else

  • Canada extends new visa rules for recent graduates to those from Hong Kong, despite China’s opposition to the move. The rules allow recent (within the past five years) foreign graduates of Canadian universities to apply for a three-year work permit.  
  • China has rejected Canada’s apology after an official complained to Canada over t-shirts with an altered Wu-Tang Clan logo. The Chinese government argues that the shirts were mocking the COVID-19 pandemic response in China. 
  • Canada’s Olympic and Paralympic committees do not foresee a boycott of the 2022 Winter Olympics in Beijing over human rights concerns. Thirteen Canadian members of Parliament issued a statement which calls for the games to be held in another country; Chinese media have said that China will sanction any country which boycotts. 
  • Rhode Island Governor Gina Raimondo, Biden’s nominee for Commerce Secretary, says that she sees Huawei as a national security threat and would work with allies on the issue. Canada has yet to make a formal decision on Huawei in Canada’s 5G networks, but the comments suggest Canada should expect a continuation in policy from the previous U.S. administration. 
  • New Zealand and China signed on to an updated free trade pact. The update removes or cuts tariffs for a variety of New Zealand goods, such as timber, and paves the way for engagement in new sectors, such as aviation and finance.
  • CWF Trade Policy Economist Sharon Zhengyang Sun has published a brief analysis of the implications of Canada being left out of the new amendments made to the “List of Countries/Regions Permitted to Export Grains and Raw Plant-based Fodder to China.”

Spotlight Feature

The Question 

Now that the Biden administration has started to form, and policy outlines emerge from cabinet confirmation testimony, public statements and other appointments, what early signs can be gleaned for US policy toward China and how will that impact western Canadian trade?

The Insights 

The views expressed in this section are opinions and do not necessarily reflect the views or positions of the Canada West Foundation or the China Brief authors. 

Dan Ciuriak, Director and Principal of Ciuriak Consulting, Inc., Senior Fellow at Centre for International Governance Innovation, a fellow in residence with the C. D. Howe Institute, and a distinguished fellow with the Asia Pacific Foundation of Canada 

The Biden Administration has adopted a hawkish stance vis-à-vis China out of the gate. The key appointments include the original architect of the Obama Administration’s “Pivot to Asia,” which China interpreted as a “containment policy.” The nominee for Secretary of State, Anthony Blinken, doubled down on his predecessor’s stance on China in his confirmation hearings. 

In the public domain, rhetoric has escalated to the point where it is difficult – I would say even impossible – for western governments to gracefully exit from a nominal decoupling from China – including for example participation in the 2022 Olympic Games in China. The outgoing Trump Administration used a scorched earth policy to lock its successor in and I would say it succeeded – the US mid-terms are only two years away after all. 

This is also an issue for China. Face matters. China plays more or less strict “tit for tat,” responding to measures taken by the United States and its allies. It is hardly in a position to suddenly “let bygones be bygones” – witness its rebuff of the Morrison Government’s overtures for a reset. 

And of course, quite apart from rhetoric, the real points of friction have not been resolved. The tariffs and technology restrictions remain in place, the “China Initiative” launched by the Trump Administration continues to be prosecuted – and this is not inconsequential for Canada, since the Meng Wanzhou extradition request followed the implementation of this policy.   

What does business want? Business wants nothing to do with this as far as I can tell. But tectonic plates have been set in motion and the inertial force is massive.  

Trade is a relationship business and Western Canada plays largely in a commodity market where suppliers can be changed with relative ease and relationships are important. That is what we learn from empirical studies on the role of economic diplomacy. China will buy from Canada when it wants to, but it will tend to its relationship with the United States first, because that is where its risks lie, and to countries where it has political interests second.

William Alan Reinsch, Senior Adviser and Scholl Chair in International Business, Centre for Strategic and International Studies 

There have been a few recent developments with trade implications in the Biden-Harris administration. Firstly, the administration endorsed Ngozi Okonjo-Iweala for the WTO Director General position, cementing Biden’s commitment to multilateralism. Biden also recently signed an executive order to Buy American, and although the effects remain to be seen, increases in domestic content requirements and shifts in supply chains will cost money and take time.  

In foreign policy news, the president overruled his predecessor’s decision to remove aluminum tariffs placed on imports from the UAE, and Commerce Secretary Gina Raimondo has said she considered Huawei to be a national security threat. The administration has little maneuvering room on China, as public opinion has soured, and members of Congress compete to be the toughest China critic. Trump’s scattershot China policy largely failed, and Biden has promised a coherent strategy instead. It would be wise for Congress to let him develop one. 

The developments signal a welcome return to multilateralism and that not all of Trump’s trade actions will be reversed. Those that are national security based, in particular, may survive. Campaign promises like Buy American matter, and there will be attempts to keep them, but we have yet to see a comprehensive trade policy.

Carlo Dade, Director, Trade and Investment Centre, Canada West Foundation 

For Western Canada, the area to watch in any Biden-Harris pivot or adjustment to policy with China is the Phase One partial trade agreement and what former U.S. Trade Representative Robert Lighthizer called “structural changes to trade” – not – the purchase agreements. The former contained no wiggle room for China and last as long as the agreement. The latter, the purchase agreements, are not as firm and were set for only two years. It is the structural changes that give U.S. farmers significant advantages over Canadian farmers and are of concern for Western Canada.

In response to an early question as to whether the Phase One agreement was still in effect, new White House Press Secretary Jen Psaki stated: “I would not assume that things are moving forward.” But again, it was unclear if she was referring to the agreement or to the purchase commitments. A key appointment that will play a critical role in ag trade issues between the U.S. and China, the Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs, has yet to be announced despite several other announcements of several other high-level appointments to U.S. Department of Agriculture by the Biden administration. This position, created by the 2014 farm bill, was not filled by the Obama administration, leaving the Trump administration to first fill it.

USDA Secretary nominee Vilsack (who was Secretary of agriculture for all 8 years of the Obama administration) was asked specifically about the Under Secretary for Trade position during his senate confirmation hearings. While he did not explicitly commit to filling the role, his response took filling the position as a done deal. (Of greater interest to western interests were the nominee’s comments in support of country of origin labelling and commitment to find work arounds to WTO restrictions) Also of note, while the USTR filled several senior positions this week it has not announced any Assistant Secretary positions which require confirmation, including that for agriculture.  

– Stephany Laverty, policy analyst

The China Brief is a compilation of stories and links related to China and its relationship 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.


Cover image by Guillaume Bolduc, Unsplash