By Carlo Dade
An edited version of this op-ed was published in the Globe and Mail
December 2, 2020
Canadians are rightly very concerned about elements of our country’s engagement with China around human rights and hostage taking. But this has devolved into a singular focus that ignores elements of the relationship critical to both countries. Current discussions and thinking do little to advance Canadian interests and values.
If Canada wants to defend and advance its interests, it needs to actively consider and put into play the full array of interests and policy responses that include opportunities to continue to engage with China – not walk away. While this may seem surprising or even unpatriotic in the current climate in Canada, elsewhere it is common sense.
Canada’s allies, who are also its competitors for the Chinese market, have figured out how continue to engage the full range of their interests, positive and negative, with China.
Despite well-known trade tensions and public attacks, Australia and New Zealand have not walked away from existing bilateral trade agreements with China. Instead, they have just doubled down by signing the new multi-party Regional Comprehensive Economic Partnership which includes China. The Americans, despite waging a cold – bordering on hot – war with China have signed their first trade deal with China the U.S.-China Phase One trade agreement. While telling Canada in the recent NAFTA re-negotiation to not think about engaging China on trade, the U.S. was positioning itself to take market share from Canada.
Not engaging China on the full range of interests, including trade, does not advance Canadian values and interests; it only helps its competitors.
Nowhere is this clearer than in agricultural trade.
China will be the world’s largest market for these products by 2050 and agri-food is Canada’s fastest growing and third largest export to China. Canada’s overall agricultural exports to China have been growing at an average rate of 15 per cent, per year. The drastic drop in overall agriculture exports due to canola and soy restrictions in 2019 have captured attention. What has received less attention is the 2020 recovery of overall agriculture exports, which grew by 37 per cent from 2019 to reach 83 per cent of 2018’s record exports. For a country that wants to increase exports on the back of agriculture and continues to invest billions in projects like Lake Diefenbaker irrigation which will increase production of crops for which China is the largest market, China is impossible to avoid. For a country that needs every export dollar it can generate for COVID recovery, the speed of China’s pandemic recovery and agricultural import demand make this more so.
Meanwhile, recommendations to disengage or diversify from China further ignore market realities. Despite drastically moving canola exports to 10 other markets in response to China’s restrictions in 2019, Canada was still unable to find new markets for about one quarter of that crop. Further, Canada is not a centrally planned economy; governments do not determine where products are sold. Businesses move product based on market signals – not politically aspirational goals of market diversification. Canada’s inability to significantly diversify from the U.S. softwood market, despite massive government assistance and more severe and longer challenges than those posed by China, is an object lesson.
What can Canada do?
Ironically, a new option comes from the U.S.-China Phase One trade agreement.
Much more important than the purchase agreements, which are not taken seriously by most trade experts, the agreement imposes what U.S. Trade Representative Robert Lighthizer calls new “structural changes” to the rules of trade. Unlike traditional agreements these rules prevent the type of unilateral Chinese actions that have bedeviled Canadian, Australian and other exporters.
While a boon for the U.S., these changes threaten the long-term competitive viability of Canadian agricultural exports. But they may pose a greater threat to China by making it more dependent on an openly hostile U.S. with a history of using food as a political weapon.
Suddenly, China and Canada have a new, shared problem.
China will not help Canada solve Canadian trade problems with China unless it is in China’s interest to do so, which may now be the case thanks to the new U.S.-China agreement. China has recently entered a soybean pact with Russia, most likely in response to worries about dependence on the U.S. As a secure net producer and net exporter of agriculture, it opens the door for Canada to explore stronger contractual arrangements as a counter balance to American advantages. That is a – new – type of conversation worth having whenever the moment is right or to facilitate progress on other issues.
If China declines, then Canada will face even tougher choices. But at least it will do so with all options and interests on the table and better evidence with which to make decisions.
Carlo Dade is the director of the Canada West Foundation’s Trade and Investment Centre and the co-author of the new report, When interests converge: Agriculture as a basis for re-engagement with China.