Canada and free(er) trade with China and the world

This post follows on from yesterday’s (Cold War 2.0) because, a few related things caught my eye:

  • First, an article in the Globe and Mail which says that “China is pushing Canada to resume stalled talks toward a free trade deal, days after Ottawa agreed to a new North American trade accord that critics argue will make it difficult to pursue a similar pact with Beijing … [and] … In a phone call Wednesday, Chinese foreign minister Wang Yi told his Canadian counterpart, Chrystia Freeland, that Beijing hopes Ottawa will “advance the establishment of a China-Canada free trade zone” and “take practical actions to protect the global free trade system with China” … [but] … Mr. Wang also appeared to rebuke to Ottawa for agreeing to a clause in the United States Mexico Canada Agreement that allows a country to be punted from the NAFTA successor if it enters into a free-trade deal with a “non-market country.” That language is widely seen as a veiled reference to China, and critics have argued that the clause gives the U.S. an effective veto over any trade pact between Ottawa and Beijing.” That last bit may be China’s not so subtle way of reminding us that if we really want to diversify our trading relationships so that we are less dependent on the whims of America then we need China, possibly more than it needs us, and the Chinese are unlikely to be interested in hearing our virtue signalling;
  • Second, Bloomberg reports thatChinese oil buyers are making a beeline for a bargain across the Pacific … [because] … With Canadian oil over 60 percent cheaper than U.S. benchmark West Texas Intermediate and global marker Brent, China’s refiners are being lured to the heavy, sludgy crude. That’s because — apart from being a source of fuel — it’s rich in bitumen, a black residue used to build everything from roads to runways and roofs.” This is a reminder that China wants needs resources, which Canada has in abundance and it will be willing to bargain, fairly, to get them, but Canada has to be able to get that bitumen, just as one example, to Canadian tidewater through pipelines that are built on Canadian territory and that is something that the Trudeau regime has disallowed (Northern Gateway), sabotaged (Energy East) and then screwed up (Trans Mountain Expansion); and
  • Third, in the South China Morning Post it is reported that “Beijing is looking into joining a trans-Pacific trade deal that it was previously shut out of by the US amid mounting pressure from the trade war, according to a source close to the Chinese government … [because] … China could hedge against US President Donald Trump’s protectionist “America first” strategy and boost its role in free trade by joining the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), observers said.” This is a reminder that the US sanctions are hurting because China is an export economy; the Chinese sell much more to the USA than they buy from it so US sanctions are bound to bite.

The Globe and Mail report explains that “The comments underscored China’s mounting worry that the U.S. under President Donald Trump is intent on containing China — and Beijing’s desire to prevent other countries from joining that effort … [and] … “The consensus in Beijing now is that this is not really about trade, it’s about stopping China’s rise it’s about potentially a new kind of Cold War mentality,” said Andrew Polk, founding partner of Trivium, a Beijing-based business advisory firm.” This is borne out by an article on the Brookings Institute website that says that Vice President Mike Pence’s speech delivered to the Hudson Institute on 4 October, “was not a search for off-ramps or for lowering tensions, but rather a message of America’s determination to elevate pressure until Beijing accepts the bilateral relationship, as Washington envisions it. It also signaled that the White House does not believe a de-escalation on trade is achievable or desirable in the near term. If it did, Vice President Pence would not have injected a depth charge into the relationship now, just weeks prior to an expected meeting between President Trump and President Xi on the margins of the G-20 meeting … [and] … Washington clearly wanted to convey that it is comfortable with elevated bilateral tensions, and if Beijing is not, then the ball is in China’s court to come up with fixes to existing problems. For reasons cited above, Beijing is unlikely to do so. Beijing likely will interpret Pence’s speech as validation that the Trump administration seeks to keep China down, and that concessions and compromise only would invite additional American pressure.

So, we, the US led West, the US dependent West, appear to be headed towards a new Cold War 2.0 but one which China, quite sensibly, wants to avoid.

One key issue for China is America’s (and the European Union’s) constant (since 2001) refusal to accord China the status of a “market economy” in the WTO. That is tied to the now controversial §32.10 of the USMCA, and it makes punitive US tariffs legal.

Former Prime Minister Stephen Harper, rather obliquely, cautions against proceeding with a free(er) trade arrangement with China except in tandem with the US government’s efforts to broaden access to China’s markets. He says it is “undeniable” that the Chinese market is rigged against us ~ America, Canada and everyone else ~ and he sees a trade dal with China as highly desirable but the USMCA as “essential.” I think that is strategically sensible. Somehow, Canada has to diversify its trade and Asia (especially China, India) and Europe are the obvious partners. We have, thanks to Stephen Harper, the CETA with Europe; we are getting closer (again with much credit to former Prime Minister Harper) to the new TPP; the USMCA, which is worse than NAFTA but, still, better than nothing is almost done; but we went from relatively free trade to managed trade and we may have been conscripted into a Cold War 2.0. There are other routes towards free(er) trade with China (and India) that might not trigger §32.10, things like asking members (China is the big one) to admit us to the RCEP, for example. And, of course, there is always CANZUK, waiting in the wings.

I think we can all agree, now, that Mitchell Sharp was right, back in 1972: Canada needs more diverse trade relationships so that we cannot be held to ransom, again, by one trading partner. But we have been forced into Donald Trump’s Cold War 2.0 against China and so we need to find neat ways to broaden our trade with Asia and Europe while, always, not triggering hostile trade actions by the USA. This will be a difficult challenge for Team Trudeau because they are beholden to too many different special interests that oppose most of the things that Canada likely needs to to to get better access to Asia, like building pipelines, and who will also oppose deals like the new TPP.

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