Will the (possible) US-China trade deal be bad for Canada?

Two items in the Globe and Mail caught my eye:

  • First, Adam Tooze, a professor of history, and director of the European Institute, at Columbia University writes that “Mr. Trump’s trade policy is a strange mélange. It represents not one single coherent response to globalization, but a series of reactions superimposed one on top of the other. It is as though, in its 45th President, the United States is reliving all the shocks and stresses of half a century of globalization and postindustrial economic change, in a single scrambled mess … [and] … The decline of industrial employment has transformed American society. For many communities, it has been traumatic. And in very visible ways, Americans consume more and more imported and foreign-badged consumer goods. But to put two and two together and conclude that globalization killed the American working man is profoundly misleading. The vast majority of the decline in industrial labour was driven by the same powerful logic of technological change that previously transformed agriculture. It wasn’t imports of food or cotton that reduced the need for farm labour – the United States is still today one of the world’s largest commodity exporters. It was U.S.-made combined harvesters and tractors. That same basic logic also applies to factory work. This is not to say that the successive waves of Japanese, Mexican and then Chinese imports have not cost jobs in manufacturing, particularly in sectors such as textiles. But those were shocks superimposed on a declining trend and the last of those really big shocks – the “China shock” – hit the U.S. economy more than 15 years ago. Since then both donald-trump-angryChinese wages and the exchange rate have appreciated in relative terms, restoring a good measure of U.S. competitiveness … [but] … Mr. Trump’s rhetoric, however, admits of no such distinctions. American jobs have been robbed by unfair foreign competition, enabled by the weak leadership of his predecessors, both Republicans and Democrats alike. He first joined the protectionist camp in the late 1970s and 1980s, the era of “Japan bashing.” He then made himself into one of the most outspoken critics of NAFTA, pandering to anti-Mexican prejudice. It is only logical that he has now added China to his rogues gallery. (Canada and South Korea, countries about which it is safe to assume that Mr. Trump has few settled views, were unfortunate to have been caught in this crossfire of clichés and racial stereotypes.) … [but] … Much as Americans may hope for a fairer trading system with China, none of the United States’ serious domestic problems can actually be solved through a deal with China. Meanwhile, engaging in brinksmanship on trade only tends to endorse and empower a security policy discourse in which China is an inescapable rival that must be contained or brought to heel. It is a zero-sum conception that forecloses options for both sides … [and, the best that one might hope for is that] … Mr. Trump is not a strategist. Despite his bluster, he plays for small stakes. Rather than push home a true shift in the strategic balance, the President will settle for a short-term stitch up with Beijing that allows him to present himself as the dealmaker-in-chief in time for the 2020 elections. In so doing he will snatch triviality from the jaws of what might be a truly consequential strategic shift … [and] … Those of us who do not share the agenda of the new hawks in Washington may count ourselves lucky if he does; and
  • Second, Nathan Vanderklippe, the Globe‘s Asia correspondent, writes that “in other respects, the United States is playing “a complete zero-sum game” relative to other countries … [and] … Observers believe Washington is seeking roughly US$200-billion a year in additional Chinese purchases of U.S. goods, which over the six years to 2025 could amount to US$1.2-trillion … [but that] … all amounts to “purchases that would have been dispersed or divided between all of the other countries, and now won’t be” …[and] … On at least three different occasions, European leaders have reached out to the White House to suggest joining forces in trade talks with China … [but, a European observer, quoted by Mr Vanderklippe, said] … “We’ve been turned down …[and] … presumably the answer is because the deal from the get-go was going to be a combination of things that are good for all of us, and things that are good for the United States at the expense of the rest of us.”

Mr Vanderklippe goes on to explain that “Canada exported just under $27-billion in goods to China in 2018 … [but] … China has already moved to substantially block an important component of that trade – sales of Canadian canola, which amounted to container-port-vancouver-canada-s-busiest-importing-goods-asia-containers-shipping-them-across-continent-56964057$2.7-billion last year … [howvere] … Canada also exports large quantities of other goods to China, including $1.7-billion a year in soybeans, $1.8-billion in meat and seafood, $5.9-billion in forest products and $2.9-billion in coal, oil, iron and copper … [and there is something problematical] … “We produce a lot of things that the U.S. produces,” said Robert Kwauk, a Blakes lawyer who has spent more than 20 years in China. Any agreement by China to buy U.S. goods “is going to be highly risky for companies producing fungible goods” in Canada … [but] … That’s not to say other buyers won’t be available … [because] … “If you have one market that’s favouring the U.S., that means there’s an opening somewhere else,” Mr. Antunes said … [but, he added] … even if that’s the case, it’s costly in terms of adjustments.” In particular with agricultural and food products, if Chinese importers look elsewhere, Canadian producers “could end up with much lower prices,” he said … [therefore] … “That could be harmful to Canada,” said Pedro Antunes, chief economist at the Conference Board of Canada. “Especially in a situation where we’re already kind of in their sights over the Huawei issue.”

Nathan Vanderklippe cites Goldy Hyder, president of the Business Council of Canada,  and former chief of staff to Prime Minister Joe Clark, back in 1979/80, who “pointed to the certainty a U.S.-China deal would provide to global markets. “The U.S. has tariffs in place on over US$250-billion in Chinese imports. This hurts Canadian companies with integrated North American supply chains,” he said. And “Canadian companies face the same IP, technology transfer and investment challenges as U.S. companies in China” … [but, Mr Hyder added] … At the same time, “assuming the agreement results in Chinese purchasing agreements from the U.S., some Canadian sectors and companies could be adversely affected” …[and] … That prospect “provides further impetus for Canada to articulate a clear China strategy and continue to execute on government’s own diversification plan.”

Those last few words, I believe, are the key takeaway in all this. President Trump is not at all concerned with America, China or the West, which the US still purports to lead … he only wants, as Professor Tooze says, “to present himself as the dealmaker-in-chief in time for the 2020 elections,” and, therefore, Canada (and Europe and Australia and Japan) must, as Goldy Hyder suggests, ” articulate a clear China strategy and continue to execute on government’s own diversification plan.” My only problem is that I, at least, cannot see 49828C1500000578-5427641-image-a-37_1519405082952 (1)even the faintest outlines of a trade diversification plan, for which I have argued, in this Trudeau regime. Quite the contrary, other than signing the CETA, which Prime Minister Stephen Harper negotiated with the European Union, Prime Minister Trudeau has done little except to alienate our would-be trading partners in the TPP, offend China by insisting of adding domestic political issues to a (now dead-in-the-water) trade deal, and, perhaps worst, insulted the next fastest growing market: India. That’s not how to diversify trade. The Prime Minister of Canada has, by his own silly, juvenile actions, put his country into a ‘lose-lose-lose’ situation. 

Canada needs a serious trade diversification strategy, which means, first, that it needs a andrew_scheerserious, grown-up leader in Ottawa … that would be Andrew Scheer, and he, in turn, needs to get his (new) Clerk of the Privy Council and a tiger team of very senior officials and industry leaders (from e.g. the agriculture, resources, manufacturing, technology, transportation and finance/service sectors), all working, together, under a very senior and trusted minister,* to craft, articulate and follow through on an aggressive international trade strategy for Canada. That new trade strategy must be one of the main foundation stones of a new grand strategy which aims to secure Canada’s place in the world, as one of the top 10, or, at least, one of the top 10% of countries … not one potentially lagging behind Egypt and Pakistan because we have weak immigration and trade policies.

—–

* Someone who, unlike Chrystia Freeland, can sit at a negotiating table with even the formidable Robert Lighthizer and protect and promote Canada’s best interests.

 

 

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