Monday's Federal Leader's debate made nary a mention of international trade, our current dispute with China or even what is going on with the USMCA ratification in the United States. With exports accounting for about 30% of our GDP, it is astounding that such an important issue is being ignored. It is therefore worth re-posting the piece I had published early this week on the Fraser Institute Blog.
Canada needs more major trading partners
beyond China and the U.S.
On the campaign trail, there’s little talk
about Canadian trade policy and the repercussions of our current poor political
relationship with China. The need to continue diversifying our trade is the
elephant in the room this federal election.
In what seems to be explicit retaliation
over the Meng Wanzhou Affair, China has detained Canadian citizens—putting a
chill on business travel there—and essentially halted our exports of meat and
canola. Any memories of Norman Bethune appear to have faded as China reveals
its view of us as a small, inconsequential and puny power that should do as
told. As a result, an important trade strategy—to diversify our trade away from
dependence on what has also become a more capricious United States—lies in
tatters.
The U.S. takes nearly 75 per cent of our
exports, and despite recent bumps, has been by international trade standards a
dream trade partner. It’s a large, rich, populous market literally on our
doorstep where we share a close political and social culture, common language
and history. It’s a market economy like ours with a strong rule of law.
Subsequently, Canadians have not had to work very hard when it comes to exports
given that the access to such a profitable market has historically been easy. A
one stop export market for 75 per cent of your exports has become the gold
standard of Canadian trade policy.
But Canadian business has been seduced by
the prospects of China’s growing economy and the vision of a rich market of 1.4
billion people as a sort of future U.S.-like trade relationship. China has
rapidly industrialized and is developing a large, dense and wealthy market. At
first, it even seemed to be moving towards a more liberal market order in its
economy.
Yet despite early promise, it would appear
China is only playing lip service to liberal economic values and seems set on
explicitly using trade relationships as part of its diplomatic and political
arsenal, given that it views government policy and trade relationships as one
dominion. Its recent behaviour raises an important question: Do we really want
to ever be in a situation where 75 per cent of our exports are dependent on
China’s market? Do we really want to give the Chinese government a
quasi-monopoly over both our trade and political affairs?
It really would be the road to serfdom.
Despite the large dollar value of our trade
relationship with China, it currently still only represents five per cent of
our exports. Trade is about free exchange and mutually beneficial gains. If
China wants our trade goods, we should certainly sell them as part of a free
and open bargaining process. However, if it wants to use its economic
relationships as a tool to get its way when dealing with countries on other
issues, then we must protect ourselves. We are a small open economy dependent
on trade and we must diversify our trade. Our recent efforts in negotiating
agreements with the EU and the Trans-Pacific are only a start. We need many
countries to compete for our business, but to do so we also need to show interest
and compete for theirs. Part of this also involves reducing our own
protectionism (agricultural supply management would be a good place to start).
If the Asia-Pacific is the future of trade,
then look for opportunities in other wealthy Asian countries. Japan, India,
Thailand, Vietnam, Taiwan, Singapore, Malaysia, Indonesia and the Philippines
are all important economies that can serve as markets for Canadian products.
Moreover, instead of waiting for
government-led initiatives, Canadian businesses should start the process
themselves. Rather than placing all your eggs in a one-shot market-access
strategy in the hopes that China can one day replicate our success in the U.S.,
shift your markets to other partners. Make sure there are a lot of them so no
one country can ever hold our economy hostage. This should become the new gold
standard for Canadian trade policy.
