Canada needs more major trading partners beyond China and the U.S.
First Appeared in Fraser Blog , October 7th, 2019
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.