Canada’s response to trade spat between China, U.S. lacks focus
Kevin Carmichael explains how Trudeau should play this tricky, high-stakes game
Most old trade hands think this business between China and the United States will blow over. Too much at stake, they say. The gods of the international economy simply are playing games with each other, like they used to do in Homer’s day.
That doesn’t mean the gods still aren’t taking notes.
“Just give us another 24 to 48 hours,” Larry Kudlow, director of U.S. President Donald Trump’s National Economic Council, said April 6. “You’re going to see a trade coalition of the willing.”
Kudlow, who until a month ago was the business television equivalent of Don Cherry, appeared to be rounding up a posse to join Trump in blocking China’s highly subsidized conquest of the high-tech economy.
Canadian leaders, like many others, have their issues with China’s industrial policy. Yet they have avoided direct comment for now. But what if there is no neutral ground in this fight? China’s ambassador to Canada thanked Prime Minister Justin Trudeau’s government for zipping its lips. “A neutral position is a help to China,” Lu Shaye told Vassy Kapelos, host of CBC News Network’s Power & Politics. “We have noted that the position of the Canadian government is objective,” Lu said. “It’s very good.”
So Canada, how do you want to play this game, if that’s what this is? Shall we side with the autocratic regime in Beijing that might trade our support for a free-trade agreement? Maybe you prefer the democratically elected president with autocratic tendencies in Washington for sentimental reasons? Or might there be a way to triangulate our way out of this situation?
The choice matters because it will send the world a message about the kind of country we want to be: a global player or forever an appendage of the U.S. economy.
Many of you probably think this is an easy decision. Canadians and Americans have shed blood together on battlefields around the world for a century. The U.S. buys three quarters of our exports and essentially all of our international shipments of energy. Of course we have its back.
But what if I put it in terms that managers of professional sports teams would understand? Say circumstances are such that you only have room on your roster for the aging superstar or the emerging phenom who might someday break all the veteran’s records? Who do you keep?
You keep China of course. Even some Americans are leaning that way. His president might be courting a trade war, but BlackRock chief executive Larry Fink, who oversees the management of assets worth more than US$6 trillion, said his firm’s future was in the country that Trump describes as a menace. “One of the most critical priorities for BlackRock today and into the future is increasing our presence and penetration in high-growth markets around the world, particularly in Asia and especially China,” Fink wrote in his annual letter to shareholders.
There is disquiet in Canadian policy circles over whether the Trudeau government will get the China-U.S. standoff right. Experts see no international strategy beyond the all-handson-deck response to Trump’s assault on the North American Free Trade Agreement. Formal trade talks with China sputtered on the launch pad, and Trudeau nearly botched Canada’s entry into the Trans-Pacific Partnership (TPP). Trade Minister François-Philippe Champagne salvaged the latter situation, yet he appears to be in no rush to seek formal ratification in Parliament.
So while the government talks about a pivot to Asia, its actions suggest it’s afraid to do anything that might upset the White House. Why no bipartisan advisory committee on China, like the one Foreign Affairs Minister Chrystia Freeland assembled for NAFTA? What message is Trudeau sending to the world when he tells his foreign affairs minister to spend almost all of her time dealing with Washington?
“The approach appears myopic, too U.S.-focused,” said Gregory Chin, a professor of political economy at York University and a former Canadian diplomat in Beijing, “It appears to be lacking adequate strategic and tactical coordination with the other two sets of negotiations with China and the TPP.”
Said Omar Allam, another former diplomat and chief executive of Allam Advisory Group, an Ottawa-based trade consultancy: “We need to step back and think about how we are going to move forward on trade. What we’re doing in the U.S. is good, but we’re spreading ourselves too thin elsewhere and we don’t realize it.”
Here are some thoughts about how Trudeau should approach the U.S.-China showdown, based on my own experience abroad and conversations with Chin, Allam, and others who spend their time thinking about such things.
Canada should by no means join Kudlow’s anti-China coalition. There already is an alliance in place to deal with disagreements among the world’s big economies. It’s called the Group of 20. Trudeau should use whatever influence he has to de-escalate tensions by involving other countries in a broader discussion about trade. Talks would include Trump’s capricious use of retaliatory tariffs and China’s insistence that any company that does business there must share its intellectual property.
Trudeau has a reason to get involved. Andreas Schotter, an assistant professor of international business at Ivey Business School, worries Trump’s trade policies will cause China to turn away from North America and focus its attention on its backyard. Global investors would follow, crushing the notion that Canada could become a bridge between Asia and Europe.
Going to the G20 doesn’t mean appeasing Beijing. Trump is right to confront China over its confiscation of intellectual property. But you don’t resolve that problem by taxing imports of things that have nothing to do with high tech. If Beijing refuses to compromise, the right response is to force Chinese companies such as Huawei Technologies Inc. to share their innovations with Canadian partners, said John Curtis, a senior fellow at the C.D. Howe Institute and a former economist at the Trade Department.
The final piece should be deploying the full-court press used for the NAFTA talks to other parts of the world. Most agree that effort has been effective and Allam would like to see it become a template.
We just need to decide where else we want to go. Trudeau doesn’t seem to know at present.