Col­umn / Don Newman

Trade Deal puts Canada with U.S. on China

Policy - - In This Issue - Col­umn / Don Newman

In the chaos that of­ten en­velopes Wash­ing­ton as the Trump ad­min­is­tra­tion tweets and stum­bles its way through one cri­sis af­ter an­other, both a goal and some­thing of a strat­egy were re­vealed at the be­gin­ning of Oc­to­ber with the pub­li­ca­tion of the pre­lim­i­nary text of the son of NAFTA: The U.S.-Mex­ico-Canada Agree­ment.

The goal is noth­ing short of con­tain­ing the on­go­ing and rapid mil­i­tary and eco­nomic rise of China. The strat­egy is to make Amer­ica’s eco­nomic part­ners choose be­tween rel­a­tively unim­peded ac­cess to the United States market and mak­ing a trade deal with the Chi­nese.

The goal and strat­egy are con­tained in Ar­ti­cle 32.10 of the new trade agree­ment. The ar­ti­cle says that if any party, that is Canada, Mex­ico or the United States, en­ters into a free trade agree­ment with a “non-market econ­omy,” the other two coun­tries would have the op­tion of ter­mi­nat­ing the USMCA and re­plac­ing it with a bi­lat­eral agree­ment be­tween them­selves.

The words “non-market econ­omy” are code for China. Both the U.S. and the Euro­pean Union are in dis­putes with China at the World Trade Or­ga­ni­za­tion. They are ar­gu­ing that the Chi­nese gov­ern­ment favours its do­mes­tic com­pa­nies over for­eign ones through a va­ri­ety of du­bi­ous prac­tices which China barely both­ers to dis­guise, and tilts the eco­nomic play­ing field in favour of the home team. There­fore, China is a “non-market econ­omy,” a WTO des­ig­na­tion Bei­jing protests.

Here in Canada there were im­me­di­ate com­plaints that by agree­ing to sign a deal with a clause that could limit fu­ture trade deals with other coun­tries, the gov­ern­ment was com­pro­mis­ing Cana­dian in­de­pen­dence and sovereignty. Prime Min­is­ter Justin Trudeau, For­eign Af­fairs Min­is­ter Chrys­tia Free­land and In­ter­na­tional Trade Di­ver­si­fi­ca­tion Min­is­ter Jim Carr all dis­agreed with that in­ter­pre­ta­tion.

But the Chi­nese know bet­ter. Af­ter turn­ing Trudeau away empty handed when he went to Bei­jing in 2017, af­ter the pub­li­ca­tion of the USMCA text, the Chi­nese for­eign min­is­ter was on the phone to Ot­tawa to de­nounce ar­ti­cle 32.10 and urge an im­me­di­ate start to ne­go­ti­a­tions now.

But with Canada’s eco­nomic health tied to the Amer­i­can econ­omy, no China ne­go­ti­a­tions are go­ing to start any­time soon. Cana­dian ex­ports to the United States make up 75 per cent of our ex­ports, and are 15 times more than we ex­port to China. In­stead, the new USMCA puts us firmly where we were any­way, on the Amer­i­can side in the con­fronta­tion with China over trade, geopo­lit­i­cal in­flu­ence and who is go­ing to set the rules in the 21st cen­tury. De­spite the un­der­stand­able dis­like of the cur­rent Amer­i­can pres­i­dent, Don­ald Trump is not go­ing to be in that job for­ever. And peo­ple in his own coun­try as well as abroad may come to thank him for tak­ing on China now, be­fore it gets to big and wealthy to be con­tained.

The U.S. and China have no trade deal but they are each other’s largest trad­ing part­ners. In what has be­come a very un­healthy eco­nomic re­la­tion­ship, China has a huge trade sur­plus with the U.S. and also holds a mas­sive amount of Amer­i­can debt. The amount of the debt is so large that an Amer­i­can de­fault or a down­ward re-eval­u­a­tion of the dol­lar would be as cat­a­strophic for China as the U.S.

So far, the Trump ad­min­is­tra­tion has ig­nored those facts. In­stead it is steam­ing ahead with the same kind of tac­tics against China that it used suc­cess­fully against Canada and Mex­ico in the NAFTA ne­go­ti­a­tions: The im­po­si­tion of tar­iffs against Chi­nese goods ex­ported to the United States. What is at the cen­tre of the clash is a more re­al­is­tic ap­praisal of China as it re­ally is, and what it wants to be­come. China can do this be­cause of its rapid eco­nomic growth. But that growth has been fi­nanced mainly by its mas­sive pool of low-cost labour and the will­ing­ness of Amer­i­can, Euro­pean and Cana­dian busi­nesses to ship the jobs of their higher-paid lower-skilled work­ers to China.

Be­yond that, eco­nomic ar­range­ments with China come with de­mands for the trans­fer of in­tel­lec­tual prop­erty, the sti­fling of com­plaints about hu­man rights and other quid pro quos that have noth­ing to do with ac­tual trade.

Some Cana­dian busi­nesses have com­plained that our coun­try has been too slow to get into the Chi­nese market in a big way. They have held up Aus­tralia as an ex­am­ple of a coun­try that has ag­gres­sively pur­sued op­por­tu­ni­ties in China.

But in the past few years Aus­tralia has been hav­ing sec­ond thoughts as Chi­nese at­tempts to med­dle in and in­flu­ence that coun­try’s chaotic po­lit­i­cal out­comes have be­come clear.

The Aus­tralians have learned that Chi­nese busi­ness is not just about busi­ness. With the new USMCA, the United States may have helped Canada not make the same mis­take.

Don Newman is Se­nior Coun­sel at Nav­i­ga­tor Lim­ited and En­sight Canada, and a life­time mem­ber of the Cana­dian Par­lia­men­tary Press Gallery.

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