Column / Don Newman
Trade Deal puts Canada with U.S. on China
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.