Relations with China pose risks for Canada

It’s hardly the first time relations between Canada and the United States have been tense. There was, for instance, that time when folks north of the border burned down the White House. There was Lyndon Johnson reportedly warning a visiting Lester Pearson: “You don’t come here to piss on my rug.” Richard Nixon was caught on tape calling Pierre Elliott Trudeau “a son of a b—.” Still, over time, the relationship flourished, and twoway trade in 2016 was more than $840 billion.

Yet the disruption currently posed by the Trump administration is worrying — not simply because of the potential unravelling of trade patterns if the U.S. president means what he says, but because of the path Canada may follow to insulate its citizens from the worst whims of a volatile president.

A quick review of recent events: Trump has attacked Canada’s supply-managed dairy industry as “a disgrace” and announced tariffs of up to 24 per cent on Canadian softwood lumber. He has threatened to tear up the North American free trade deal, then said he will in fact give renegotiation a shot.

All of these actions affect our economy directly. Layoff notices have gone out at some Canadian softwood firms. The Canadian dollar has been hit. And Trump’s plan to cut the top U.S. corporate tax rate to 15 per cent will put even more pressure on us.

How much of Trump’s bombast is just a negotiating strategy isn’t a question Canada can gamble on. So the Trudeau government has accelerated the search for what former cabinet minister Mitchell Sharp, way back in 1972, dubbed “the third option.” Elliot Tepper, emeritus professor of political science at Carleton University, refers to this option in today’s context as the “China always wins” scenario.

Briefly, the Canadian government, knowing it cannot put all its economic eggs in one basket, has for decades tried to woo other partners, from Europe to Asia. There was the Trans-Pacific Partnership (now defunct thanks to Trump); there is the current free-trade deal with Europe; there may one day be such an accord with the United Kingdom. But right now, our economic romance is with China.

This relationship is risky. China’s government doesn’t share the democratic values Canadians cherish, and its sense of corporate social responsibility is equally fungible. But it has emerged as the global counterpoint to the United States, and it wants trade.

Whether Trudeau’s team can sort out an economic relationship with the Americans is a mystery. Where negotiations with China end up is equally murky. The Trump effect may be even worse than we thought.