Business·Analysis

Time to remind the G20 there's more to Canada's economy than trade with China: Don Pittis

China's attacks on Canadian commodity exports may or may not be resolved at the G20 summit. But if Canadian businesses are learning that China is not a reliable trade partner, it may be a catalyst to look elsewhere.

China's trade attacks may encourage Canadians to look elsewhere — and that's a good thing

Canadian Prime Minister Justin Trudeau and his wife Sophie Gregoire Trudeau board the government plane as they depart for the G20 in Japan on Wednesday. (Adrian Wyld/The Canadian Press)

China's latest trade attack — this time on exports of Canadian meat — is a fresh warning of the current volatility in global commerce.

As the world's largest trading nations gather at the G20 summit in Japan this week, there have been stern warnings that a failure to resolve the tariff dispute between the United States and China will have a dire effect on the entire global economy.

But despite repeated warnings of trade Armageddon, the North American economy has shown itself to be surprisingly resilient and the latest economic indicators tell us that Canada is actually doing quite well.

And as painful as it is for Canadian producers that have benefited from the Chinese market, the dark cloud of politically motivated trade action may have a silver lining.

For one thing, it tells Canadian exporters that China, willing to cast aside a long, close trading relationship in favour of  short-term political bullying, may not be a reliable trade partner.

For another, it is a reminder that, for Canada, exports to China are by no means the only game in town.

Trump meets Xi

Certainly in the run-up to the G20 meeting in Osaka that officially begins Friday, spillover from the U.S.-China trade battle has been seen as a key subject of discussion. Whether there is any hope of a resolution is widely disputed.

"We were about 90 per cent of the way there and I think there's a path to complete this," said U.S. Treasury Secretary Steve Mnuchin this week, insisting he is optimistic talks between U.S. President Donald Trump and Chinese President Xi Jinping will lead to progress.

But there have been many other signals from the U.S. administration that there are large issues outstanding. Trump has warned of a "plan B" — including more tariffs — if China does not back down.

So far Xi has been equally intransigent, unwilling to give up key elements of his country's long-term technology plan, the Made in China 2025 strategy, in exchange for short-term trade peace.

Between those two poles, Canada has been caught in the middle. U.S. hostility toward China, including its demand that Canada arrest Chinese Huawei executive Meng Wanzhou, has led directly to the Canada-China dispute.

Despite the ongoing hostility, Canada-China trade continues, including the recent opening of an Ontario plant by Chinese automaker BYD, which will assemble electric buses for the Toronto Transit Commission. (Rodrigo Garrido/Reuters)
 

In retaliation, Beijing ordered the detention of two Canadians and threatened the life of another. It is an open secret that China's potshots at Canadian agriculture exporters are directly related to our long-standing rule-of-law obligations to the United States.

Looking away from China

International Trade Minister Jim Carr played down on Tuesday the political dimension of China's trade action, insisting that the government would help work through the ostensible complaint that meat had been exported to China under false Canadian documentation.

But perhaps more pertinent, the reason for Carr's public appearance was to address the huge opportunities of expanding export markets outside the People's Republic.

"Our market diversification efforts are reaping rewards in India," Carr told the Canada-India Business Council. 

While the minister celebrated the 10 million Indians who eat McCain french fries every month and the fact that Indian commuters ride on Canadian trains, helping to cut pollution, he reminded the audience that Canada's deep relationship with the subcontinent country has plenty of room to develop.

In a scrum with the media over the China trade disputes, Carr was careful to say that he was not "looking to exacerbate or escalate tensions" with China. But in his speech, he did nod to India's democratic system — and to the fact that with its population young and growing, it was a market of the future.

China's trade attacks hurt exporters, driving them to look for other markets. But the Canadian economy is far less dependent on traditional exports than it once was. (Jeff McIntosh/The Canadian Press)

But could the conflict with China actually be an incentive for the Canadian government and exporters to focus on countries other than China?

"I guess my short answer would be I certainly hope so," said Bob Fay, director of the global economy program at the Waterloo, Ont.-based think-tank Centre for International Governance Innovation.

"Clearly India is a large and growing economy with very favourable demographics. So this is a country that, as it continues to expand, is going to need a lot of the products that Canada could deliver," he said.

But just as manufacturing is moving out of China, especially for elsewhere in Asia, Fay believes those same countries are the ideal targets for Canadian trade relations of all kinds.

Waiting for the hammer to fall?

The potential of those expanding alternative markets may be one of the reasons the U.S.-China trade war has not yet hammered North American markets the way many have been predicting.

Perhaps the hammer merely has yet to fall, but, as Fay pointed out, the impossible calculation is how much stronger the North American economy would have been without the trade dispute.

The other factor to take into account, Fay said, is that interest rates all over the world remain extraordinarily low, partly to boost economies hobbled by trade fights.

While rock-bottom rates help stimulate new businesses, they may also be accumulating future instability. That includes allowing weak businesses — so-called zombie firms — to stagger along when higher rates would have gradually weeded them out.

A more encouraging change is that the Canadian economy just isn't as dependent on raw commodity exports to China (or anyone else) as it once was.

With a highly educated population — partly homegrown and partly imported through a liberal immigration strategy — Canada is generating jobs and wealth in areas such as technology.

Traditional exports, including commodities, make up a shrinking share of the economy.

"It's easy to focus on cars and oil, but 70 per cent of the Canadian economy is services," said Fay. "And in particular some of the high tech services have been growing extremely strongly."

That may be a more important story for Canadian delegates to tell at the G20 summit.


Follow Don on Twitter @don_pittis

About the Author

Don Pittis

Business columnist

Don Pittis was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London. He is currently senior producer at CBC's business unit.

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