China Card

So now, in the wake of the USMCA, China wants a trade deal with Canada. Prime Minister Justin Trudeau says our country is ready. Improving trade ties with China would go a long way to trade diversification but Canadians should tread carefully.

More engagement with the world’s second biggest economy that is growing at twice the rate of our U.S. and EU partners makes a lot of sense. Economics aside, we have expanding people-to-people ties: the Chinese are our largest group of foreign students; Chinese tourism is up by double digits; and 10 per cent of recent immigrants came from China.

So the question is not about whether to engage, but how best to engage.

Negotiating a full free-trade agreement, says the Public Policy Forum’s useful report, Diversification not Dependence, could take a decade. Last December, Chinese Premier Li Keqiang rejected Prime Minister Trudeau’s overture on a closer economic partnership, dismissing out of hand the gender and aboriginal rights integral to Mr. Trudeau’s progressive trade agenda. The Chinese aren’t open to change, so have we decided to drop the progressive agenda?

The PPF says sectoral agreements are the way to go, starting with agri-food and natural resources, eldercare and pensions coupled with co-operative arrangements on things such as climate. These will build confidence and create momentum for more progress.

This could work although, like the rest of Asia, the Chinese are increasingly skeptical about Canada’s ability to get its goods to market. One new LNG pipeline is not enough.

The Chinese will demand preferred investment access for their state-owned enterprises (SOEs). They feel that the current regime, imposed by the Harper government in 2012, is unfair. Are we prepared to relax our rules?

There is a third option – encourage China to join the Comprehensive and Progressive Trans Pacific Partnership (CPTPP). It already covers things such as SOEs, labour and environmental standards, intellectual property rights, and includes enforceable dispute settlement. The CPTPP should become the benchmark pact for the Indo-Pacific. China’s own model – the Regional Comprehensive Economic Partnership (RCEP) – does not meet the CPTPP standard.

But all of this may come to naught. Like it or not, Canada is now caught in the Sino-U.S. confrontation, of which the USMCA “China clause” is the latest manifestation. While we are nowhere near negotiations with China, consulting with our principal trade partners would seem sensible.

The sense that Chinese behaviour is predatory and posing significant threats to the U.S. that need to be countered is driving current U.S. policy. The Donald Trump approach – threats, bombast and tariffs – is antagonizing China and prompting retaliation. We will need to be careful that we don’t become collateral damage.

China’s leadership wants to reform global governance to reflect China’s superpower stature. But China only pays lip service to the rules-based international order. Its mercantilist behaviour, ranging from subsidized to forced technology transfers, has contributed mightily to the looming Sino-U.S. trade war. Its cyberintrusions – for espionage and commercial gain – are detailed in our intelligence agencies’ annual reporting. While the Trump administration’s method is obnoxious, the EU, Japan and North America need to defend our rules-based system.

China has not developed politically, economically or diplomatically in ways that the West had thought it might. But projecting hopes and wishful thinking on China goes further back than this current moment. In his latest book, Daniel Kurtz-Phelan describes U.S. General George Marshall’s unsuccessful efforts to steer China toward liberal democracy in the aftermath of the Second World War. The China Mission is a must-read for foreign-policy makers practising diplomacy in Asia.

The Prime Minister meets the premiers this fall to talk trade diversification. Thrashing through a China strategy is essential. What is it we really want? What are we prepared to give up?

We need to engage in continued relationship building through ministerial visits and through the kind of Track Two discussions organized by the University of Alberta’s China Institute.

It would help if the federal Conservatives are part of the consensus. No one expects lock-step agreement, but a general alignment on our objectives – as we witnessed during the USMCA negotiations – serves the national interest. It also ensures continuity when governments change.

Beyond the obvious trade benefits, better relations with China make sense for Canada. But decisions on China should only be made after we have done our homework and with our eyes wide open.

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