Prairie provinces gearing up for ‘new normal’ trade relations with China

In the wake of the Meng-two Michaels imbroglio, many Canadians are wondering what’s next in our fraught trade relations with China, our second-largest trading partner next to the United States.

Shortly after the settlement in October between Huawei Technologies CFO Meng Wanzhou and U.S. Department of Justice and the subsequent release of Michael Spavor and Michael Kovrig, two Canadians charged with spying in 2018 and imprisoned for more than 1,000 days by the People’s Republic of China (PRC), Canada’s newly appointed Foreign Affairs Minister Melanie Joly said she would be looking at China with “both eyes open.’’

Many China watchers have wondered exactly what that means. Does it means a return to normal, with both sides putting this three-year diplomatic breach and political impasse behind them, and moving forward with two-way trade on a ‘business as usual’ basis?

Or does it mean that Canada will take a much harder line with China in our political, diplomatic and trade relations and seek to strengthen our relationship with other trading partners in the Asia-Pacific region, so as to avoid a repeat of the painful experience of L’affaire Meng?

It’s fair to say expert opinion on this subject is as divided as it is among the general public. But one thing seems certain.

We will never go back to normal in our relationship with the PRC after two Canadian citizens were victims of ‘hostage diplomacy’ by a global powerhouse not shying about threatening and bullying a middle power, like Canada, to achieve its political and economic goals.

Despite that, experts agree that two-way trade with China will continue to play an important role in the growth of the Canadian and Prairie economies in the years ahead. Canadian producers and consumers are too dependent on trade with China to do otherwise.

Seeing things clearly

“China is too big to ignore—for trade reasons, for migration reasons, for geo-strategic reasons,” says Colin Robertson, a former Canadian diplomat and current vice-president and fellow at the Canadian Global Affairs Institute in Ottawa.

“So, you have to engage [with China] and you have to engage with both eyes open,” adds Robertson, who grew up on the Prairies and still has family living in Regina.

For years, Canada was willfully blind to China’s propensity to use economic and political force to get its way and often viewed the world’s second largest economy with “dollar signs in its eyes,” Robertson says.

“If we’re a country that says our values reflect our interests and our interests reflect our values, then human rights are important. It’s part of the Canadian brand.”

He says the Mulroney and Chretien governments “got it more or less right” by engaging China with Team Canada trade missions but raising human rights concerns behind closed doors. “There were no surprises. That’s important for the Chinese that there were no surprises.”

By contrast, Robertson says Prime Minister Justin Trudeau naively thought he could trust China to play by the rules and trade fairly, but soon learned otherwise. Nor was Trudeau the only Canadian to change their opinion of China due to the Meng-two Michaels affair.

The nearly three-year ordeal dramatically changed public opinion in Canada, with a majority holding favourable views of China before the incident and a majority holding negative views during and after.

“The two Michaels (incident) really had a profound effect on how the people in Canada view China,’’ Robertson says. “So, will we go back to—quote—normal? No, I think that it will be a new normal.”

The resolution of the Meng- two Michaels situation “certainly removes the biggest barrier, but no it’s not going to be as normal as it was,” Robertson adds.

The Chinese government also imposed trade sanctions on Canadian canola and pork exports to China during the dispute over Meng and the two Michaels. While purportedly due to phytosanitary concerns, most observers believe the trade bans were meant to apply additional pressure on Canada to end the extradition proceedings against Meng.

Spreading out

That’s why Canada and trading provinces, like Saskatchewan and Manitoba, should continue to diversify their trading relationships in the Asia-Pacific region, so as not to have all of their eggs in one basket, he says.

“Yes, we should diversify because the Chinese at any time can shut [trade] off. Initially, they shut off pork [imports], until they had swine flu and realized that they needed it, but kept it on canola.”

Robertson favours applying Magnitsky economic sanctions against individuals in China for human rights violations against the Uyghurs and others. But he doesn’t agree with imposing tit-for-tat trade sanctions on the PRC. “I think trade sanctions only hurt Canadian farmers.”

That said, Robertson says there are many reasons why Canada should try to normalize relations with China as soon as possible. “We should be engaging (the Chinese government) and there’s a whole realm of things we can engage on, like climate (change), dealing with pandemics, trade and education. Look at how many Chinese students are studying at the University of Saskatchewan and the University of Regina.

While it’s too soon for the PM to visit China, Robertson says provincial premiers from exporting provinces, like Saskatchewan and Manitoba, should be actively promoting trade with China. In fact, Robertson would like to see Premier Scott Moe head a trade mission to China and the Asia-Pacific region sometime in the new year.

“I would like to see him soon lead a trade mission to China, but also some other countries, like Vietnam and Indonesia,” Robertson says.

“Should we diversify trade? Absolutely, we should diversify our trade from China. There are lots of opportunities. But China is still a big and important market for us.”

Adding it up

No one needs to remind Jeremy Harrison, Saskatchewan’s long-time minister of Trade and Export Development, how big and important China is to the province’s export trade.

In 2020, Saskatchewan exports to China totalled $4.1 billion, up one-third from $3.1 billion in 2019. And in the first nine months of 2021, Saskatchewan trade with China was $3.1 billion, a 19 per cent increase from the same period in 2020.

“I would fully expect that you would see (Saskatchewan exports to China in 2021) that would be equivalent to last year,” Harrison said in a recent interview. “We’ve had a degree of stability in the last year.’’

Harrison notes that export trade with China has increased, despite its ban of canola shipments in March 2019 against two companies, Richardson International and Viterra, which affected about $2 billion in sales. Pork exports have also been affected by trade bans imposed by the Chinese.

“Our export companies have done really quite a remarkable job in finding ways to adapt to what had been a highly unexpected circumstance,” Harrison says. Harrison says education and marketing programs have helped increase the market share for canola in the Asia-Pacific region and offset the impact of the Chinese ban on canola shipments.

“Companies, organizations and governments, too, played a role in working to diversify away from the Chinese market. I really do think it was a successful endeavor that’s going to pay long-term dividends in terms of the global appetite for canola.”

Looking elsewhere

The province also opened three new trade offices, in Singapore, Tokyo and New Delhi, and appointed a new director in its Shanghai office, which serves mainland China, in the first quarter of 2021.

In May, the ministry also announced four more trade offices, including one in Ho Chi Minh City, Vietnam, which has a population of 95 million people, a mature market for wheat and canola meal and a potential market for grains, oilseeds and feed.