26-02-2019

Impact of Sino-US Trade war on Canada

The heat is on Canada

As the trade war between the US and China escalates, Canada is facing the heat despite the winter being unusually cold this year. Contrary to the prevalent belief that there was never a winner in a trade war; Canada is tasting the bitterness of this slugfest. There always was vulnerability in Canadian economy and the current crisis has made a deep gash in our trade and commerce. Early on in summer of 2018, doomsday prophets had predicted that conflict would deal the biggest blow to the Canadian economy since the Second World War and, now, coupled with the prospects of 5G technology, national security and diplomatic standoff with China, the issue has become a scrambled egg. The problem may get too hot to handle for the Liberal government in the election year. The economic and political shock has come as a heavy blow to us, especially, in light of the fact that Canada was already reeling under the pressure from the US due to imposition of tariffs on imports of steel and aluminum amongst other products in the “America First” policy. As part of this policy, import tariffs on Canadian timber have also been increased by 20% by the US. The increase in pork exports to Mexico have been offset by the losses incurred due to US-China trade turmoil. Mr. Donald Trump is trying to hold on ransom our dairy produce management system, considered “a protectionist regime for the Canadian farmer.” We, Canadians, also see a divergence of interests with US over the protectionism of its industry and agriculture and the national trade rhetoric it generates. The conflict is also increasingly making it difficult to reach out to new markets like India and Saudi Arabia. As of now pundits of economy wait in anticipation for Mr. Trump to back off from his threat on further imposition of $200 billion tariffs on Chinese goods.

AI, Huawei and 5 Eyes

The impact of trade war is visible in industries varying from agriculture to automotives and from technology to Artificial Intelligence (AI). The projected target of generating couple of trillions of dollars from AI by the US will not materialize without global cooperation, especially, in light of the fact that China has the keys of 5G network technology. We are part of the 5 Eyes community with UK, US, Australia and New Zealand. There is considerable pressure on Canada, with three of the five countries already having said no to Huawei coming to their country over security concerns. We too have national security concerns in introducing the technology. This is difficult for the Chinese to digest. Since Huawei is the carrier company of AI technology, we may not reap the right harvest of AI economy.

The exit clause in NAFTA 2.0

Rewind to NAFTA 2.0 (October, 2018), when we had to make a choice between the US and China as a preferred business ally. Neutrality was not an option. US is our time-tested trade ally. But natural choice also came with a price. After the pact, the Trump Administration went onto make a public declaration that the “continent was one” against the Chinese; and the new United States–Mexico–Canada Agreement (USMCA) was rolled out. According to Janyce McGregor of the CBC News, it made more sense for Canada to stay inside an “American tariff wall” than outside though that was not without damage to our economy. Signing the agreement has also given legitimacy to the American trade tariffs. And America played it extremely safe by adding a clause that could enable its immediate exit from USMCA, lest Mexico or Canada were to independently enter into a bilateral treaty with China.

The arrest plot

blogChina retaliated to arrest of Huawei CFO Meng Wanzhou (a Chinese national) by arresting two Canadians — Michel Kovrig and Michael Spavor. The Chinese claimed that they had been detained on charges of “endangering the national security” of China. Ever since, there is heightened tension between Ottawa and Beijing. To further put us between rock and hard place, US is asking for extradition of Wanzhou. Chinese reaction will be incandescent if we extradite her. Its impact on the Canadian economy would be substantial. Canada should play it safe by trumping our obligations to the international extradition treaty. Commenting on the situation, Mr. Jim Carr, Canada’s Minister for International Trade Diversification has said, “It’s not an easy time. It’s challenging.” Unfolding of events after Wanzhou’s arrest has also revealed our Achilles Heel—the limitedness of our global relations. We need to be more a more proactive player in international political sphere and decrease our reliance on the US.

Conclusion

And, now, it is said that the Dragon and Uncle Sam’s 90-day trade war may end on March 1, st 2019. Both the parties have agreed on a climb down from their respective positions on the sidelines of Group of 20 summit held in Argentina . China has assured to end subsidy in heavy industries like steel manufacturing in compliance with the regulations of the World Trade Organization. Progress has also been made in the intellectual property rights issue. China has promised to buy American goods worth $6 trillion in the next six years bringing a lot of cheers in different segments including the whiskey industry. Canada’s oil exports can see better days with a booming global trade in North America. The end of the trade war shall send a positive sentiment in all other sectors including logistics and transportation. For members of the business community, the season’s change can be expressed in Shakespearean terms as the ‘winter of discontent.’ Let us look forward to a bright summer for Canada and its businesses. We also hope for an early release of Korvig and Spavor.

Author

Vikram Dua

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