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HomeAsiaWhen It Comes to Canada-China Trade, Keep One Eye on the Americans

When It Comes to Canada-China Trade, Keep One Eye on the Americans

Image credit: Office of the Prime Minister

By Carlo Dade

This article is published as part of IPD’s China Strategy Project.

If the purpose of a China strategy is to advance and defend real, concrete, “hard” Canadian interests, then there are two first principles that guide such a strategy.

First, is that Canadian interests in dealing with China are not only, or even primarily, about China in the traditional bilateral sense. For Canada, it is about how it, as an extremely trade-dependent country, deals with a new, dominant, global economic power. In other words, instead of “How does Canada deal with China?”, the question needs to be rephrased as “How does Canada deal with a new ‘world’s largest economy’?”

China has, for the last five years, been the world’s largest economy by purchasing power parity. It is slated to surpass the United States as the world’s largest economy by GDP within a decade. With its rise to global economic dominance, China brings a unique and new economic governance model to drive growth and – with its Belt and Road Initiative that invests funds which the West has yet to match – literally reshape the physical infrastructure for the goods that Canada trades. For a country as trade dependent as Canada, this is critical. International exports accounted for 29% of Canada’s GDP in 2020. That is three times larger in share than the U.S. and roughly half more important than allies such as Australia.

Even if a country as trade dependent as Canada could somehow “disengage” from the Chinese market and diversify its C$28.8 billion exports and C$85.7 billion imports away from China, Canada’s producers and exporters and the governments that support them would still encounter China, Chinese influence, and the impacts of Chinese policy in the markets to which they reorient themselves. Or, to put it succinctly – even if you somehow manage to run away from China, you still run into China.

Yes, the vast majority of Canada’s trade still goes to the U.S. and that trade relationship and the politics that support it will dominate Canada’s economic and diplomatic strategy as long as that remains the case. But trade with the rest of the world is growing faster than trade with the U.S. In food and agriculture, Canada exports about half of what it produces. Of this, the share of exports which are not destined for the U.S. is slated to grow faster. As of 2021, Canada’s food and agricultural exports to China have been growing at an average rate of 17% over the last 2 decades. This is compared to a growing average rate of just 5% with the U.S. for the same period. Those products go into a world where China is often not only the largest consumer but also the largest producer of what Canada also produces.

China is not simply a successor to the U.S. that, similar to Japan during its rise, is simply tweaking the U.S. economic model. China is a new, distinct and vastly different economic governance model. Canada is also pursuing deeper trading relations with the Association of Southeast Asian Nations (ASEAN), Indonesia and India. Each of these markets has China as its largest foreign trade partner and foreign investor, and all of them have bilateral and pluri-lateral trade agreements with China. This reach by China also extends into our neighbourhood: the other Canadian target for trade negotiations, Brazil, also counts China as its largest trade partner and investor, as does most of this hemisphere. A strategy that does not start with acknowledging this economic reality – that China is a global economic force shaping markets across the world – is a strategy for a world that existed decades ago, not the world of today and certainly not the world of ten years hence.

A focus on the tangible intersections between the exercise of Chinese economic influence and Canadian interests in the Chinese market, as well as other markets influenced by China, is fundamental. The current focus of public and especially media discourse on the political and soft elements of China’s rise, as important as they are, desperately needs to be counterbalanced by a focus on the economic issues that will actually, materially, touch Canadians from coast to coast to coast. The immediate, material threats that Canada faces are not found in a military invasion from a rising and revisionist power, but rather in the repercussions of economic actions that shape the global trade upon which Canada is dependent. Yet these are the threats that are least understood by China critics in Canada, even if their awareness of them is clear when they are torn away from giving soundbites and think seriously about the full range of Canadian national interests.

Engagement with the world’s largest economy is not an endorsement of its policies; rather, it is self-defence. Not engaging is an abdication of responsibility for – and a betrayal of – the Canadian national interest.

The second critical point is that in the defence of our economic national interests, the Americans are not our friends. They are our competitors. Where interests align on security, intelligence and defence matters, the U.S. and Canada are trusted and privileged allies, but none of this equates to being “friends”. The anthropomorphization of a relationship built on realpolitik is fatal to Canada’s ability to define and pursue its self-interest.

The idea that Canada and the U.S are “friends” is an outgrowth of overlapping and geopolitical interests, seen in the founding of the North Atlantic Treaty Organization and the North American Aerospace Defence Command – organizations which the third North American nation, Mexico, refuses to join. Canadians believe that this should equate with special treatment. When the U.S. imposed tariffs under Section 232 of the Trade Expansion Act of 1962 on Canadian steel as a threat to U.S. national security, Canadians were shocked. By contrast, Americans largely shrugged or hid their heads in embarrassment, but not surprise. Canadians think of themselves as exceptional and special friends. For the U.S., Canadians are simply not Americans. And the reality is that when money is on the table, the U.S. has historically and will continue to put its own interests first.

An object lesson on this reality was given during the NAFTA re-negotiation. Here the U.S. used the negotiations for a new NAFTA in 2018, in essence, to scare and scar Canada from considering economic engagement with China by inserting a last-minute section on negotiating with “non-market” countries, section 32.10, into the agreement. A not unfair policy goal, except that at the exact same moment that the Americans were putting this clause into the new NAFTA, Washington was negotiating its own trade agreement with Beijing – the U.S.-China Phase One agreement – that took market share from Canadian farmers and handed it to US farmers. Another object lesson comes from the fight to preserve the Trans-Pacific Partnership trade agreement after the U.S. withdrawal. Under the Trump administration, and arguably under the Biden administration as well, the newly labelled CPTPP has become as much a rules-based trade bulwark against unilateral trade actions and rule-breaking from the U.S. as from China.

Managing the tension between political and economic interests has been a constant in the U.S.-Canada relationship and will be so in the future. It is an unwelcome burden, but it is far from unmanageable. From Diefenbaker through Mulroney through Martin, it has been done successfully.  Explicit recognition of this tension must, however, be front and centre in any strategy in which Canadian economic interests are a primary consideration. During political debates in Canada over whether the country should continue with or withdraw from the TPP after the Americans left, there were concerns that pursuing the TPP would harm the NAFTA renegotiation and endanger the Canada-U.S. trade and political relationship. In reality, the only harm that was done to Canada from its ratification of the TPP was done by Canadians worrying about non-existent harm. This overreaction to the imagined fears of how the U.S. would react to Canada ratifying the TPP after Washington pulled out may be what planted the seeds in American minds to insert their infamous non-market country (aka China) clause into the new NAFTA.

A strategy that begins with acceptance, as opposed to recognition, of U.S. perspectives is a strategy that a priori cedes Canadian economic interests. A strategy that starts with a strong definition and advancement of Canadian interests and that forces the Americans to react, if they notice at all, is critical given the imbalance in the Canada-U.S. relationship.

The Americans are hard at work on their China strategy including the House and Senate versions of massive, billion-dollar bills to enable U.S. competition with Beijing. Both versions of the current bills call for specific, unique, bilateral strategies to engage Canada in the advancement of the objectives of the acts. Given that the House version of the act is titled the “America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act” (author’s emphasis), the best means to survive the inevitable need to cooperate with the Americans on their “America First” Indo-Pacific strategy is going into those negotiations with a strong “Canada First” policy.

Carlo Dade is an Honorary Senior Fellow at the School of International Development and Global Studies at the University of Ottawa.

Panel 4: Pathways to Manage Non-Proliferation in the Middle East (4:30 PM - 5:45 PM ET)

The Western powers have failed to effectively manage the increasing threat of proliferation in the Middle East. While the international community is concerned with Iran’s nuclear program, Saudi Arabia has moved forward with developing its own nuclear program, and independent studies show that Israel has longed possessed dozens of nuclear warheads. The former is a member of the treaty on the Non-Proliferation of Nuclear Weapons (NPT), while the latter has refused to sign the international agreement. 

On Middle East policy, the Biden campaign had staunchly criticized the Trump administration’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA), more commonly known as the Iran Nuclear Deal and it has begun re-engaging Iran on the nuclear dossier since assuming office in January 2021. However, serious obstacles remain for responsible actors in expanding non-proliferation efforts toward a nuclear-free zone in the Middle East. 

This panel will discuss how Western powers and multilateral institutions, such as the IAEA, can play a more effective role in managing non-proliferation efforts in the Middle East.  

Panelists:

Peggy Mason: Canada’s former Ambassador to the UN for Disarmament

Mark Fitzpatrick: Associate Fellow & Former Executive Director, International Institute for Strategic Studies (IISS)

Ali Vaez: Iran Project Director, International Crisis Group

Negar Mortazavi: Journalist and Political Analyst, Host of Iran Podcast

David Albright: Founder and President of the Institute for Science and International Security

 

Closing (5:45 PM – 6:00 PM ET)

Panel 3: Trade and Business Diplomacy in the Middle East (3:00 PM - 4:15 PM ET)

What is the current economic landscape in the Middle East? While global foreign direct investment is expected to fall drastically in the post-COVID era, the World Bank reported a 5% contraction in the economic output of the Middle East and North African (MENA) countries in 2020 due to the pandemic. While oil prices are expected to rebound with normalization in demand, political instability, regional and geopolitical tensions, domestic corruption, and a volatile regulatory and legal environment all threaten economic recovery in the Middle East. What is the prospect for economic growth and development in the region post-pandemic, and how could MENA nations promote sustainable growth and regional trade moving forward?

At the same time, Middle Eastern diaspora communities have become financially successful and can help promote trade between North America and the region. In this respect, the diaspora can become vital intermediaries for advancing U.S. and Canada’s business interests abroad. Promoting business diplomacy can both benefit the MENA region and be an effective and positive way to advance engagement and achieve foreign policy goals of the North Atlantic.

This panel will investigate the trade and investment opportunities in the Middle East, discuss how facilitating economic engagement with the region can benefit Canadian and American national interests, and explore relevant policy prescriptions.

Panelists:

Hon. Sergio Marchi: Canada’s Former Minister of International Trade

Scott Jolliffe: Chairperson, Canada Arab Business Council

Esfandyar Batmanghelidj: Founder and Publisher of Bourse & Bazaar

Nizar Ghanem: Director of Research and Co-founder at Triangle

Nicki Siamaki: Researcher at Control Risks

Panel 2: Arms Race and Terrorism in the Middle East (12:00 PM - 1:15 PM ET)

The Middle East continues to grapple with violence and instability, particularly in Yemen, Syria and Iraq. Fueled by government incompetence and foreign interventions, terrorist insurgencies have imposed severe humanitarian and economic costs on the region. Meanwhile, regional actors have engaged in an unprecedented pursuit of arms accumulation. Saudi Arabia and the United Arab Emirates have imported billions of both Western and Russian-made weapons and funded militant groups across the region, intending to contain their regional adversaries, particularly Iran. Tehran has also provided sophisticated weaponry to various militia groups across the region to strengthen its geopolitical position against Saudi Arabia, UAE, and Israel. 

On the other hand, with international terrorist networks and intense regional rivalry in the Middle East, it is impractical to discuss peace and security without addressing terrorism and the arms race in the region. This panel will primarily discuss the implications of the ongoing arms race in the region and the role of Western powers and multilateral organizations in facilitating trust-building security arrangements among regional stakeholders to limit the proliferation of arms across the Middle East.

 

Panelists:

Luciano Zaccara: Assistant Professor, Qatar University

Dania Thafer: Executive Director, Gulf International Forum

Kayhan Barzegar: Professor and Chair of the Department of Political Science and International Relations at the Science and Research Branch of Azad University

Barbara Slavin: Director of Iran Initiative, Atlantic Council

Sanam Shantyaei: Senior Journalist at France24 & host of Middle East Matters

Panel 1: Future of Diplomacy and Engagement in the Middle East (10:30 AM-11:45 AM ET)

The emerging regional order in West Asia will have wide-ranging implications for global security. The Biden administration has begun re-engaging Iran on the nuclear dossier, an initiative staunchly opposed by Israel, while also taking a harder line on Saudi Arabia’s intervention in Yemen. Meanwhile, key regional actors, including Qatar, Iraq, and Oman, have engaged in backchannel efforts to bring Iran and Saudi Arabia to the negotiating table. From a broader geopolitical perspective, with the need to secure its energy imports, China is also expected to increase its footprint in the region and influence the mentioned challenges. 

In this evolving landscape, Western powers will be compelled to redefine their strategic priorities and adjust their policies with the new realities in the region. In this panel, we will discuss how the West, including the United States and its allies, can utilize multilateral diplomacy with its adversaries to prevent military escalation in the region. Most importantly, the panel will discuss if a multilateral security dialogue in the Persian Gulf region, proposed by some regional actors, can help reduce tensions among regional foes and produce sustainable peace and development for the region. 

Panelists:

Abdullah Baabood: Academic Researcher and Former Director of the Centre for Gulf Studies, Qatar University

Trita Parsi: Executive Vice-President, Quincy Institute for Responsible Statecraft

Ebtesam Al-Ketbi: President, Emirates Policy Centre​

Jon Allen: Canada’s Former Ambassador to Israel

Elizabeth Hagedorn: Washington correspondent for Al-Monitor

Panel 4: Humanitarian Diplomacy: An Underused Foreign Policy Tool in the Middle East (4:30 PM - 5:30 PM ET)

Military interventions, political and economic instabilities, and civil unrest in the Middle East have led to a global refugee crisis with an increasing wave of refugees and asylum seekers to Europe and Canada. Moreover, the COVID-19 pandemic has, in myriad ways, exacerbated and contributed to the ongoing security threats and destabilization of the region.

While these challenges pose serious risks to Canadian security, Ottawa will also have the opportunity to limit such risks and prevent a spillover effect vis-à-vis effective humanitarian initiatives in the region. In this panel, we will primarily investigate Canada’s Middle East Strategy’s degree of success in providing humanitarian aid to the region. Secondly, the panel will discuss what programs and initiatives Canada can introduce to further build on the renewed strategy. and more specifically, how Canada can utilize its policy instruments to more effectively deal with the increasing influx of refugees from the Middle East. 

 

Panelists:

Erica Di Ruggiero: Director of Centre for Global Health, University of Toronto

Reyhana Patel: Head of Communications & Government Relations, Islamic Relief Canada

Amir Barmaki: Former Head of UN OCHA in Iran

Catherine Gribbin: Senior Legal Advisor for International and Humanitarian Law, Canadian Red Cross

Panel 3: A Review of Canada’s Middle East Engagement and Defense Strategy (3:00 PM - 4:15 PM ET)

In 2016, Canada launched an ambitious five-year “Middle East Engagement Strategy” (2016-2021), committing to investing CA$3.5 billion over five years to help establish the necessary conditions for security and stability, alleviate human suffering and enable stabilization programs in the region. In the latest development, during the meeting of the Global Coalition against ISIS, Minister of Foreign Affairs Marc Garneau announced more than $43.6 million in Peace and Stabilization Operations Program funding for 11 projects in Syria and Iraq.

With Canada’s Middle East Engagement Strategy expiring this year, it is time to examine and evaluate this massive investment in the Middle East region in the past five years. More importantly, the panel will discuss a principled and strategic roadmap for the future of Canada’s short-term and long-term engagement in the Middle East.

Panelists:

Ferry de Kerckhove: Canada’s Former Ambassador to Egypt

Dennis Horak: Canada’s Former Ambassador to Saudi Arabia

Chris Kilford: Former Canadian Defence Attaché in Turkey, member of the national board of the Canadian International Council (CIC)

David Dewitt: University Professor Emeritus, York University

Panel 2: The Great Power Competition in the Middle East (12:00 PM - 1:15 PM ET)

While the United States continues to pull back from certain regional conflicts, reflected by the Biden administration’s decision to halt American backing for Saudi Arabia’s intervention in Yemen and the expected withdrawal from Afghanistan, US troops continue to be stationed across the region. Meanwhile, Russia and China have significantly maintained and even expanded their regional activities. On one hand, the Kremlin has maintained its military presence in Syria, and on the other hand, China has signed an unprecedented 25-year strategic agreement with Iran.

As the global power structure continues to shift, it is essential to analyze the future of the US regional presence under the Biden administration, explore the emerging global rivalry with Russia and China, and at last, investigate the implications of such competition for peace and security in the Middle East.

Panelists:

Dmitri Trenin: Director of Carnegie Moscow Center

Joost R. Hiltermann: Director of MENA Programme, International Crisis Group

Roxane Farmanfarmaian: Affiliated Lecturer in International Relations of the Middle East and North Africa, University of Cambridge

Andrew A. Michta: Dean of the College of International and Security Studies at Marshall Center

Kelley Vlahos: Senior Advisor, Quincy Institute

Panel 1: A New Middle East Security Architecture in the Making (10:30 AM -11:45 AM ET)

The security architecture of the Middle East has undergone rapid transformations in an exceptionally short period. Notable developments include the United States gradual withdrawal from the region, rapprochement between Israel and some GCC states through the Abraham Accords and the rise of Chinese and Russian regional engagement.

With these new trends in the Middle East, it is timely to investigate the security implications of the Biden administration’s Middle East policy. In this respect, we will discuss the Biden team’s new approach vis-à-vis Iran, Yemen, Saudi Arabia, and Israel. The panel will also discuss the role of other major powers, including China and Russia in shaping this new security environment in the region, and how the Biden administration will respond to these powers’ increasing regional presence.

 

Panelists:

Sanam Vakil: Deputy Director of MENA Programme at Chatham House

Denise Natali: Acting Director, Institute for National Strategic Studies & Director of the Center for Strategic Research, National Defense University

Hassan Ahmadian: Professor of the Middle East and North Africa Studies, University of Tehran

Abdulaziz Sagar: Chairman, Gulf Research Center

Andrew Parasiliti: President, Al-Monitor