EDC

Beijing’s behaviour shows why Ottawa needs to stop pushing Chinese trade

Better to develop trading relationships with tomorrow’s winners than to tie our fortunes to an economy that can pull us down.

This article, by Lawrence Solomon, was first published by the Financial Post

Prime Minister Justin Trudeau meets Chinese President Xi Jinping at the Diaoyutai State Guesthouse in Beijing, China on Tuesday, Dec. 5, 2017. Sean Kilpatrick/The Canadian Press files.

China is Canada’s second-largest trading partner: a very, very distant second — our exports to the U.S. are 16 times higher. China should be less important still, behind Japan, Taiwan, India, European countries such as the U.K., France, and Germany and other democracies that respect the rule of law. If that wasn’t clear to us before, it should be chillingly clear now following China’s taking of Canadian hostages in an effort to make us kowtow to its demands.

As long as China’s communists are in power, Canadians will be subject to hostage-taking and unable to safely do business, except through intermediaries. Aside from the 13 Canadians arrested in China (most now released) since the Meng Wanzhou affair broke, China has detained some 200 Canadians, often related to commercial disputes with Chinese companies. When Canadians seek justice in Chinese courts, Lady Justice is absent. An aroused Canada should cut its losses.

Look past (as Canadian governments have for decades) China’s status as the world’s largest communist dictatorship, its worst human rights abuser, its biggest thief of intellectual property and now the West’s chief military threat. The crass rationale for courting trade with China was fear of losing out on what seemed destined to become the world’s most valuable market for the West’s exports. Given China’s now-reeling economy — due largely to the trade war with the U.S., its domestic consumption tax revenues plummeted by 80 per cent over the course of 2018 — that rationale has been revealed as inadequate and shortsighted. One American blow riddled China’s economy with cracks, exposing its utter brittleness. Canadian governments should stop promoting our exports to China through fawning trade missions and corporate largesse.

For starters, our government should stop subsidizing the financial risk that Canadian businesses face in dealing with China by instructing Export Development Canada (EDC), a Crown corporation, to cease financing Canadian exports to China. Businesses that want risk insurance as protection from Chinese malfeasance can obtain it on their own dime, through the private-sector insurers who will charge them market rates. Since most Canadian businesses dealing with China rely on EDC subsidies — about 60 per cent according to EDC — ending those subsidies will help cut our China trade down to size.

Next, Canada should quit its membership in the Asian Infrastructure Investment Bank (AIIB), the China-controlled facility designed to enhance Chinese diplomatic clout at the West’s expense by financing projects in Asian countries that neither the private sector nor traditional funders like the World Bank will touch. Canada’s initial $256-million contribution over five years — proffered to give us brownie points with the Chinese — has to date yielded none of the expected contracts for Canadian firms. China’s AIIB got Canada’s endorsement and a boatload of Canadian cash; Canada got a load of Chinese promises. Good luck to Canada now in obtaining China’s blessing in landing AIIB contracts.

Cutting our losses by backing away from China will benefit Canadian taxpayers and the Canadian economy. Because our exports to China are still relatively small — less than five per cent of our total exports — and subsidized at that, our economy will suffer few disruptions. In any event, better to develop trading relationships with tomorrow’s winners than to tie our fortunes to an economy that can pull us down.

China fears that U.S. President Donald Trump plans to take it down economically to remove its threat to America’s economic and military dominance, much as president Reagan did in breaking the Soviet Union. With good reason. The U.S., its “Five Eyes” intelligence allies (the U.K., Australia, New Zealand and Canada), Israel, Japan, France and others have or will be banning suspect technologies manufactured by ZTE and Huawei, China’s telecommunications giants. And through trade treaties such as the USMCA, the U.S. is controlling its trading partners’ ability to negotiate trade deals with China. The U.S. aims to manage an orderly Chinese decline that won’t overly rattle international markets. Canada would be prudent to avoid tying its fortunes to China.

Lawrence Solomon is a policy analyst with Toronto-based Probe International.

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