Impact of China-Canada relations on Canadian economy
Ken Moak

Editor's Note: Ken Moak taught economic theory, public policy, and globalization at the university level for 33 years. He co-authored a book titled "China's Economic Rise and Its Global Impact" in 2015. The article reflects the author's opinions, and not necessarily the views of CGTN.

A free trade agreement and investment treaty between Canada and China could be a "marriage made in heaven" because the two countries' economies are highly complementary, Canada is richly endowed with the natural resources and China wanted to fuel its rapidly expanding economy. And there are few countries, if any, have the financial resources that China has to invest in Canada.

China could also make Canada less dependable on the U.S. economy. Selling over 75 percent of its exports to the U.S. amounts to "putting all eggs in one basket", which makes Canada vulnerable to American economic "hiccups" and protectionist trade policies. For example, U.S. President Donald Trump imposing, respectively, 10 percent and 25 percent duties on Canadian (and other countries') aluminum and steel sent "shockwaves" to the economy. China's huge resource needs could afford Canada the opportunity to diversify its economy or becoming less dependent on the U.S.

Increasing trade and investment with Canada also benefits China, it was looking for a politically "friendly and stable" Western country to invest in and buy resources. There was no Western country more fitting than Canada, having a prime minister openly admired China's accomplishments and being a member of the G7, a club comprising of the world's seven richest and developed countries – the U.S., Japan, Germany, France, UK, Canada, and Italy. More importantly, Canada's G7 partners were largely in dire economic straits because of the 2008 financial crisis.

The 2008 financial crisis had indeed shifted the center of economic gravity from the West to East. Mounting a huge stimulus package of around 580 billion U.S. dollars, China managed to reverse its downward economic trajectory from 6.5 percent in 2008 to 9.2 percent in 2009. The significant Chinese economic uptick made China the biggest buyer of commodities, contributing to around 30 percent of global growth since then. The G7 economies, on the other hand, were still struggling to recover from the financial crisis, registering an annual average growth rate of less than 2 percent since 2008, according to World Bank figures.

China's increasingly affluent domestic market of over 1.3 billion consumers prompted Canadian Prime Minister Justin Trudeau to spend considerable economic and political capital in establishing a free trade agreement with China in his first term. For example, the prime minister set up high-level committees headed by the finance, trade, and foreign ministers. Trudeau forged ahead with his China policy in defiance of opposition from the Conservative Party and the general public.

Trudeau's efforts to establish an economic relationship with China came to a halt on December 1, 2018, when his government caved under U.S. pressure to arrest Ms. Meng. Shortly after her arrest, China detained Canadians Michaels Spavor and Korvig on spying charges. With the British Columbia Supreme Court ruling in favor of the Canadian government and China formally charged the "two Michaels" for spying, the deteriorating China-Canada relationship would not be reset anytime soon.

Indeed, the sinking China-Canada relationship might worsen before getting better, public opinion on China is becoming increasingly negative because of Covid-19. The May 13 Angus Reid Institute poll showed almost 85 percent of Canadians blamed China for not being honest about the virus, culminating in over 65 percent viewed China negatively, up from a little over 50 percent only six months ago. The growing public negative view on China could make it harder for Trudeau to sell his free trade agreement policy.

An aerial view of Toronto, Canada /VCG

An aerial view of Toronto, Canada /VCG

However, to his credit, Trudeau did not politicize the spread of Covid-19 and the damages it caused, following the scientific route on determining the origin of Covid-19 and its effects. Science acknowledged that although the first official Covid-19 cases emerged in China, it did not find any evidence to suggest the coronavirus originated in the country. Indeed, of the over 100,000 confirmed Covid-19 cases, British Columbia, the province nearest to China, accounted for less than 3000 as of June 20, according to Health Canada.

Furthermore, most of the nearly 90,000 cases in Ontario and Quebec were found to be infected by Europeans and Americans. Of the nearly 9000 cases on Covid-19 infections in the province of Alberta, they were said to be imported from Iran and other places. Canadian health organizations also discovered that Chinese-Canadians have the lowest infection rate, and few in any had died from Covid-19, suggesting that China might not have spread the virus to Canada or anywhere else in the world. If the Wuhan lockdown contained the spread of Covid-19 within China, how can it infect other people around the world?

However, scientific studies and statistical facts did not matter. Most Canadians seem to have made up their minds that China is responsible for the pandemic and the country's economic woes. The sentiment will make it more difficult for Trudeau to increase trade with China. Without accessing the Chinese market, however, the Canadian economy could fall into a recession. Its 2020 growth rate is expected to grow only 0.3 percent after all.

Worse, the renegotiated NAFTA, the U.S.-Mexico-Canada Agreement (USMCA), requires member countries to notify each other six months before it decides to do business with a "non-market economy" (read: China). The provision amounts to extraterritoriality, the U.S. imposing its laws on or infringing on Canada's sovereignty. Under that light, Canada could be "under the thump" of America for a long time.

Indeed, the U.S. is already "threatening" Canada even before USMCA is in effect. Testifying before a recent Congressional committee on the agreement, U.S. Trade Representative Robert Lighthizer threatened legal actions if Canada and Mexico fail to meet their commitments. That is, America will penalize Canada if it decides to pursue a free trade agreement with China.

Yes, Canada can find alternative markets, but it needs many to replace China. But in light of the global recession, finding large numbers of markets that could buy the number of agriculture products and other natural resources that equal to China can be a "challenge" at best.

Canada is therefore placed between a "rock and hard place". Domestic politics and U.S. pressure prevent the Liberal government from seeking better relations with China. But without having access to the Chinese market, Canada's economic woes could worsen. In the final analysis, the importance of the China-Canada relationship to the Canadian economy cannot be ignored.

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