China's Foreign Minister Wang Yi pictured in the city of Nizhny Novgorod, Russia June 11 and Canada's Foreign Minister Melanie Joly during NATO's 75th anniversary summit in Washington, U.S., July 11.Reuters
Jeff Mahon is director of geopolitical and international business advisory at consulting firm StrategyCorp.
Canada is considering whether it will follow the United States in implementing punitive tariffs on Chinese electric-vehicle imports. With the consultations period over, Ottawa will soon announce its course of action.
How we respond is no doubt important. But more significant is the path forward. To ensure we’re not merely being reactive, we must consider what principles are underpinning that EV decision, and how they affect the long-term trajectory of Canada’s relationship with China.
China’s liberal-norm defying behaviour catalyzed this reaction, producing anxiety that cheap Chinese EVs will flood the Canadian market, hurting the domestic industry and workers. But the path Canada is currently on seems dictated by a fear of being offside the U.S. While both Canada and the U.S. have legitimate concerns, we’re going about it in a dangerous way.
The challenge is how to chart a course between a Chinese Scylla and an American Charybdis that balances our interests – both economic and security – without getting shipwrecked. But like Odysseus, Canada can’t seem to find its way.
The EV case illustrates its lost and meandering approach. For years, we’ve emphasized the importance of finding solutions through the World Trade Organization. But the EV consultations announcement proposes unilateral tool, such as section 53 of the Customs Tariff and investment restrictions.
The latter tool is especially hard to comprehend, given that Chinese investment into Canadian manufacturing could harness China’s capabilities and boost this country’s employment – thus circumventing concerns about job losses.
Canada used to treat trade policy as a technocratic domain shielded from political rhetoric; however, the EV announcement is full of politically-charged language. This may temporarily placate American protectionist instincts, but at the cost of undermining our already limited autonomy while also limiting economic development opportunities.
We need to go back to basics to find the genesis of the problem in our commercial relationship with China, which stems from the hubristic view that liberal market democracies would convert that country to adopt our system. This is compounded by the fact that asymmetric access to each other’s markets is baked into our economic relations.
Within these circumstances, China has both wittingly and unwittingly exhibited some predatory behaviours, which has proven difficult to deal with because of loopholes or ambiguities in WTO rules.
And here’s the dilemma. We need the WTO to continue finding technocratic solutions to trade problems, but it is incapable of reconciling the 21st century’s biggest trade policy problem: determining the extent and limits of engagement between our different systems by finding lowest common denominator principles to inform the rules.
Canada needs to stop playing whack-a-mole by reacting to EVs and whatever it is that pops up next, and instead capitalize on China’s overtures to establish a new modus vivendi.
We need principles that we can embed our policies in and that can address the philosophical and structural problems that plague the relationship, while avoiding political rhetoric. Such principles could have currency with our allies and open the door to bargaining an evolution of the rules-based international order.
The first principle that could help is a modernized reciprocity, which focuses on overall interests, as opposed to matching based on sectors.
Second, respecting the interdependent nature of development, which not only allows for diverse strategies to achieve objectives but acknowledges that one country’s approach could undermine others’ objectives, thereby requiring limits on engagement.
And third, a recognition that security and economics are increasingly intertwined, requiring new limits on engagement – but that joint efforts should be undertaken to disentangle them as much as possible.
These principles aren’t ideal, but they fit better with the way the world currently works. Making them explicit could help turn down the geopolitical temperature as they seek to accommodate diverse economic systems while opening pathways to mitigate risks – both economic and security.
China’s own development was charged by foreign direct investment, which the government channelled through an investment catalogue that guided flows toward important sectors and imposed conditions, such as joint ventures and technology transfers. This was done under the auspices of advancing development and mitigating risks of foreign domination. It also has an expansive definition of national security, which they use to restrict certain international engagements all while calling foul when others do the same.
Canada, too, has the right to advance its development and to mitigate against risks that accompany foreign investment. Where sectoral risks are identified, we should first seek how to orient the terms toward an outcome that meets Canada’s interests, instead of prohibitions on engagement.
The Canada-China relationship should be grounded in reciprocity and mutual respect for developmental and security concerns. From this basis we should seek out agreement on new rules from where we can engage freely, or with limitations – or not at all.