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Monday, September 5, 2016

Free trade with China? Perhaps, but never fair trade

There is an old adage, “be careful what you wish for, lest it come true.” In this case I’m thinking about Prime Minister Justin Trudeau’s apparent wish for a free-trade deal with China.

Back in 2013, Trudeau confessed “a level of admiration … for China.” He also seemed to see some benefit from what he called China’s “basic dictatorship,” and mused that then prime minister Stephenson Harper “must dream about having a dictatorship that he can do everything he wanted…”. He also talked about China going green and investing in solar.

Trudeau handlers, apologists and admirers have since downplayed his words, but I can’t help but wonder why with so many successful Western democratic governments to choose from, the prime minister chose China’s despots.

By the way, Trudeau’s response came in answer to a question about which nation’s administration he most admired.

It was not a surprise, therefore, that after becoming prime minister Trudeau would seek closer ties with China, including an agreement to hold annual meetings with the Chinese premier on a range of issues, including national security and the rule of law.

My father, Pierre Elliott Trudeau, played an important role in establishing a partnership between our two countries when he was prime minister. So, I’m very happy to be extending that effort now.”

Canada is, of course, a trading nation and much of our future prosperity depends on our success in selling goods and services to other countries. Understanding this, I could hardly disagree with the notion that we need to have good trading relationships with the third largest market for our goods, behind only the U.S. and the EU.

But would there ever be a free-trade agreement between our two countries that was not asymmetric in China’s favour? I’m not inclined to believe there could be.

Canadians certainly don’t need any more Chinese products. Canada already has a huge trade imbalance with China. Bilateral trade totaled about $63-billion in the first nine months of last year, and of that nearly $49-billion came from Chinese imports. Visit any store for virtually any category of goods and one’ll quickly see what I mean.

They would like to buy Canadian oil and gas, of course, but can’t because we don’t have the pipelines necessary to serve their market. Furthermore, they’d like us to relax our strict investment rules governing their state-owned enterprises so they can invest more in our oil and gas sector.

Then there is the Chinese e-commerce giant Alibaba who wants to bring “Alipay” to Canada. That’s a service run by its affiliate Ant Financial, which handles payments on Alibaba websites and for shoppers at restaurants and shops—sort of a PayPal+Interac on steroids.

So there is business we can do with them. But will China ever be willing to sign a deal that’s fair to both sides? Western nations have for years demanded China open its markets, in return for the easy access Chinese goods have to theirs. This is a constant irritant in U.S.-China relations, for example. The U.S. imports four times more goods from China than it exports, and if the powerful U.S. can’t get reciprocal deals, will we?

China claims it’s lowering barriers to foreign investment, but business groups say they don’t see it. At the same time Chinese companies continue to acquire international assets.

We also have very different economic structures so “fairness” may never be achieved. China’s industrial wage structure is a fraction of ours. They care little about their environment and tolerate levels of industrial pollution we could never accept. Last year alone, China approved 155 new coal-fired plants, and China admitted that it had underreported its annual coal consumption since 2000. China’s coal-fired plant capacity increased by 55 per cent in just the first six months of 2015. This is not a nation that gives a hoot about Green energy or greenhouse gas emissions.

All this allows China to make products more cheaply than any Western democracy.

Furthermore, China has lower standards and a high level of corruption, which makes breaking any rules they have rather easier that in Canada. As a result, our costs are inherently higher. As an example, there are the sorts of ingredients the Chinese were using in pet food—Google “Chinese pet food” and you’ll quickly see what I mean.

Moreover, China’s claim to be governed by the rule of law is just silly. Ask Kevin Garratt about the fairness or objectivity of China’s laws.

How likely is it that Canada will, on its own, succeed where other larger countries with more leverage have failed to wring a fair, balanced deal from China? None, in my estimation. But perhaps Canada could team up with other like-minded countries and jointly strike a broader deal with China.

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