Trump’s Asian trade battle could benefit Canada

A bigger role in the Trans-Pacific Partnership free-trade deal a possibility for Ottawa

A looming trade war between the U.S. and China could bring trade advantages to Canada, experts say | Al Hutluht/Shutterstock

Canada may be able to extract advantages from a potential trade war between the United States and China, some observers say.

But they cautioned that, even with some of the benefits Canada can glean from the friction between the U.S. and China – which may be contributing to U.S. President Donald Trump’s wavering stance on the Trans-Pacific Partnership (TPP) as a fallback – the main goal for Ottawa should remain keeping intact the rule-based global trade system, centred around the World Trade Organization (WTO).

One analyst said the best way to do so is for Canada to re-
engage China on a rule-based free-trade agreement (FTA) as soon as possible.

“That should be priority No. 1,” said Hugh Stephens, principal at Victoria-based Asia-Pacific policy consultancy Trans-
Pacific Connections
and the former executive-in-residence at the Asia Pacific Foundation of Canada. “If we start negotiations with China on a rule-based FTA, that would be an Article 24 bilateral agreement that’s consistent with WTO principles. That’s one more way of engaging China under the rule-based system, and it also would secure a preferential advantage into the Chinese market.”

The danger, Stephens said, is that the current dispute, largely spurred by Trump’s announcement last month to place US$50 billion in tariffs on select Chinese imports, involves two of the biggest players in global trade. If both Washington and Beijing walk away from the WTO-
driven multilateral trade system, it could create toxic trading environments for all nations as bilateral, retaliatory trade actions replace multi-party mediation.

That’s why a Canada-China FTA under WTO rules would at least help keep Beijing within the existing realm of global trade rules, Stephens argued.

“The United States is basically going outside the WTO in taking unilateral actions against China,” he said. “China has so far somewhat reluctantly played by the international rules – something that they’ve said they will continue to do. At the same time, China is also forging its own consensus centred around [its One Belt, One Road infrastructure initiative], so if the largest player like the U.S. that has been one of the strongest supporters of the multilateral system thumbs its nose at it and walks away, we shouldn’t be surprised if the Chinese thinks the same way. Then, we’d have an unravelling.”

Beijing has responded to Trump’s tariff announcement with its own plans to raise tariffs on U.S. soybeans, beef and other products. The soybean is an especially contentious item, since the crop’s export, valued at US$14 billion per year, is the United States’ biggest export to China.

In return, Trump said earlier this month he is considering another US$100 billion in tariffs on Chinese goods to rein in the bilateral trade deficit between the two countries.

The U.S. trade deficit with China reached $375 billion last year.

An offshoot from the trade dispute is the White House’s sudden wavering stance on the TPP, a U.S.-led initiative under the former Barack Obama administration to create a 12-nation trade bloc that excludes China in forming a rival transpacific market that would have included Canada, Japan, Mexico, Australia and others. Trump, strongly against multilateral trade deals, withdrew the U.S. from TPP participation last year.

However, there now appears to be some division as to how Washington is approaching the TPP, which is now going ahead with its 11 remaining members. Earlier in April, Trump directed officials to explore returning to the TPP, but a week later he tweeted that he doesn’t like the deal, putting Washington’s position into further uncertainty.

Last week, U.S. Agriculture Secretary Sonny Perdue told the U.S. Senate that he is encouraging Trump to reconsider the TPP, noting that it forms a united front with U.S. allies “in an effort of tariff reduction that excludes China” to the benefit of the United States.

Sean King, senior vice-president of New York-based consultancy Park Strategies, said he is not optimistic about Trump changing his negative views on the TPP but added that Washington should reconsider whether it is serious about taking a more stern position with China when it comes to trade, intellectual property rights and other issues.

“I’m all for getting real with Beijing on any number of fronts,” said King, who has been consistent in his criticism of Beijing. “But tariffs are nothing more than a tax on U.S. consumers. If Trump really wants to push back on Beijing economically, he should instead try getting us back into TPP as fast as possible.”

King said he is pessimistic about the possibility of the U.S. rejoining the trade deal because Trump’s tweet critical of the TPP came while hosting Japanese Prime Minister Shinzo Abe, a powerful message that likely offended Tokyo, which King considers a trusted ally of Washington. But King added that, in the current situation, rejoining the TPP-11 (with Canada already among the 11) makes sense.

“TPP would definitely help offset any potential losses incurred as a result of U.S.-PRC [People’s Republic of China] trade tensions,” he said. “Without something like TPP in the pipeline, there’s nothing else on the trade policy horizon that can help make up the shortfall for when companies in states and districts that voted for Trump start selling less to the PRC…. Getting back into TPP would give U.S. businesses and customers trade and investment opportunities around the PRC. It would also do the same for friends and allies like Japan, Australia and Vietnam.”   

In a paper published last week through Policy Options, Stephens argued that the possibility of Washington revisiting the TPP may be Canada’s big opportunity.

“While not being obstruction-ist, [Canada] should use its leverage of being inside the TPP tent to ensure that the U.S. does not get a free ride in its readmission to the negotiations.”

Speaking in a separate interview, Stephens reiterated that point, adding that Ottawa may look at items as far-reaching as concessions on North American Free Trade Agreement (NAFTA) renegotiations if Washington is serious about rejoining the TPP.

“We’ve been kicked around quite a bit by the Americans on NAFTA, and they extracted quite a few concessions from Canada at the TPP,” Stephens said. “And then they walked away from it…. Canada shouldn’t fall over themselves to welcome them back. You have to say, ‘These are the rules, and you have to sign on to the existing agreement or negotiate. And in a negotiation, what are you prepared to give?’”