Risk of U.S.-China split looms despite deal: experts

Effect on B.C. economy will depend on details of trade agreement, observers say

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Washington and Beijing have struck Phase 1 of a trade deal that experts say could either help or harm Canadian and B.C. exports in 2020, depending on the details of the deal.

U.S. President Donald Trump on January 15 signed the initial trade deal with China, an 86-page document that took about two years of on-again, off-again wrangling to complete. Many of the deal’s details have yet to be released, but it is known that China will buy an additional US$12.5 billion worth of American agricultural products in the first year of the deal. Those commitments would be increased by another US$19.5 billion in the second year.

Overall, Phase 1 consists of a Chinese commitment package of US$200 billion to buy U.S. products. The deal will take effect in 30 days from its signing.

Canadian and B.C. observers have long held the view that the U.S.-China trade dispute – which some fear may lead to a decoupling of the world’s two largest markets and chaos in the global free-trade system – is potentially beneficial because it keeps the current flow of trade open and stems the tide somewhat against rising protectionism around the world.

But local experts also note that, depending on what China has committed to buy from U.S. agricultural producers, the deal may also shift Chinese demand for Canadian farm products like meat and grain to U.S. suppliers. So far, the only commodity that Washington has mentioned as being affected by the deal is soybeans, an export market that is already dominated by U.S. producers. According to the Observatory of Economic Complexity, U.S. soybean exports accounted for 38% of the global share at US$22 billion in 2017, while Canada, at US$1.9 billion, accounted for only 3.3%.

Carlo Dade, director of the Trade & Investment Centre at the Canada West Foundation, noted that there has also been no update on the US$28 billion bailout that Washington has spent to support its soybean producers, adding that it would also hurt Canadian exports if the deal with China doesn’t include some products and therefore requires subsidies to allow farmers to survive the trade war.

“If U.S. farmers are subsidized, just like soybeans may be subsidized, it will lower the price of American products in the global markets, undercutting us around the world.”

He also noted that as long as the dispute over the extradition of Huawei Technologies Co. Ltd. CFO Meng Wanzhou continues, Canadian agricultural products will be in persistent danger in the Chinese market. China already effectively banned Canadian imports of canola and red meat last year over the Meng case.

“There are other Canadian crops with greater dependence on China than canola,” Dade said. “China is ‘laying traps’ to import from other sources.… They haven’t done the worst they can do to us yet.”

Yves Tiberghien, political science professor at the University of British Columbia and director emeritus of the school’s Institute of Asian Research, added that the risk of a China-U.S. split remains real despite the Phase 1 deal – partially because the volatility comes not only from Beijing, but also from Washington, a traditional ally of the liberal international order but now taking a hard protectionist turn under Trump.

“If there is a decoupling, does it mean Canada can keep riding the American tiger, or can we maintain some semblance of trade relations with Asia and its supply chain?” Tiberghien asked. “That’s the big fundamental question for Canada for 2020 and maybe into 2021…. [Ottawa’s] foreign-policy mandate letter has a lot of emphasis on trying to save the global order from the current crisis, which is led by the U.S. That’s a problem, because if it’s just China, it’s solvable. But if it’s the U.S., then it’s very, very hard to change the dynamics.”