Author: Jeff Guo

Posted on: The Washington Post, April 12th , 2017

 

 

 

President Trump talked a big game about China on the campaign trail, but so far, he and Chinese President Xi Jinping have played nice.

If a U.S.-China trade scrap does erupt though, China may have a backup plan: the United States’ neighbor to the north.

At last week’s meeting with Xi, Trump — who blamed the Chinese for much of the United States’ economic woes and promised to label China a currency manipulator on Day 1 of his administration — struck a much friendlier tone. The two leaders agreed on a 100-day plan to discuss the American trade deficit. China even identified some concessions it was willing to make, the Financial Times reports.

But the Chinese are pointedly exploring other options on trade as well. Canada and China are preparing for negotiations that might result in their first-ever bilateral free-trade agreement, which would likely lower tariffs and boost mutual trade and investment. Such a deal would also bring together two export-reliant nations that have both been threatened by Trump’s volatile criticisms about trade.

“Our priority is the most fair and balanced trade arrangement with the United States — that has always been our priority,” said Jack Austin, a former Canadian senator who was an adviser on China to Canadian Prime Minister Pierre Trudeau. “But the more our trade advantages and our stability are shrunk by U.S. trade policy, the more they force us into the global trade world.”

“If the United States wants to interfere with our core interests as a country, well, we have to look after ourselves,” said Austin, who declined to talk about Trump specifically.

Trump has said that he is not against trade per se, only that he wants to negotiate better deals for the United States. But Trump’s pledge to pursue a more combative, protectionist trade strategy has unsettled even close allies such as Canada. One of Trump’s first acts in office was to officially pull out of the Trans-Pacific Partnership, a massive trade agreement involving 12 countries including Canada and Japan. The president said he would rather hammer out many separate trade deals one-on-one. “And believe me, we’re going to have a lot of trade deals,” he promised in January.

On that front, China may already be a step ahead of him. The collapse of the TPP, a U.S.-led effort that pointedly excluded China, opened a window for the Chinese, who are chasing trade talks with many former TPP members — including Canada. In addition to being disappointed at the failure of the TPP, Canada has also been on edge over Trump’s efforts to renegotiate the North American Free Trade Agreement.

Canada, which has a population the size of California, is too small to fully replace trade between China and the United States. But for the Chinese, closer economic ties with Canada could soften the blow of any U.S.-China trade war, or even forestall a trade war altogether, experts say.

There is still no set timeline for the China-Canada talks, but both agreed last year to prepare for trade negotiations, and Canadian officials are currently crisscrossing the country looking for input from citizens and businesses.

The two countries are a good match economically. China is a big importer of agricultural products and natural resources, which are Canada’s biggest exports. The Chinese have also been eager to pour money into Canada’s energy and manufacturing sectors — investment that Canada needs, says Yves Tiberghien, the director of the Institute of Asian Research at the University of British Columbia and a senior fellow at the Asia-Pacific Foundation of Canada. “There are a lot of complementarities here,” he said.

For the Chinese, there are political upsides. Canada’s proximity to the United States might offer leverage in future negotiations between China and the Trump administration. “It would be a good move for China to at least have a deal with a North American country as part of the game between the U.S. and China,” Tiberghien said. “It’s one way for them to deal with the U.S. sideways.”

For the same reason, trade talks might prove tricky for Canada, whose biggest customer by far remains the United States. In 2016, Americans bought more than 75 percent of Canada’s exports. For Canada to develop a closer relationship with China risks upsetting the Trump administration, warned Robert Zoellick, a former World Bank president and trade adviser to President George W. Bush.

“Just be careful,” Zoellick said at a panel in January, according to the Canadian Press. “If you’re going to do it, make sure you get something good for it. Otherwise you’re going to pay a big price with this guy if his No. 1 enemy is China.”

Canada has long sought to reduce its economic reliance on the United States, and talks of a trade deal with China, already Canada’s second-largest trading partner, have been brewing for years. But Trump has made the matter more urgent.

 

 

 

Read more: https://www.washingtonpost.com/news/wonk/wp/2017/04/12/why-china-and-canada-are-playing-economic-footsie/