China’s Trade Ultimatum to Canada: Comply or Suffer - former diplomat Michael Kovrig explains the deeper logic behind Beijing’s economic coercion

cross-posted from: https://scribe.disroot.org/post/6205366

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Canadian canola businesses, such as Richardson and Viterra, apparently dreamed that the 2018–2021 dispute was a one-off. After it ended, they ramped up and sold even more to China, only to now lose most of a $5 billion market. I hope they finally understand that, as long as they have excessive exposure to China, they’ll be targets anytime the Chinese Communist Party wants to coerce changes in Canadian policy and behaviour. As the saying goes: “Fool me once, shame on you. Fool me twice, shame on me!”

The CCP has a history of using access to China’s vast market as a disciplinary tool.

And it’s getting more aggressive. More than a dozen countries have been targeted in recent years: Japan suffered consumer boycotts due to a maritime dispute with Beijing, as did South Korea because it installed an American missile defence system. Norway was no longer able to export salmon to China after a Nobel Peace Prize was awarded to a Chinese dissident, and Australian agricultural products were banned because its government called for an investigation into COVID-19’s origin. Lithuania was excised out of China’s customs clearance system over its relations with Taiwan, and now Japan, again, is the target of economic coercion for stating that its security is intricately linked with that of Taiwan.

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For the past decade, the CCP has been hardening China’s own self-sufficiency and cutting dependence on imports, while trying to make others asymmetrically dependent on China. It’s “you have to buy from me, but I don’t need you.” Massive subsidies and other market distortions incentivize many Chinese firms to overproduce and export the surplus, which is subjecting the rest of the world to a Second China Shock. Other countries now face a choice: be relegated to deindustrialized, middle-income suppliers of energy and commodities to the PRC’s manufacturing juggernaut, or band together to maintain a tech stack and industrial ecosystems largely decoupled from China’s.

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If Canadian governments do nothing, our export profile with China will increasingly resemble that of Russia and other subordinate natural resource economies, plus some services. So far, China’s various trading partners have employed different, and not entirely effective, tactics in response. A coordinated and comprehensive effort is necessary.

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The CCP is exploiting the situation to pressure Ottawa into making three strategic adjustments.

• First, abandon efforts to align with American and European attempts to defend domestic industries and workers from Chinese overproduction.
• Second, roll back the Indo-Pacific Strategy, which prioritizes ties with others in the region, particularly Taiwan.
• And third, stifle Canadian opposition to a host of harmful PRC actions, such as aggressive moves in East Asia, support for Russia’s invasion of Ukraine, ongoing massive human rights violations, efforts to subvert global governance institutions, espionage and IP theft, transnational repression, foreign interference, and elite capture. Tariffs on agri-food are just one means toward the end of conditioning behaviour.

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If you think canola is a problem now, imagine if China were able to integrate Canadian manufacturers into its production and supply chains for advanced technology, like green energy and electric vehicles. It could then align the economic interests of industrial ridings with the CCP’s. It already has leverage over Western provinces through energy and commodities and Atlantic provinces through seafood. Mining could do the same in the North. Manufacturing integration plus further Canadian financial sector investments in China would grow pressure points in Ontario and Quebec and help capture Laurentian elites.

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Experience shows that, if the targeted country holds to a clear, consistent policy line, diversifies economically, and hardens politically against foreign interference, Beijing tends to quietly de-escalate and roll back once its officials internalize that the punishment is not only failing to change policies but also making them look bad. That’s more likely to happen if Party-state officials have an off-ramp and a face-saving narrative in which they can say the other guys “corrected their mistakes.”

China’s import tariffs hurt its own businesses and consumers too. Chinese companies buy Canadian commodities, unless their government blocks them from doing so, because they’re competitively priced. They can find alternative sources for canola, wheat, barley, pork, and pulses, but often at higher prices, which can affect food security and drive up inflation, especially when markets are tight.

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Chinese manufacturers—particularly electric vehicle makers—really want access to the Canadian market, particularly as tariff barriers rise elsewhere. Granting BYD, Chery, Geely, and others access would legitimize the PRC’s narrative, which denies that its EV makers benefit from massive market distortions, and provide an example for other countries. Conversely, blocking these national champions, just as with Huawei and Hikvision, causes a loss of face for the CCP. Its opposition to Canadian tariffs on Chinese steel and aluminum is likewise more about symbolism than economic impact.

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For Canadian exports, the way to reduce Chinese leverage and increase our own is diversification. The government needs to treat that as not only trade promotion but also a key element of national security policy, just as China has been doing for decades. Businesses need to invest in capacity to serve new markets. Resilience doesn’t come from autarky—with that, you end up like North Korea. It comes from having multiple, deeper relationships with more reliable, trustworthy partners that share most of your values and agree on following the letter and the spirit of common rules.

Canada’s other sources of leverage are political, not economic. They require coordinating with allies and like-minded partners to apply consistent collective limits on Chinese dumping, shared safeguards for supply chains, as well as common anti-coercion tools and technology restrictions.

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A critical mass of middle powers coordinating their economic policy on China is a real problem for Beijing. With the US and EU on board, it’s a nightmare scenario. The G7, EU, and members of Trans-Pacific Partnership have important roles to play in crafting institutional mechanisms to overcome obstacles to collective action.

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Every time China applies a punitive measure on Canada, take material steps in the other direction, like enhancing ties with Taiwan and other Indo-Pacific partners. Take measures that complicate PRC access to the Arctic, where it’s trying to expand its presence and influence. Incentivize pension funds to reweight their exposure away from China.

Steps like those are most effective when applied by multiple countries in coordination. Forming and hardening coalitions would help curtail backfilling in cases where China blocks imports from one country, like Canada, and then buys more from others, like Australia. Beijing uses bilateral leverage to achieve submission. Multilateral responses can thwart that.

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