Can We Repair Canada’s Trade Relationship with China?

Canada needs to adjust to a world where China is the other great power. It won’t be easy

A photograph of Xi Jinping in the foreground and a smaller photo of Justin Trudeau in the background, both in black and white. The background is a series of lateral red stripes.
The Walrus/Wikimedia Commons/Flickr

Published five years ago, Michael Pillsbury’s The Hundred-Year Marathon hasn’t lost any of its urgency. A long-time China scholar, intelligence and Pentagon official, and adviser to congressional committees, Pillsbury spells out how China plans to become the sole superpower by 2049. The book reads like Tom Clancy on steroids.


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Pillsbury contends that, through a combination of stealth-like deception, the flouting of international norms on trade and security, and misguided pampering by the World Bank, by several US administrations, and by all-too-willing abettors in the private sector—like Goldman Sachs, Morgan Stanley, and Boeing, among others—China is soon to become the number one global economic power. Any notion that economic expansion would yield political freedom is “wishful thinking.”

China has successfully violated commitments it made to the World Trade Organization (WTO), using currency manipulation, subsidies to state-owned enterprises, widespread theft of intellectual property, and support for counterfeiting industries to sustain record growth. By breaking all the rules, China rapidly became dominant in steel, auto parts, glass, and paper production—industries where it otherwise had no comparative advantage. More troubling is China’s virtual monopoly on the production of rare earth—materials essential to many industries, including several in the defence sector. The Chinese, says Pillsbury, “invented mercantilism” in part because their “leaders have an almost paranoid fear of a coming crisis leading to regional or global resource scarcity.” He does not regard their predatory trade practices as a passing phase.

China has also consistently flouted nonproliferation agreements by giving subsidized support to Pakistan, North Korea, and Iran, among others. US intelligence officials allege that 90 percent of global cyberespionage stems from China. As it becomes economically dominant, China will also be able to surpass America in military spending, but not before the timing is right for the Chinese. Thus far, they have carefully avoided a direct challenge on military supremacy. China’s deliberate strategy is to target perceived American weaknesses and to neutralize American strengths without overt confrontations. Nonetheless, the biggest risk may come from a miscalculation or misunderstanding that will accidentally lead to war.

The most blatant manifestation of China’s ambitions is the unilateral claim it made for much of the South China Sea. This despite a 500-page arbitration decision by a UN Law of the Sea tribunal rejecting that claim. China ignored the ruling, reckoning that its growing naval power and nuclear submarine capability—“might is right”—underscores an uneven power contest. Oil rigs are being established in contested waters, and artificial islands are being created to serve as unsinkable aircraft carriers in the region. These activities have generated skirmishes with US and other naval forces and have raised concerns about a major military clash.

For too long, Western elites and opinion makers have provided their public with rose-coloured glasses to examine China in accordance with attitudes projected by the Chinese authorities. Canadians are no exception. The optimistic view of China, imbued by the tales of Norman Bethune and the notion that economic growth will spawn political liberties in China, are no longer compelling. Only recently are prominent Canadian diplomats who have served in China recognizing that they were duped into believing what China was saying and did not understand what the Chinese were doing.

President Xi Jinping is a more entrenched and authoritarian leader than anyone since Mao Zedong in a monolithic hard-versus-soft authoritarian system of governance that shows no interest in real political reform. The financial debacle of 2008 only accentuated China’s apprehension about adapting financial systems from Western democracies to its model. The faster their economy grows, the more confident the Chinese are that they have little to learn about economics or politics from the Western world. Indeed, the notion that China would become a more “responsible stakeholder” in world affairs through membership in the WTO and other multilateral institutions remains aspirational, if not illusory.

As US political scientist Graham Allison observes, “The defining question about global order is whether China and the US can escape Thucydides’s Trap,” referring to the idea that, when one great power threatens to displace another, war is almost always the result. He cites the example of Sparta and Athens as well as the example of Germany in the twentieth century, both of which ended badly. The United Kingdom adjusted to the rise of the United States in a calmer fashion. Allison contends that China thinks in much longer time frames and “with a greater sense of hierarchy” than does the United States. “As Confucius said,” Allison observes, “just as ‘there are not two suns in the sky, there cannot be two emperors on Earth.’”

The US-China tariff war is a symptom of a more fundamental rivalry—a new cold war. China is the “pacing threat” against which the US military now measures itself. And, as Robert Kaplan contends in Foreign Policy, “The geopolitical challenge of the first half of the 21st century is stark: how to prevent the U.S.-China cold war from going hot.” The fallout, good or bad, will have implications not just for Asia but also for the rest of the world, including Canada. As Jonathan Manthorpe writes in his book Claws of the Panda, it may be time for Canadian politicians to “assume a much tougher and more self-assured attitude towards Beijing.”

For Canada, the dramatic increase in Australian exports to China following negotiation of the China–Australia Free Trade Agreement is a compelling illustration of the attraction of a closer economic embrace with China. But the experience of Canada’s Commonwealth cousin resulting from its negotiation with China also offers an object lesson on the difficulties that closer economic ties can bring. For one thing, Australia is in many ways Canada’s natural competitor in the Chinese market.

In the decade following 2007, Australia ranked second only to the United States as a destination for Chinese investment, taking in $90 billion (US), a sum proportionately much more substantial than the $100 billion (US) that China invested in the United States. The trade statistics reveal a compelling pattern of growth far in excess of that recorded by Canada. In 2008, Australia’s exports to China were $37 billion (AU), whereas Canada’s exports to China were $10.5 billion. By 2017, Australia’s exports had increased to $116 billion (AU) (more than tripling) whereas Canada’s had risen to $23.6 billion (slightly more than doubling).

The opportunity for Canada with China is not without risk. Australian author Clive Hamilton’s book Silent Invasion delivers a withering exposé of the extent to which China has sought to attain comprehensive influence over his country, “economically, politically, culturally, in all ways.”

For many years, the Chinese systematically coopted to their cause members of the 1 million-strong Chinese diaspora residing in Australia, along with senior politicians, university administrators, academics, businesspeople, and media personalities. Not only did individual, often prominent Australians nurture and abet direct Chinese ownership of Australian infrastructure, from ports and airports to energy and mining projects, but they were also called on to help stifle expressions of concern about China’s dismal human rights record and its territorial ambitions in the South and East China Seas.

Those officials in Australia labelled “panda huggers” by Hamilton, like former prime ministers Paul Keating and Kevin Rudd, are singled out for facilitating China’s economic aspirations in Australia while muting criticism of Chinese behaviour, specifically on issues like the Dalai Lama, Tibet, Taiwan, and Falun Dong, as well as on China’s territorial squabbles with others in the region. It is a disturbing account of the degree to which greed—“economics über alles”—can subvert the intrinsic value of fundamental democratic rights and freedoms.

Corruption is endemic in China and may well be the Achilles’ heel of its future prosperity and unity—the latter being a chronic political concern for the Communist rulers. But corruption also helps finance overseas influence. Hamilton contends that Chinese billionaires readily seek bolt holes for their ill-gotten gains in countries like Australia, New Zealand, Canada, and the United States in order to protect their fortunes and their family members with investments, real estate purchases, and passports.

Unquestionably, China’s Belt and Road Initiative is predicated on building and owning infrastructure—ports, roads, energy, and telecom networks and facilities—within its overall Asian periphery. It is aimed both at securing supplies needed to sustain economic growth and at extending Chinese influence in neighbouring regions. Given its monolithic, one-party state structure, China is able to mobilize all instruments of power—political, economic, military, and cultural—together with the global Chinese diaspora (some 50 million in total) to support these primary objectives.

Confucius Institutes have systematically funnelled money from the Chinese Communist Party through the Ministry of Education to top universities in Australia, often with conditions that Hamilton claims are in blatant conflict with basic academic principles of free expression. Whereas Australia has generally welcomed this financial support, the United States and Canada have been more restrained. A senior official with the Canadian Security Intelligence Service (CSIS) describes the Confucius Institutes as “forms of spy agencies used by the Chinese government.”

The research grants feed directly into China’s unquenchable appetite for access to high-tech fields, offering significant military and economic potential. What they do not fund, Hamilton claims, they are likely to steal. Theft of intellectual property by China is a perennial concern for all Western nations doing business in the country and is estimated to cost the US economy alone upward of $600 billion (US) per year. The remedy to this would be a collective Western response to rein China in.

Self-censorship among academics in Australia is rife. Critics of the “kowtowing” by Australian academics are accused of being racist, xenophobic, or worse. Especially with Trump in the White House, Australia’s reliance on its alliance with the United States is openly mocked by academics. Calls for a closer embrace of China are characterized as evidence of a more independent foreign policy—a soothing aphrodisiac for many aspiring “middle” powers.

China’s reach extends well beyond the Australian continent. In addition to an all-out effort in Africa, where President Xi Jinping promised $60 billion (US) in financial support at the 2018 Forum on China–Africa Cooperation, China is spending more than any other country on scientific research in Antarctica, mostly in the area overseen by Australia, and it openly intends to “better understand, protect and exploit the Antarctic.”

Hamilton is less rigorous with prescriptions for how Australia can best resist falling deeper under Chinese dominance. Diversifying trade and building a more balanced partnership with the United States are noble sentiments to be sure, as are efforts to form a closer alliance of Asian democracies and their more like-minded friends—Japan, Korea, Singapore, Indonesia, and the Philippines, along with Australia and New Zealand—to counter China’s systematic undermining of the sovereignty and/or territory of each country. More sombrely, he sees the potential for conflict in the South or East China Sea as real and advocates strengthening the quadrilateral dialogue between the United States, Australia, New Zealand, and Japan on security as the best defence. But, in what he characterizes as a contest of “boy scouts up against Don Corleone,” Hamilton offers little reason for optimism. The openness of Western democracies is the advantage that monolithic authoritarian states like China can readily exploit, almost at will.

Because of Canada’s distance from China and its proximity to the United States, it has not yet been the target of determined efforts on the scale being directed by China at Australia and New Zealand. Yet vestiges are apparent, as evidenced by reports that China was cultivating research projects at Canadian universities intended to bolster military innovation. The Chinese diaspora in Canada is more divided than that in Australia. Taiwan cultivated members of Parliament long before China got in on the act, and many Canadians remain supportive of Taiwan.

Nonetheless, Richard Fadden, who headed CSIS and was the national security adviser under the governments of Stephen Harper and Justin Trudeau, has openly expressed concern about the extent to which China was mobilizing political support at the municipal and provincial levels by aiding in the election of representatives from the Chinese Canadian community. Since retiring from government service, Fadden has been even more deliberate in warning Canadians about the risks of closer economic engagement, warning that ambivalence may diminish Canada’s credibility within the Five Eyes intelligence alliance—Australia, Canada, New Zealand, the United Kingdom, and the United States—in which he served.

More to the point, when Chemi Lhamo, a Canadian citizen of Tibetan extraction, was elected president of the student union at the University of Toronto’s Scarborough campus, last year, she was attacked harshly on social media by Chinese students with complaints that her long-standing advocacy of Tibetan independence was “irrational” and made her “ineligible” to represent the student body. Many saw these attacks, some of which included obscenities, as having been orchestrated by Chinese authorities. Of the University of Toronto’s 91,000 students, 12,000 are from China. At about the same time, protestors assembled at McMaster University, in Hamilton, to denounce a talk about well-documented abuses against China’s Uyghur minority. The protest claimed that the presentation promoted “hatred” against China and urged the university to “ensure that the dignity of Chinese students is not infringed.”

As evidenced by the student uproar at these universities, if Canada allows its openness and its freedom as a democracy to become a source of weakness for others to exploit at random, it will sacrifice the essence of its national purpose and its national interest.

Despite the model set by his Australian Conservative soulmate John Howard, and despite persistent prodding from the Canadian business community, Stephen Harper was very wary of a strategic move on trade with China. While he was prime minister, the mandate for Harper’s first minister of international trade stipulated as a priority the cultivation of closer economic ties with “the democracies of Asia,” excluding China explicitly. Only in the final year of his time in power did Harper show a mildly more open attitude. China’s totalitarian Communist system was anathema to Harper personally.

That may have also been one of the reasons why Harper refused to join the Chinese-sponsored Asian Infrastructure Investment Bank, although he was also influenced by then US president Barack Obama’s entreaties to US allies that support for the bank would undermine institutions like the World Bank. The Trudeau government nonetheless changed course and signed on soon after being elected in 2015, but to date there have been few economic dividends. Furthermore, Harper’s opposition to a strategic link with China has intensified since he left office. His successor as Conservative Party leader, Andrew Scheer, had pledged that, if elected, he would abrogate Canada’s commitment to the bank. Also, like Harper, he prefers closer ties with the “democracies of Asia.”

By virtually any measure, the opportunities in the burgeoning Chinese market are unprecedented and cannot be ignored. Many suggest that, within a decade, the Chinese economy will surpass that of the United States in size alone. This growth and a corresponding increase in the middle class of the Middle Kingdom will stimulate demand for commodities and skills that constitute Canadian strengths: agricultural products, like canola oil, pork, and wheat, as well as energy resources, like liquefied natural gas, oil, and uranium. According to the International Monetary Fund, China accounted for 33 percent of global growth in 2017 (up from only 4 percent in 2000), outstripping the rest of Asia (28.8 percent), Europe (15.2 percent), and the western hemisphere, including the United States (12.8 percent).

Although China is Canada’s second largest export market, half of the G20 countries sell more in absolute terms to China than does Canada, including South Africa, Brazil, Saudi Arabia, and Indonesia. This situation illustrates what is being missed. China is already the second largest source of tourism to Canada, and Chinese students account for more than 30 percent of all international students studying at Canadian postsecondary institutions. Such links are reasons why there is certainly scope for growth.

But efforts by Canada to strengthen the economic fabric of its relations in order to bolster its standard of living cannot be sacrificed by diluting values essential to its well-being. Striking the right balance will require nimble diplomatic footwork steeped in a hard-headed, realistic assessment of the Chinese regime’s increasingly uncompromising authoritarian stance.

Critics of China point to the chronic theft of intellectual property, the forced divestitures of foreign technologies, currency manipulation, and numerous nontariff barriers, like discriminatory regulatory scrutiny and customs delays that impede or distort efficient business practices by foreign companies operating in China. Others highlight China’s flagrant abuse of human rights, particularly vis-à-vis Tibetans and Uyghurs, and the strict limits on individual freedoms within China itself as reasons why Canada should refrain from closer economic ties. Still others emphasize the aggressive manner in which China weaponizes economic entities to damage the interests of countries whose noncommercial actions annoy or antagonize Beijing. When the Lotte Corporation of South Korea provided land for a US anti–ballistic missile defence system, its retail outlets in China were boycotted, often violently, with protests that ultimately prompted Lotte to withdraw altogether from retail sales in China.

Manthorpe provides some of the starkest warnings. He insists in Claws of the Panda that the Chinese Communist Party “is never going to allow Canadian business to have significant access to its market,” adding that, “for well over a decade, the Canadian Security Intelligence Service has been doing its best to warn successive Ottawa governments and the public about the infiltration of Canadian institutions by the political agenda of the Chinese Communist Party (CCP) and the party’s quest to influence public life.” In Manthorpe’s view, there isn’t the slightest chance that “an authoritarian, one-party state that does not believe in the rule of law—and which considers liberal democracy a fanciful, outdated notion—is going to buy [Trudeau’s] ‘progressive trade agenda,’ which demands common respect for issues like gender equality, employment standards and the environment.”

Relations with China took a dramatic turn for the worse when Canada agreed to a US request to extradite the chief financial officer (and daughter of the founder) of Huawei, Meng Wanzhou. By meeting its legal obligation under the Extradition Treaty, Canada was caught between a rock and a hard place, incurring immediate scorn from Beijing. Chinese authorities responded by apprehending two Canadians, including one former diplomat, for dubious national security reasons. They have been subjected to daily rigorous interrogation, which is a breach of basic diplomatic conventions, and formally charged with espionage. Two other Canadians, already convicted of dealing drugs, had their sentences hastily raised from fifteen years to death after little more than one hour of judicial deliberation. Canada was hectored publicly for being an American lackey.

After the extradition manoeuvre, Canada rapidly became the target of authoritarian punishment by China. To make certain that Canada amended its ways, China began to turn the economic screws, banning all imports of Canadian canola due to spurious and undocumented concerns. Similar dubious tactics targeted Canadian meat exports. Ottawa seemed awkwardly powerless to respond. Plaintive appeals to Western allies, notably the United States, for help were received politely, but the United States was focused exclusively on its own trade negotiations, and the enfeebled Europeans in France and Germany were concentrating on extracting economic benefits from China for themselves. It will be some time before any sense of normalcy returns in Sino–Canadian relations. Lessons born of naïveté should not be forgotten.

The incident with the Huawei executive sheds new light on the company’s commercial activities in Canada. Whereas the other members of the Five Eyes intelligence alliance, except for the United Kingdom, have foresworn using any Huawei equipment in their 5G telecom infrastructure, Canada has stalled for time, in part because two major Canadian telecom companies, Bell and Telus, already use much Huawei equipment in their networks. If the Canadian government continues to drag its feet on the ban imposed by the United States and others in the intelligence alliance, it risks jeopardizing the credibility of its participation in this partnership.

As the United States increases pressure tactics to extinguish telecom links between Huawei and American allies, Canada is again caught between competing concerns. For companies like Bell and Telus to switch gears now would be costly. They are urging the government to adopt a pragmatic approach, one that accepts the need for a tightening of security concerns but falls short of a full ban. Officials in the United Kingdom share that attitude. Other Europeans are also flexible, putting commercial considerations at least on par with security concerns. All undoubtedly hope that some rapprochement between China and the United States on trade and investment will ease the pressure on security. Nonetheless, China poses the most serious challenge in the area of cybersecurity, necessitating a much bolder and more coordinated Western response.

Beyond the Huawei conundrum, the government has to be mindful, too, of potential geopolitical downsides to an enhanced trade and investment relationship with China. Canada cannot concede to China’s territorial claims in the South and East China Seas, especially in light of judgments by international tribunals that categorically dispute these claims. Its position should continue to be supportive in principle of those adopted by others in the region, namely Japan, Korea, and the Philippines.

A greater focus on China must be achieved without compromising respect for Canada’s support of fundamental values regarding freedom and human rights. Engagement with China should not be the outcome of a binary choice between trade and human rights but should seek to strike a balance that reflects the basic differences in the political systems and democratic values involved as well as the economic complementarity of the two economies. Although these political differences should be asserted in an appropriately diplomatic manner, there should be no ambiguity from Canada on any of them and no sense that success on trade will require concessions on unrelated topics.

No country has the right to dictate to another how to manage its domestic affairs, including labour relations. Basic human rights are universal, sanctioned by the United Nations’ Universal Declaration of Human Rights (written in large part by a Canadian, John Peters Humphrey). Canada can accept the reality of different political systems operating in places like China without endorsing the premise for that difference. There should also be a specific focus on threats from cyberspace since the Chinese are regarded as the number one villain in hacking to gain an edge on new technologies. Better to address these concerns overtly than through shadowboxing.

The sheer power imbalance Canada faces with China is magnified by the one-party, authoritarian political system in Beijing. Canada should have no illusions on this score. But that does not suggest Canada should ignore what makes practical sense in terms of ways to extract mutual benefits. After all, it has a long history of negotiating successfully with a neighbour ten times its size. That should help.

Although it may be easy to be mesmerized by the burgeoning growth of the Chinese economy and its rapid ascent into prominence in the high-tech fields of robotics, artificial intelligence, and 5G telecommunications, Martin Wolf of the Financial Times offers a refreshing reality check to counter all the optimistic forecasts. Wolf contends that, in many ways, predictions that the Chinese economy will sustain rapid growth indefinitely are as flawed as those that suggested, in the 1980s, that Japan would soon become number one in the world—and for some of the same reasons. Essentially, as was the case in Japan, the policies of ultrahigh investment and extensive debt accumulation that kept China growing after the 2008 financial crisis “make it vulnerable to a sharp deceleration.”

A reboot of Canada’s foreign policy priorities is definitely needed, one that moves away from virtue signalling for the domestic audience and adapts a pragmatic approach in order to reconcile and repair relations with China in a manner that serves Canada’s tangible interests and respects its fundamental values regarding freedom and human rights. For the time being, the focus should be on repairing the serious political and economic rupture before more damage is done. It is time for a strategic rethinking of the bilateral relationship based on finding a balanced accommodation of mutual economic interests without compromising fundamental differences on values or genuine security concerns.

This is not a task for Canada alone but requires a more cohesive collective response from the Western democracies as they adjust to a world where, at least in economic terms, China is the other great power.

Adapted, with permission, from Braver Canada: Shaping Our Destiny in a Precarious World by Derek H. Burney and Fen Osler Hampson (McGill-Queen’s University Press, 2020).

Derek H. Burney
Derek H. Burney is the former chief of staff to prime minister Brian Mulroney and was Canada’s ambassador to the United States from 1989 to 1993.
Fen Osler Hampson
Fen Osler Hampson is the Chancellor’s Professor at Carleton University and a fellow of the Royal Society of Canada.

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