Sunday, June 2, 2019

Considerations over Canada’s Trade Patterns (加拿大贸易格局的思考)



Abstract: Although Canada has got more diversified trade partners, the situation is still the same except for some minor changes with China and EU. Canada’s export is resource-oriented, and both its processing (like oil refining) capacity and transport capacity are limited. Due to limitation in transport, Canadian energy cannot be sold to Canadian consumers. Canada and the United States enjoy the largest trading relationship in the world. The Canada-United States partnership is forged by shared geography, similar values, common interests, deep connections and powerful, multi-layered economic ties. However, with the new US president into power and USMCA signed, the Canada-US relationship has changed. In spite of the fact that it would be ideal for Canada to develop trade only with EU, because of the same culture and the same political system, the trade volume is relatively small compared with that with China. China is not regarded in the West as a democratic country, but it is gaining more international influence, and the economic structures of Canada and China are complimentary. A combination of trading with both EU and China may be good for Canada so that Canada can enjoy a wider clientele and be more flexible. With neo-protectionism and neo-cold-war coming, Canada should encourage international economic cooperation, focus on the upper side of the value chain, enhance import substitution, adopt a multiple-region, multiple-sector and multiple-platform (such as the settlement system) trade policy, and turn challenges into opportunities to prepare for change.

Key Words: Canada’s Trade, value chain, market diversification, import substitution, China

The Conservative Party of Canada leads the way with an average support of 36.6 per cent nationally (the projection 95 per cent confidence intervals are indicated). Although federal voting intentions appeared to reflect a tightening gap between the CPC and LPC in the past weeks (possibly due to the SNC-Lavalin saga fading out and the US-Canada no-tax deal on steel and aluminum), the latest polls published in the past days have propelled the CPC to the first place[i].

It seems that the deal with the US has had little impact on the polls. This may also show the dissatisfaction over carbon tax in BC, AB, SK as well as the lack of wise actions in the Huawei event. Two of the Liberals’ policy mistakes are its carbon tax and its policy with China.

This article will mainly review Canada’s present trade patterns and explore some of the alternatives to change the situation.

I.                   Canada’s Present Awkward Trade Situation
Although Canada has got more diversified trade partners, the situation is still the same except for some minor changes with China and EU. Here is a chart reflecting Canada’s export situation in the past 4 years:

Canada's Top 10 Export Countries (in billion dollars)

US
China
UK
Japan
Mexico
S. Korea
Germany
Netherlands
India
Hong Kong
Total Exp

Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
Amount
%
2018
337.80
75.10%
21.3
4.74%
12.6
2.80%
10
2.22%
6.3
1.40%
4.5
1.00%
3.7
0.82%
3.7
0.82%
3.2
0.71%
3
0.67%
449.80
2017
319.07
75.86%
18.19
4.32%
13.64
3.24%
9.12
2.17%
6.05
1.44%
4.09
0.97%
3.1
0.74%

3.3
0.78%

420.63
2016
297.30
76.41%
15.4
3.96%
18
4.63%
11
2.83%
8.9
2.29%
4.6
1.18%
4.4
1.13%
2.9
0.75%



389.07
2015
397.20
75.67%
21.5
4.10%
16.51
3.15%
10.12
1.93%
7.78
1.48%
4.21
0.80%
3.89
0.74%
3.69
0.70%

4.03
0.77%
524.94
Source: Statistics Canada and some other sources[ii]

The difference in amount between China and Germany is more than 4 times, and the difference between China and the US is about 15 times. In 2017, the top exports of Canada are Crude Petroleum ($54.1B), Cars ($46.5B), Refined Petroleum ($11.5B), Vehicle Parts ($10.4B) and Petroleum Gas ($10.2B), using the 1992 revision of the HS (Harmonized System) classification[iii]. In 2018, except for vehicles (13.5%), machinery including computers (7.7%), electrical machinery and equipment (3%) and aircraft and space craft (2.4%), 36.2% are mineral fuels, precious metals and gems, wood, plastics and plastic articles and paper and paper items[iv].

While Canada’s export is resource-oriented, both its processing (like oil refining) capacity and transport capacity are limited. Though many of the resources Canada has could be put at Number 1 globally, its container handling capacity is ranked the 37th in the world. As put by Marc Garneau, “we must remember that we can have the best-quality products and the most ambitious trade agreements in the world, but none of that will matter if we don’t move our goods efficiently and reliably to markets.” Canada is now the only G7 country to have trade agreements with every other G7 country, those trade agreements don’t mean much if the increased flow of goods that is supposed to result from them can’t be physically accommodated. And one way to accommodate increased imports and exports is to build a new terminal at Roberts Bank, says the Port of Vancouver, because the region does not have enough industrial land with access to both rail and water.
The province’s shipping sector also wants the new terminal project to move ahead. However, Environment and Climate Change Canada has to cooperate with that. Without additional container terminal capacity, B.C. ports will lose their competitive edge and more global shipping lines will divert imports and exports through competing American West Coast, Gulf Coast and Eastern Seaboard ports, with an additional cost to Canadian importers and exporters to move goods through the U.S. likely to be $80 million annually, starting in 2030[v]. Moreover, with no pipeline, western oil can’t reach eastern refineries. So in the west, we sell low to the Americans; and in the east we buy high from Saudis and Algerians. People may wonder we can’t sell Canadian energy to Canadian consumers. The Conservative Party has suggested building the Canada Energy Corridor: a government-approved right-of-way for private businesses to build pipelines, transmission lines, and rail-lines across Canada.  It is an all-win situation: jobs for western energy workers, eastern refinery workers and Ontario steel workers; transmission lines to get cheap, pollution-free Quebec and Manitoba hydro to other Canadians; and billions of tax-dollars to be used for hospitals and schools. In addition, there should be measures and infrastructures to attract wholesale companies like Target (as it is our loss for Target to move back) so that the domestic retail market can be enlarged and deepened.

It is kind of weird that there is an evident lack of long-run strategy in international trade and investment. The Saskatchewan provincial leader talked about being “reciprocal” to China while speaking about the agricultural products being inspected and restricted in China. But there is a need to stop and think for a moment about how hollow and meaningless Canadian retaliatory measures would be. There is a need to examine the potential consequences of escalating this fight into an all-out trade war, and how poorly armed we likely are for such a conflict. Moreover, there is also a need to consider whether or not we are prepared to hit China where we can hurt it, given how much it could hurt us as well. Does it make sense to call for a trade war with China when we are already in a trade war with China and losing? As a matter of fact, besides the $164 million dealing between SaskTel and Huawei, there are also the Yancoal potash interests in Southey[vi]. Meanwhile, Chinese demand for pork, barley, oats and mustard will not only persist but also increase.

There are also some products which Canada can satisfy itself like oil and gas and fruits and vegetables. Presently, we import a lot of oil from the US, and vegetables like cucumbers, peppers and tomatoes as well as fruits like strawberries from Mexico and California of the US, which can be grown in Alberta and Saskatchewan greenhouses. Therefore, import substitution should be put on our nearest agenda.

II.                Reason Analysis
There is a long history of trading between the US and Canada, and the political systems and cultures are similar, though Canada is closer to the British system. Canada and the United States enjoy the largest trading relationship in the world, with nearly 400,000 people crossing the shared border each day. The Canada-United States partnership is forged by shared geography, similar values, common interests, deep connections and powerful, multi-layered economic ties. These ties enhance their security and accelerate the legitimate flow of people, goods and services. As a matter of fact, Canadian companies operating in the United States directly employ 500,000 Americans.

However, Canada’s position while negotiating with the US led with calls to make the deal “more progressive” and to insert a raft of ideological causes completely at odds with Trump’s priorities. Ditto for the agenda the prime minister struck for the G7 summit in Charlevoix, Que., which focused on issues like gender and the environment. Ottawa has signally failed to understand the extent to which Trump is breaking with conventional thinking and charting a different course on climate change, energy development, foreign policy, and trade. Thus, even with such a long-time neighbor, Canada cannot handle well, let alone China.

The lifting of 25% tariff on steel and 10% on aluminum is certainly good news for Canada. The American Congress may not ratify USMCA until 2020, if ever. For Canada, that is no great concern. This is because, if ratification is subsumed in an extended U.S. political wrestling match ahead of next year’s presidential election, then NAFTA remains in force. And keeping NAFTA, or something close to it, was always Canada’s goal, as it is a better deal than USMCA.

As to the relationship with China, “it saddens us that the current China-Canada relations are at a freezing point and face huge difficulties,” Shaye Lu (China’s Ambassador to Ottawa) said, adding that “the knots shall be untied by those who tied them”. He also said China’s development was a great contribution to the world instead of a threat. He described Meng’s arrest as “back-stabbing” by a friend and evidence of white supremacism. Meanwhile, Ottawa condemned the detention of the Canadians as “arbitrary”[vii]. Though Canada and the US have an extradition agreement, the person has to be also against Canadian law to be extradited. Furthermore, Canada has not joined with the US against Iran, and the case can be labeled “political”. As for the arrests of some Canadians, there are rules which were broken by the detainees, and they all have to face trials before being imprisoned with access to consular help. As to democracy, China’s leaders are also elected indirectly, and they have to go through the process from local leaders to provincial leaders and then national leaders, and they have to meet with many other minority party leaders regularly for consultation. China’s contribution to global poverty reduction is 70%, over 200 million believers of 5 religions can go for  worship at 144,000 places and every year 160 million Chinese travel freely to other countries without staying behind in Western countries. While STC in Saskatchewan of Canada has been dissolved, the long-distance bus and railway passenger market in China are still growing. Low-income people and small business owners can travel half of China with less than C$100 because the price per kilometer is subsidized and remains unchanged since 1995. The readers may wonder whether this is what a horrible dictatorship is like. To reflect the obsolete ideology, in the World Happiness Report published earlier this year, China was put backward 7 places while Libya was put ahead 2 places with Libya’s war and terrorism ignored[viii]. The writer believes a consultation based on the common ground and not on the differences may help the stakeholders to sort out the problems.


While the relationship with China has to be pulled out of the mud, the relationship with Japan and South Korea can be fostered, both to diversify the economy and to increase the percentage of Asia in Canada’s exports so that the eggs can be put in different baskets.

Besides diversification, Canada needs to introduce more capital and technical talents. Also, a strong economic leadership and ability to adapt to the changing environment, make rapid decisions and implement them are necessary.

III.             Options for Canada
1.      Self-reliance: impossible
This is evident both from the historic perspective and from Canada’s present market limitation.

2.      Status-quo: difficult
The status-quo is a heavy reliance on the US. Though Trudeau has just reached a deal with the US on steel and aluminum, there are still many other issues, and the USMCA is no better than the former NAFTA.

Some politicians emphasize that we should side with democratic countries like the US. However, the US is ranked the 25th in terms of democracy index, giving way to many countries like Norway, Iceland, Sweden and even Ireland[ix]. Actually, some people argue that US democracy is a kind of modern democracy based on elections in which normal people have the right to vote but not the right to nominate with the essence being the politicians will make decisions on behalf of the wealthy few for the general public. Therefore, one of their slogans is to enlarge the middle class so as to stabilize the society. With their logic, they represent Western democracy and justice, so that you will be an enemy if you don’t stand with them to fight Iran and Iraq. Nevertheless, there is a saying that “everything is in harmony without harm, and the roads are parallel and not opposite” from the "Book of Rites, the Doctrine of the Mean"[x].

Also, between the US and China, Canada tends to rely more on the US. However, the US is mostly likely to take advantage of and profit from the poor relationship between Canada and China. Actually, CNOOC was about to buy Trans Mountain and boost Canada’s oil price when later on everything changed, in addition to the fact that the US is now a net oil exporter. Meantime, when Canada’s agriculture received a big hit, the US scooped a big gain on the soybeans market to China. As to the case of Meng detained in Vancouver, half a year has passed, yet no decision has been made on it, and it has become suspicious that some interest groups want this to continue as American companies could well use the Huawei card to play the trade game both for China and for Canada, as put by Trump before.

As to the human rights record, the United States has become the most divided Western country. 1% of the richest people in the United States have a national wealth of 38.6%, while the total wealth and income levels of ordinary people continue to decline. Nearly half of American families are living in poverty, and 18.5 million people live in extreme poverty (please note that the per capital net worth of a Canadian is larger than an American). The poverty rate of African Americans is 2.5 times that of whites, and the unemployment rate has remained about twice as long as whites. One human rights record people may emphasize is that the United States has withdrawn from the UN Human Rights Council so that it won’t be charged any more by the organization. American diplomat Thomas Clifton Mann believes the standard to judge Latin American countries will be how they promote the interests of the United States, not the interests of their own people[xi]. US Secretary of State Pompeo declares that in the case of international relations, the United States will cooperate with an undemocratic country as long as it is in the national interest of the US. He also said at Texas A&M University, "I used to be a CIA director. We lied, deceived, and stolen. We also have a complete training course..."[xii]

Will the situation be better with democratic countries? For more than a decade, in the background of fighting corruption, the US government has successfully made many French multinational companies bankrupt resulting in a penalty of $2 billion paid and 6 senior executives being charged[xiii], and the Huawei case is just another replica. People may remember a criminal case relating to allegations of sexual assault and attempted rape made by a Pilipino hotel maid, Nafissatou Diallo, against Dominique Strauss-Kahn at the Sofitel New York Hotel on 14 May 2011. At the time of the alleged attack, Strauss-Kahn was the head of the International Monetary Fund (IMF) and considered to be a leading candidate for the 2012 French Presidency. Four days after his arrest, he voluntarily resigned his post at the IMF though the criminal case was later on dropped and all the charges dismissed due to the woman’s diminished credibility. There was widespread speculation in France after his arrest that he was the victim of a conspiracy[xiv].

3.      Initiatives to Change
1)      More Trade with EU
Canada and the EU members have similar forms of government, and Canadians speak European languages (English and French are official and majority languages). Canada had achieved full independence from the United Kingdom following the Patriation in 1982 but maintains numerous constitutional ties with its former host nation. They share the same head of state (Elizabeth II), same systems of government (the Westminster system), and a similar culture[xv].

In September 2017, CETA came into force. Ultimately, the tariffs for almost 99 % of all Canadian and EU tariff lines will be removed. For the most sensitive agricultural products, there will be a special treatment or an exclusion from any tariff reduction[xvi]. It is possibly the farthest-reaching FTA between the EU and a foreign country. Because of the nature of CETA, some have said that it wouldn't be that far of a leap to EU membership, which may decrease Canadian dependence on the United States regarding trade and security.

Though it would be ideal for Canada to develop trade only with EU, due to both the same culture and the same political system, the trade volume is relatively small compared with that with China. Britain is like on a hot pan now, and Germany and France have refugee issues. Moreover, Canadian economies and EU economies are quite similar in economic structure.

2)      More Trade with China
(1)   To boost the sluggish Canadian economy
China is now Canada’s second largest trading partner, and Canada is a large trading nation with its export occupying more than 31% of its GDP (EU: 45.4%; US: 12.1%; China: 19.8%) in 2017. An increase in trade with China will surely stimulate the Canadian economy. It may also improve its relationship with this giant in the East, increase more opportunities in technical innovation and environmental progress cooperation and reshape Canada’s international diplomacy as Pierre Trudeau did before.

(2)   To implement the comparative advantage for each other
Canadian and Chinese economic structures are complimentary. While Canada is eager to promote its sales in oil and gas, agricultural products, and technology in carbon capture, China is the very country which would very much import them. China has the market, capital and some equipment, while Canada has the resources, technology, products and the entrepreneurship. If they cooperate well, they can be a perfect match.

(3)   To diversify the economy and reduce risks
Everyone knows it is wise not to put all the eggs in one basket. Also, when it is hard to forecast the overall global economy, it is easy to diversify and reduce your individual risks.

(4)   To carry forward a strong tradition and trade history
The Chinese still remember Dr. Norman Bethune who joined in the red army in China and saved the lives of many Chinese soldiers and Minister Hamilton who sold grains to China when it was in a severe shortage of food due to both a draught and mismanagement. However, near-sightedness and simple-headedness have put Canada into a deep trap. It is speculated that the longer Huawei’s CFO Wanzhou Meng stays in Canada, the more benefits US special interest groups may get. And that is why they are not eager to take Meng into the US.

3)      A Combination of Both
Due to concerns of Chinese freedom and democracy, the Canadian government may be wary of a closer tie with China. However, the reader can find that even democratic countries like the US can do some bad things which “non-democratic” countries will not do. Therefore, the issue is not whether you are a democratic country, but if you can trade according to the rules and if you respect each other. A combination of both may be good for Canada so that Canada can enjoy a wider clientele and be more flexible. Actually, it seems the US government has purposely backed off from the Chinese and Canadian market with its imports from China and Canada reduced by 14% and 3% respectively, while its imports from Vietnam, Taiwan and South Korea have increased by 40%, 20% and 17% respectively[xvii]. Therefore, Canada can learn from the US and expand into those Asian countries, which are already endorsed by the US.

IV.             Conclusion
With neo-protectionism and neo-cold-war coming, Canada should encourage international economic cooperation, focus on the upper side of the value chain, enhance import substitution, adopt a multiple-region, multiple-sector and multiple-platform (such as the settlement system) trade policy, and prepare for change. More trade with EU and Asia would be recommended.

关于加拿大贸易格局的思考

摘要：虽然加拿大拥有更多元化的贸易伙伴，但除了与中国和欧盟的一些细微变化外，情况仍然相同。加拿大的出口是以资源为导向的，其加工（如炼油）能力和运输能力都有限。由于运输方面的限制，加拿大能源卖不到加拿大消费者手里。加拿大和美国享有世界上最大的贸易关系。加美伙伴关系是由共同的地理位置、类似的价值观、共同的利益、深层联系和强大的多层经济联结共同构成的。然而，随着新任美国总统执政和USMCA签署，加美关系发生了变化。尽管出于文化和政治制度相同的原因加拿大仅与欧盟发展贸易是理想的，但与中国相比，中欧贸易额相对较小。中国在西方并不被视为一个民主国家，但它正在获得更多的国际影响力，加拿大和中国的经济结构还是互补的。同时加强与欧盟和中国的贸易可能对加拿大有利，因为加拿大可以享受更广泛的客户和更灵活的贸易。随着新保护主义和新冷战的到来，加拿大应该鼓励国际经济合作，关注价值链的上游，加强进口替代，采用多区域、多部门和多平台（如结算系统）贸易政策，将挑战转化为机会，为变革做好准备。

关键词：加拿大贸易，价值链，市场多元化，进口替代，中国

[i] Phillippe J. Fournier: A new 338Canada projection has the Tories safely in majority territory, Maclean’s, May 5, 2019. Please also check the web page by clicking the following link: https://www.macleans.ca/politics/ottawa/a-new-338canada-projection-has-the-tories-safely-in-majority-territory/.
[ii] Daniel Workman: Canada’s Top Trading Partners in 2018, April 3, 2019, http://www.worldstopexports.com/canadas-top-import-partners/;  Canada: Trade Statistics, https://globaledge.msu.edu/countries/canada/tradestats; List of the largest trading partners of Canada,  please also check the web page https://en.wikipedia.org/wiki/List_of_the_largest_trading_partners_of_Canada.
[iv] Daniel Workman: Canada’s Top 10 Exports, May 7, 2019, http://www.worldstopexports.com/canadas-top-exports/.
[v] Nelson Bunnett: Canada faces container terminal crunch, BIV, December 6, 2019, https://biv.com/article/2018/12/canada-faces-container-terminal-crunch.
[vi] Murray Mandryk: Moe's retaliation for Chinese canola ban may have worse consequences, Leader Post, May 1, 2019, please also check the web page by clicking the following link: https://leaderpost.com/opinion/columnists/moes-retaliation-for-chinese-canola-ban-may-have-worse-consequences.
[vii] Kristine Huang: Sino-Canadian ties ‘at freezing point’, says Chinese ambassador, South China Morning Post, May 24, 2019, please click the link: https://www.scmp.com/news/china/diplomacy/article/3011739/sino-canadian-ties-freezing-point-chinese-ambassador-says.
[viii] Shaye Lu: the Viewpoint from China, Symposium on Sino-Canada Relationship at Globe and Mail headquarter in Toronto, May 23, 2019.
[ix] Democracy Index 2019: Key Facts, January 10, 2019, please check the web page https://currentaffairs.gktoday.in/democracy-index-2019-key-facts-01201964364.html.
[x] Qijia Guo: Everything is in harmony without harm, and the roads are parallel and not opposite (in Chinese), Guangming Daily, August 14, 2017, please see the web page http://epaper.gmw.cn/gmrb/html/2017-08/14/nw.D110000gmrb_20170814_1-02.htm.
[xi] Wang Hui: Pompeo said it could cooperate without looking at the human rights situation as long as it was in line with US interests (in Chinese), the Observer, March 14, 2019, please click:
https://www.guancha.cn/internation/2019_03_14_493548.shtml.
[xii] Beijing, Hong Kong and Taiwan Global Network: Pompeo said "we lie, deceive and steal" and Russian media said: rare" (in Chinese), April 26, 2019, please also take time to view the article by clicking the link: https://www.backchina.com/news/2019/04/26/621516.html.
[xiii] Frédéric Pierucci and Mattieu Aron: LE PIEGE AMERICAIN (Chinese Edition), Page 9, CITIC Press Group, May 2019.
[xvi] European Commission: Guide to the Comprehensive Economic and Trade Agreement (CETA), Page 7, July 2017, please view the guide by clicking http://trade.ec.europa.eu/doclib/docs/2017/september/tradoc_156062.pdf.
[xvii] Please see the web page: www.gelonghui.com.
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