Canada is a target, not collateral damage, in the U.S. trade war against China

It has become clear that Prime Minister Justin Trudeau and Foreign Minister Chrystia Freeland, in the ongoing diplomatic crisis between Canada and China, have relied heavily on courting support from the United States while dismissing Beijing’s criticism over Huawei chief financial officer Meng Wanzhou’s arrest. They claim Ottawa is just following the rule of law and its extradition treaty obligations to the United States. In return, American officials have expressed gratitude toward Ottawa. United States Ambassador to Canada Kelly Craft reiterated the U.S. demand recently that China free two Canadians currently in its custody, and President Donald Trump’s senior economic adviser Larry Kudlow praised Canada “for hanging tough on Huawei.” But recent Canada-U.S.-China economic dynamics demonstrate that the Trump administration simply has not put its money where its mouth is when it comes to treating Canada as an ally. When the USMCA (also known as the Canada-United States-Mexico Agreement, or CUSMA) was signed, Article 32, which gives a veto to the U.S. if Canada is to proceed with China on a free trade agreement, was interpreted by Team Canada as a pragmatic concession since Canada is unlikely to pursue a free trade agenda with China in the near future. U.S Commerce Secretary Wilbur Ross prefers to call it a “poison pill.” But the Americans, while fighting a trade war with China, are also negotiating what Trump calls the “largest trade deal ever,” which will include significant investment and purchase commitments by Beijing in the areas of agriculture goods and energy products, the very same sectors that Canada wants to expand in Chinese markets. Trump has also not personally promised Trudeau that he would not use Meng as a bargaining tool for a better trade deal. The “poison pill” now may serve to weaken both China and Canada, while strengthening U.S. economic positions vis-a-vis both countries. This is more evident if we go through Trump’s Executive Order on Strengthening Buy-American Preferences for Infrastructure Projects. In an elaborate White House ceremony that received little mainstream media coverage in Canada on Jan. 31, Trump announced that federally funded U.S. infrastructure projects should “Buy American,” using U.S. “manufactured products,” such as steel and aluminum, plastic, cement, glass, optical fibre, and lumber (yes, lumber!). U.S. “infrastructure projects” include surface and water transportation; energy production, generation, and storage, including from fossil fuels, renewable, nuclear, and hydroelectric resources; electricity transmission; gas, oil, and propane storage and transmission; electric, oil, natural gas, and propane distribution systems; pipelines, and even broadband internet. The list goes on. While Trump repeatedly mentioned China as the key target, Canada will get hurt badly, given that Canadian and U.S. economies are so integrated, and that Canada has much more to lose if its businesses are excluded from participating in so broadly defined U.S. infrastructure projects. With a stroke of a pen, many Canadian enterprises can’t participate in the trillion-dollar U.S. infrastructure market. For those who hope that our friends south of the border will give Canada some special exemptions based on the new North American trade deal or our special relationship, look no further than how the U.S. import tariff on steel and aluminum from Canada and China has worked so far. The sweeping tariffs were aimed at China, but Canada was also included, based on the same “national security” rationale. Canada may suffer a bit of “collateral damage,” as Canadians were told, so as to make sure that China wouldn’t use Canada as a backdoor to dump products of similar categories on the U.S. market. But the latest tariff exemption data shows that, using 2017 imports as a base, the U.S. Department of Commerce has exempted 40 per cent of imported Chinese steel from its 25 per cent tariff but less than two per cent of imported Canadian steel. And on the 10 per cent aluminum tariff, China got an 86 per cent exemption while Canada got only 0.2 per cent. Even assuming most applications in the Canadian backlog for exemption in these two categories are eventually granted, Canadian steel and aluminum sectors still enjoy no differential treatment than those of China. Canada ends up losing much more, as it is the top exporter of these products to the U.S. by a large margin. The irony is that even if the Trump administration lifts its tariffs on Canadian steel and aluminum as part of the USMCA implementation, Trump’s “Buy American” executive order is already in place for achieving the same goals as those tariffs. Yes, things have taken an ugly turn with Beijing lately, but the Trump hawks in Washington are not just fighting a trade war against China. It is high time for Canadian policy-makers and the public to engage in sober strategic thinking about our relations with the two superpowers, and set a course that best serves Canada’s own national interests. Wenran Jiang is an adjunct professor at the School of Public Policy and Global Affairs at the University of British Columbia, and a global fellow at the Woodrow Wilson International Center for Scholars. He is on Twitter @WenranJ. The Hill Times