Carney departs for China with risks and rewards around every corner

OTTAWA — As Prime Minister Mark Carney departs for Beijing this morning on a trip that will see him circle the globe, expectations — but also concerns — are high.

In the eyes of the Liberal government, this first visit to China by a Canadian prime minister since 2017 is an opportunity to reset a frigid diplomatic relationship with the powerful Asian country. China is Canada’s second largest trading partner and a key part of Carney’s strategy to double non-U.S. exports.

In the words of a senior government official briefing reporters Monday, the “consequential and historic” trip is “an opportunity to help put in place a much stronger foundation” for future diplomatic and economic ties.

The idea is not only to rekindle Chinese investment in certain Canadian sectors considered “safe” by the federal government, but to eliminate existing trade barriers. Of particular note: crippling Chinese tariffs ranging from 76 to 100 per cent Canadian canola and 25 per cent on pork and seafood.

“All canola exports, canola seed, oil and meal are all stopped because of the tariffs. They’re prohibitive,” Rick White, president & CEO of the Canadian Canola Growers Association, said in an interview.

China implemented those tariffs in response to Canadian 100 per cent border levies on Chinese electric vehicles and a 25 per cent import tax on the country’s steel and aluminium.

During his time in Beijing, Carney will meet with China’s Premier Li Qiang, National People’s Congress Chairman Zhao Leji and then President Xi Jinping in the hopes of smoothing over tense relations.

Canada and China’s diplomatic ties froze over in 2018 when Canadian authorities arrested Huawei top executive Meng Wanzhou on behalf of the U.S. government. In response, China detained two Canadian citizens, Michael Kovrig and Michael Spavor, for nearly three years.

But Carney’s desire to reignite trade with China raises concerns among critics, Asia-Pacific watchers and even within government considering the economic behemoth’s frequent use of economic and diplomatic coercion.

“While the Chinese Communist Party (CCP) and its envoys have altered their tone, their hostile intentions and harmful policies remain unchanged,” wrote Kovrig in October after Carney met Xi Jinping during an economic summit in South Korea.

“Their goals are to enhance economic ties selectively to create dependence and offload overproduction, while sowing political divisions, both among Canadians and between Canada and its allies.”

Automakers in Canada will also be watching the trip closely to see if Carney drops or reduces tariffs on Chinese EVs or even allows them to set up a manufacturing foothold in Ontario in a bid to reduce trade tensions.

Don’t expect all tariffs and trade irritants to disappear after one trip though, warned government officials briefing reporters before the trip.

“I think it would be reasonable to expect progress, but not a definitive elimination of tariffs in a single visit,” said one official in a clear bid to lower expectations about the trip.

But the expectation is that for China to reduce or drop its crippling tariffs on Canadian canola and other agro-food imports, Canada will also have to do the same on its tariffs on Chinese EVs. That will almost certainly irritate U.S. President Donald Trump, who is currently on the offensive against China’s auto industry.

So in a way, Carney is at a fork in the road. Does his government let in Chinese EVs to protect other key Canadian industries but risk the wrath of the U.S. on the eve of the CUSMA free-trade review Or does it maintain them and risk crippling major Canadian agro-food products but maintain smoother relations with the U.S.?

“We cannot afford to take that bait. Concessions now will only embolden further demands. Giving in on EV tariffs would be just the first in a series of concessions Beijing would seek, undermining our ability to protect strategic industries in the future,” warned Vina Nadjibulla, vice-president of research and strategy at the Asia-Pacific Foundation, in a September op-ed.

This trip will also be an opportunity for Canada to clarify to the Chinese government where it will allow investments and which sectors are off limits.

Some of the sectors Canada hopes to increase Chinese investment are in both clean energy and conventional energy as well as climate finance, one official said. Whereas China’s involvement will be verboten or seriously limited in industries of “strategic importance” such as critical minerals, defence and artificial intelligence.

After Beijing, Carney will travel to Qatar and will meet with Emir Tamim bin Hamad Al Thani. He will then end the trip with the World Economic Forum annual event in Davos, Switzerland before returning to Canada on Jan. 21.

There again, the focus will be increasing trade and investment from and to Canada, namely from Qatar’s sovereign fund and major private sector players who will be flocking to Davos.

National Post

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