Washington - President Trump talked a big game about China on the
campaign trail, but so far, he and Chinese President Xi Jinping have played
nice.
If a US China trade scrap does erupt though, China may have
a backup plan; the United States' neighbour to the north.
At last week's meeting with Xi, Trump who blamed the
Chinese for much of the United States' economic woes and promised to label
China a currency manipulator on Day 1 of his administration, struck a much
friendlier tone.
The two leaders agreed on a 100-day plan to discuss the
American trade deficit. China even identified some concessions it was willing
to make, the Financial Times reports but the Chinese are pointedly exploring other options on
trade as well.
Canada and China are preparing for negotiations that might
result in their first-ever bilateral free-trade agreement, which would likely
lower tariffs and boost mutual trade and investment. Such a deal would also
bring together two export-reliant nations that have both been threatened by
Trump's volatile criticisms about trade.
"Our priority is the most fair and balanced trade
arrangement with the United States - that has always been our priority,"
said Jack Austin, a former Canadian senator who was an adviser on China to
Canadian Prime Minister Pierre Trudeau. "But the more our trade advantages
and our stability are shrunk by US trade policy, the more they force us into
the global trade world."
"If the United States wants to interfere with our core
interests as a country, well, we have to look after ourselves," said
Austin, who declined to talk about Trump specifically.
Trump has said that he is not against trade per se, only
that he wants to negotiate better deals for the United States. But Trump's
pledge to pursue a more combative, protectionist trade strategy has unsettled
even close allies such as Canada.
One of Trump's first acts in office was to officially pull
out of the Trans-Pacific Partnership, a massive trade agreement involving 12
countries including Canada and Japan. The president said he would rather hammer
out many separate trade deals one-on-one. "And believe me, we're going to
have a lot of trade deals," he promised in January.
On that front, China may already be a step ahead of him. The
collapse of the Trans-Pacific Partnership, a US led effort that pointedly excluded China, opened a
window for the Chinese, who are chasing trade talks with many former Trans-Pacific Partnership members - including Canada.
In addition to being disappointed at the failure of the Trans-Pacific Partnership,
Canada has also been on edge over Trump's efforts to renegotiate the North
American Free Trade Agreement.
Canada, which has a population the size of California, is
too small to fully replace trade between China and the United States. But for
the Chinese, closer economic ties with Canada could soften the blow of any US China
trade war, or even forestall a trade war altogether, experts say.
There is still no set timeline for the China-Canada talks,
but both agreed last year to prepare for trade negotiations, and Canadian
officials are currently crisscrossing the country looking for input from
citizens and businesses.
The two countries are a good match economically. China is a
big importer of agricultural products and natural resources, which are Canada's
biggest exports.
The Chinese have also been eager to pour money into Canada's
energy and manufacturing sectors - investment that Canada needs, says Yves
Tiberghien, the director of the Institute of Asian Research at the University
of British Columbia and a senior fellow at the Asia-Pacific Foundation of
Canada. "There are a lot of complementary here," he said.
Political upsides
For the Chinese, there are political upsides. Canada's
proximity to the United States might offer leverage in future negotiations
between China and the Trump administration. "It would be a good move for
China to at least have a deal with a North American country as part of the game
between the U.S. and China," Tiberghien said. "It's one way for them
to deal with the US sideways."
For the same reason, trade talks might prove tricky for
Canada, whose biggest customer by far remains the United States. In 2016,
Americans bought more than 75 percent of Canada's exports. For Canada to
develop a closer relationship with China risks upsetting the Trump
administration, warned Robert Zoellick, a former World Bank president and trade
adviser to President George W. Bush.
Read also: China to open up more industries
"Just be careful," Zoellick said at a panel in
January, according to the Canadian Press. "If you're going to do it, make
sure you get something good for it. Otherwise you're going to pay a big price
with this guy if his Number one enemy is China."
Canada has long sought to reduce its economic reliance on
the United States, and talks of a trade deal with China, already Canada's
second-largest trading partner, have been brewing for years. But Trump has made
the matter more urgent.
Recently, Canada had its hopes pinned on the Trans-Pacific Partnership, which
would have expanded Canadian exports in a host of other countries -
particularly Japan, a market that Canada has been eager to crack. But thanks to
Trump, the Trans-Pacific Partnership fell through. "That blew a huge hole in Canada's trade
policy," Tiberghien said.
Now NAFTA, the free-trade deal involving Canada, the United
States and Mexico, is on shaky ground as well. During his campaign, Trump
called NAFTA a "disaster" and promised to renegotiate it. Though
Trump's complaints mostly concerned Mexico, there are signs that his
administration will also try to overhaul trade between the United States and
Canada.
In light of these developments, China - the second-largest
economy in the world - has become an increasingly attractive trading partner
for Canada, experts say. "Canada has been looking at a deal with China for
a long time, but the destabilization of the NAFTA relationship has made it even
more important for Canada to look for alternatives to the US market,"
said Laura Dawson, director of the Canada Institute at the Wilson Centre.
In a paper last year,
she calculated that a free-trade agreement could boost Canadian exports by $7.7
billion and create 25 000 Canadian jobs.
Dawson said that a trade talks between Canada and China
don't have to be seen as a threat to the United States. They may even offer a
model for the United States' own trade negotiations with China.
"Canada is well-known to be a middle power, a
negotiator, a conciliator, and so we can explore a range of possibilities and
negotiating outcomes with China," Dawson said. "But when the two
world leaders, when China and the United States, get into a room, it becomes
more of a power negotiation."
Canadian Prime Minister Justin Trudeau also has a personal
interest in China. His father, Pierre, was the first Canadian prime minister to
establish diplomatic ties, in the 1970s, with the communist People's Republic
of China. The younger Trudeau has been supportive of Donald Trump, Dawson
pointed out. "So, maybe this is an opportunity for Trudeau to be Trump's
wingman," she said.