Will ag trade bear brunt of China’s retaliation for Aecon?

Get ready for China to pull some more shenanigans with Canadian canola.

I’m sure the massive country’s government feels it needs to do something to signal its grave displeasure with Canada’s decision to prevent one of its state-owned organizations from taking over Canada’s biggest construction company. Hitting canola is a pretty easy way to slap Canada in the face for its insubordination.

It’s not only easy to do, but the Chinese have already had practice doing it.

The Chinese government is not happy with the Trudeau government’s move to stop the sale of Aecon Group.

As a Chinese government spokesperson told The Globe and Mail: “We are opposed to political interference under the pretext of national security. We hope that Canada would cast aside its prejudice and ensure a fair and sound environment for Chinese enterprises…. If things come to a stage where our interests are hurt, we will definitely take necessary measures to safeguard our lawful interests.”

I, and everybody else in Canada’s agriculture export trade, probably share two common reactions to China’s statement: bemusement and anxiety.

I understand the Chinese have to say something about this to save face, but accusing Canada of using national security as a “pretext” is rich, considering how China has hacked into our nation’s governments and companies, used all manner of domestic controls to treat Canadian companies in anything but a “fair and sound” way, and whipped up anti-Canadian sentiment through its state-controlled press whenever the two nations disagree.

That’s where I feel bemused.

I feel anxious when I think of the likely targeting of Canadian agricultural exports in retaliation. Not only is China Canada’s biggest export canola customer, but it is an increasing and promising market for Canadian pork. The Trudeau government was ballsy in blocking the Aecon sale, so the Chinese are likely to swing a boot into that ballsiness.

Some short-term pain is possible and even likely.

But long term, I don’t think Canadian farmers have much to fear for several reasons:

  • China is facing the same pushback from all of its advanced trading partners, including the United States, Australia and the European Union.
  • China needs food products like canola and pork and dares not create the potential for food shortages, especially considering the undemocratic nature of the state. In the end, it needs what Canadian farmers produce.
  • China needs to be cautious with its non-U.S. trading partners in case a true China-U.S. trade war breaks out. It won’t want to be fighting everybody at once. That would be like being Donald Trump.
  • China might be upset about Aecon, but it probably still wants to make other asset purchases in Canada, so whipping up this issue further won’t help preserve the “free and sound” investing environment it wants.

We’ve already seen China show a lot of restraint in its response to U.S. President Donald Trump’s belligerence, and some of the trade war fears are lessening. That’s a good sign.

We’ll see what happens with this. The blackleg issue seemed nicely settled for a little while, but now that trade peace might come undone. Blackleg might not be the next canola-blocking pretext, but free access for canola isn’t such an easy assumption.

But how far can China go with retaliation against food when it needs the crops and meats that its trading partners supply?

That’s what we’re finding out, and it’s something China’s finding out too.

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