Hitching trade star to Chinese wagon has consequences

We live in complicated times. Just how complicated are they? Well who would have thought that an elephant, the common cold, international security involving the detention of a single Chinese national and a tariff war between the United States and China would all be connected to Canadian exports of canola.

To paraphrase a former Canadian Prime Minister, when the elephant next door sneezes, Canada gets a cold implying the impact of what the US does in its international dealings will always have a resounding impact on Canada. That Prime Minister just happened to be the father of the current Prime Minister.

One of the difficulties for the canola producers, and many other Canadian industries for that matter, was following the belief that tapping into the 1.4 billion people of the awakening market of the Chinese dragon would provide us with untold wealth. Indeed, Canada exported to China $2.7 billion in canola seed last year, about 40 percent of the Canadian market. Likewise, Canadian soybean shipments to China grew by a resounding 80 percent last year representing a whopping 60 percent of Canadian exports.

The problem is that China has been accused by the West of not abiding by the common rules of international trade, currency valuation and for that matter the ownership legalities of intellectual property rights.

The US asked Canada to detain a single Chinese National Huawei executive operating in this country for extradition and that brought the entire Canadian canola export business to an abrupt halt. The implications are obvious –this is no ordinary executive, Huawei is important to Chinese national interest.

China claims the curtailing Canadian canola was the result of pest infestations in the product and poor quality control. Regardless of whether this is true or not, this is called a non-tariff barrier which equally contravenes WTO rules but is very difficult and time consuming to prove. Canadian pork and pea exports are also being affected by Chinese trade barriers.

The net result of the growing tariff war between the US and China is that canola and soybean prices and futures are falling, inventories are rising, the US bank balance of collected tariffs is growing and they are willing to disperse some of those funds to compensate farmers for business losses. For instance, US soybean farmers are getting a US$12 billion bailout, equivalent to $1.65 per bushel.

As Canadian farmers are looking for alternate markets for their products, US farmers appear to be winning the race by dumping their cheaper product into European and other markets formerly very important to Canada.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.

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