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Canadian dependence on American market will continue

Canadian farmers’ crippling reliance on the U.S. market is likely to get worse, not better, no matter how current trade disputes work themselves out.

That’s how I mentally summed up the viewpoint of National Bank of Canada geopolitics specialist Angelo Katsoras, who spoke to the Canadian Special Crops Association’s annual meeting Aug. 21.

The globalized world is breaking into pieces and, like it or not, we’re going to have to learn to live inside our piece, and to expect less from some of the other pieces.

“You’re going to see a regionalization of these global supply chains,” said Katsoras.

I have trouble challenging his pessimistic view. Canada got slapped around by the U.S. in the North American Free Trade Agreement renegotiations, but even though people like me called for Canada to turn to other markets such as China and Europe to reduce our overdependence on the U.S. market, we’ve all seen what’s happened to those next-best markets.

Europe has been a disappointment, despite a freshly signed trade deal. China has become an outright danger, jailing Canadians and using agricultural trade as a political weapon.

It’s not that easy to diversify markets, despite the best efforts of industry and government.

However, Katsoras said the protectionism and politicization of trade seen in much of the globe today, which is in stark contrast to the liberalization mood that held for more than two decades, isn’t the only reality that will tie Canada ever closer to the U.S. market.

The new NAFTA and the aggressive actions of both the U.S. and China in their ongoing trade war probably mean Canadian businesses and industries will often be forced to choose between complying with one or the other’s demands and requirements.

It’s hard to imagine most Canadian interests favouring compliance with Chinese demands if that means jeopardizing their relationship with the much nearer and more developed U.S. market.

That’s why, to Katsoras, a resolution of the current diplomatic and trade crisis with China won’t fix everything.

“Even if there’s a deal, things probably won’t go back to the way they were before.”

He sees the same situation with a potential U.S.-China deal.

China has been working hard to reduce its reliance on U.S. agricultural products, so even if the trade war ends, China doesn’t want to keep depending on U.S. soybeans and will turn to other markets.

Instead of the steadily growing enmeshing of North American industries and value chains with China, future interactions are likely to be more careful and limited.

“I think we’re going to see a much more transactional relationship,” Katsoras said.

I’m OK with that. I’ve long been a China skeptic, confused by Canadian attempts to treat China as if it’s a rule-of-law nation that can be engaged like a G7 country or as a democratic state.

This is a terrible time in our relationship with China, but that’s because we have naively accepted that China would act in good faith and advance toward being a rule-of-law, democratic nation. We’ve come to depend on the (until recently) miraculously growing economy of this still-communist nation and are now realizing that we’ve lured ourselves down the primrose path.

I’d guess, and Katsoras seemed to be adding colour to this picture, that after the current China crisis resolves, Canada-China trade will end up as cash-over-the-barrelhead business. China will sell us finished goods. Canada will sell China commodities.

There won’t be much shipping of intermediate goods and intertwining of value chains beyond that. Nobody’s going to want to rely upon the other place.

For farmers, that can be OK. China is food insecure and likely to become more so as environmental degradation, water pollution and climate change undermine China’s already-inadequate farming sector.

Canadian farmers will be able to plan on regular but undependable demand from the giant nation’s billion-plus consumers.

And China can hope that, whenever the inevitable widespread crop failures hit and its hundreds of millions of people need Canada’s food, that Canada hasn’t found a better and more reliable set of markets to favour.

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