Disputes with China accelerated and frozen by COVID-19

Where will Canadian farmers stand in a new Cold War?

In some ways the COVID-19 crisis has frozen Canada’s and other countries’ disputes with China, drawing everybody’s attention to the immediate needs of preserving national healthcare systems, protecting people’s health, and dealing with the devastating job losses and business failures provoked by the coronavirus. Just today the U.S. government announced that over 30 million U.S. jobs have been lost in the past two months and that the Neiman Marcus retail chain is declaring bankruptcy. Across the Western world massive job losses and business failures are brutalizing the public, so dealing with China’s actions on Canadian canola and other countries’ agriciultural exports isn’t top-of-mind for many people.

In other ways the crisis has thrown fuel onto another dispute that had been lessening: the China-U.S. trade war. Increasingly harsh words are flowing back and forth between the U.S. and China, as each tries to tar the other for its response to COVID-19, and as the U.S. threatens retaliation for China allowing COVID-19 to escape and infect much of the world. American Secretary of State Mike Pompeo provoked the Chinese to fury with allegations that the virus broke out of a Chinese lab, while the U.S. has been annoyed by China’s attempts to portray itself as a global leader and benefactor during the crisis.

There’s so much happening while the virus rages that it’s hard to step back and have any perspective on long-term geopolitical and trade trends.

But it seems clear to me that the increasing belligerence and arrogance emanating from China in recent years, and which has resulted in disputes like the one over canola and Huawei, has only been intensified during the COVID-19 situation. According to some China-watchers, the country feels vindicated in how it handled the virus outbreak (it’s been virtually eliminated, even though it arose in China), and by the struggles of Western nations like Italy to control the outbreak within their open societies. The amazing incompetence of U.S. President Donald Trump in dealing with the crisis is a gift to the Chinese, who can show developing nations around the world a stark difference between seemingly competent and cured China and a U.S. unable to control itself.

At the same time, the public mood against China is intensifying across most of the Western world. China is broadly seen to have downplayed the COVID-19 situation, concealed information and possibly corrupted the World Health Organization’s ability to be honest about the situation.  Australia is one of the nations wanting an investigation of the origin of the pandemic, and Prime Minister Scott Morrison’s call for an inquiry brought another thunderous denunciation from Chinese officials and non-state actors, including threats of slashing imports of Australian wine and beef.

It doesn’t seem like the crisis is giving China any humility and desire to step back from its growing belligerence with trading partners, and it has encouraged the Trump administration to return to the China-fighting ways it had recently pulled back from.

Where does that leave us?

Last week I interviewed Charles Burton of the Macdonald-Laurier Institute about how Canada’s disputes with China compare with other agricultural exporters and trading partners. From our conversation (which I talk about with Robert Arnason here in this podcast) it became clear to me that Canada’s situation with China isn’t necessarily much worse than that of a number of other ag exporters and major trading partners of China. It has a constellation of disputes around the world and has moved increasingly to use trade retaliation as its go-to vehicle for enacting pain upon country’s that have angered and offended it. That isn’t a promising sign of things to come.

(See my story with Burton here.)

And U.S. push-back against China’s attempts to knock it off its economic perch isn’t likely to lessen, whether or not Trump wins reelection. U.S. Democrats are just as hostile to China as Trump, seeing the nation as having deployed a deliberately piratical set of policies that have led to millions of U.S. manufacturing job losses and the hollowing-out of the Midwest. Trump has been aggressively pushing U.S. companies to “de-couple” from China, to bring their jobs back to the U.S. or at least out of China, and after COVID-19, which has revealed the problems of complicated supply chains and just-in-time manufacturing, there will be pressure to reduce exposure to China. That’s a situation shared by virtually all advanced economies: dependence upon China has created dreadful vulnerabilities.

Everything for Canada is complicated by the unpredictable, volatile and often contradictory policies of the Trump administration, which isn’t offering the sort of leadership the Western world has come to expect from the U.S. But it seems pretty obvious to me, and I’ve argued it numerous times here in this space, that Canada has little choice but to more closely align itself with the U.S. and reduce exposure to China. Canada and the U.S. are neighbours, have an integrated continental economy, share centuries of history and culture, and actually like each other. None of that is true with China.

That’s mostly true as well of countries like Australia and New Zealand, the European Union, the United Kingdom and even Japan and South Korea. The U.S. isn’t as dependable as it was, but it’s one of us. De-coupling will likely lead to the Western world forming one informal trade bloc, where some semblance of rules-based trade will continue, and a China-led collection of developing nations, many reliant upon China’s money and trade, will form a separate sphere. It could be like a new Cold War, with two mutually incompatible systems dividing the globe into competing spheres, sparking at the contact points.

It’ll be a sad new reality, but not necessarily a disaster for farmers. During the Cold War we sold millions of tonnes of crops to the Soviet Union and China, and there’s no reason basic commodities trading can’t continue. China can’t feed itself. We produce more than we can eat.

But the post-COVID-19 world will probably look quite different from the pre-Trump world, but might feel familiar, at least if you were an adult before 1989.

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