Threat, opportunity or both — it’s hard to know what the China-U.S. trade war means for Canada.
There could be an opportunity for Canadian farmers to sell more soybeans, canola, wheat and pork to China, but instability and chaos in the global trading system is a massive risk for Canada, says the president of the Canadian Agri-Food Policy Institute.
“There’s a huge uncertainty that’s been introduced into the international trading system. That uncertainty wasn’t there five years ago,” said Don Buckingham.
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“The greater uncertainty has caused greater vulnerability to the smaller players … like Canada and Australia.”
Over the last few weeks, U.S. President Donald Trump and Chinese leaders have made threats that certainly look like a trade war. First, Trump announced tariffs of 25 percent on steel and aluminum imported into America. China fired back with its own tariffs on U.S. pork, fruit, nuts and other products.
Then, in early April the U.S. formally announced $50 billion worth of tariffs on Chinese goods. China rapidly responded with tariffs on 106 U.S. products, including soybeans, vehicles, aircraft and wheat.
American farmers are extremely worried about a Chinese tariff on soybeans because the U.S. exported nearly $14 billion worth of beans to China in 2016.
“We have been warning the administration and members of Congress that this would happen since the prospect for tariffs was raised,” said American Soybean Association president John Heisdorffer.
“This is no longer a hypothetical, and a 25 percent tariff on U.S. soybeans into China will have a devastating effect on every soybean farmer in America.”
Trump, since he was a candidate for president, has said that China is destroying America through unfair trade pratices such as manipulating its currency and theft of U.S. intellectual property.
A number of pundits have said Trump’s tariffs are simply a negotiating tactic — a tool to get concessions from China on trade.
Buckingham doesn’t see it that way.
The China-U.S. trade war, North American Free Trade Agreement renegotiations, the 2016 presidential election and the Brexit vote are all part of a larger movement in which the public and politicians are questioning the status quo.
“There’s been a fundamental change in the way people are assessing the benefits and cost of everything … of democracy, of being in free trade areas.”
Mike Gifford, former lead agricultural negotiator for Canada in the U.S.–Canada Free Trade Agreement, agreed there’s been a shift in perceptions when it comes to trade.
Prior to 1995 and the creation of the World Trade Organization, which sets out the rules of trade between nations, countries could slap tariffs on agricultural products with almost no consequences.
That changed after 1995.
“Post the Uruguay Round (of negotiations), even on agriculture, when people wanted to take trade policy action at (their) border, they had to think twice. The system became a lot more stable and predictable,” Gifford said.
But in the last few years the system has started to wobble, he added.
“The situation today is for the first time, since the establishment of the WTO, you’re now seeing the international trading system under pressure.”
Gifford used the phrase “under pressure,” but others have been less diplomatic.
Politico has reported that Trump is trying to undermine the WTO and revert to a “law of the jungle” trading system where powerful countries win.
The Economist said that Trump’s “brow-beating tactics … weaken the rules-based trading system” and sends a signal that the WTO is irrelevant.
“If America thumbs its nose at the WTO, why shouldn’t others?”
If other do follow suit and flout the WTO, the consequences to Canadian farmers would be significant. Countries could impose tariffs on wheat, pork or canola, ad hoc, depending on the domestic politics of the moment.
In the past two decades Canada has relied on the WTO dispute resolution system to challenge barriers to trade, but that process is now in doubt.
The Trump administration has refused to appoint judges to the WTO appellate court, which hears appeals to WTO rulings on trade disputes.
If the WTO doesn’t have the capacity to resolve disputes, Canadian farmers could be in a difficult spot.
“The idea of having somewhere to go when there is a trade dispute — we’ve started to take that for granted,” Buckingham said from his Ottawa office.
“If you have a court system, it makes people behave differently.”
This may be a classic case of throwing the baby out with the bath water.
“I’m not so sure people (are) appreciating what it’s like to move away from the status quo,” Buckingham said.
“No one has quite figured out what the repercussions are going to be, to be without the trade advantages of lower tariffs and the advantage of a dispute resolution (system).”
