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Canada Quits Free Trade Discussions with China

Posted September 21, 2020


After four years of exploratory discussions about the possibility of reaching a free trade agreement between Canada and China, the Trudeau government has decided to pull the plug on the process.
Chinese and Canadian flags superimposed on fractured wall

Referencing a number of ongoing disputes between the two countries, Foreign Minister François-Phillippe Champagne explained to The Globe & Mail on Friday that he did not see “the conditions being present now for these discussions to continue at this time,” ruefully observing that “the China of 2020 is not the China of 2016.”

With the change in policy direction, Champagne indicated that Ottawa’s attitude towards Beijing is now being shaped through the “lens of China of 2020.” 

Background


On coming to office, the newly elected Trudeau government, unlike that of his predecessor, had expressed a keen interest in fostering deeper economic ties with China, a sentiment that also appeared to be shared by Beijing at the time. Prime Minister Justin Trudeau visited China in 2016 and discussions about a possible free trade agreement began shortly afterward.

Despite meeting several times, little progress was made by delegations tasked with the negotiations before relations between the two countries started to break down following Canada’s arrest of Meng Wanzhou, the chief financial officer of the Chinese telecommunications giant Huawei Technologies, at Washington’s request.

Tensions have only grown worse since then with the “arbitrary detention” of two Canadian nationals on charges of espionage in China and a series of trade bans on key agricultural exports like canola for dubious reasons. Added to that, Beijing’s recent anti-democratic national security crackdown on Hong Kong has further exacerbated strains in the increasingly fraught relationship. 

Looking Forward


In a lengthy and insightful piece published recently in The Walrus magazine, former ambassador Derek Burney and Carleton Professor Fen Osler Hampson delve into the various challenges facing Canada as they examine the question of whether the currently damaged trade relationship with China can be repaired.

The two authors conclude that a “reboot of Canada’s foreign policy priorities is definitely needed, one that moves away from virtue signalling for the domestic audience and adopts a pragmatic approach in order to reconcile and repair relations with China in a manner that serves Canada’s tangible interests and respects its fundamental values regarding freedom and human rights.”

Importantly, they note that the task is not Canada’s alone “but requires a more cohesive collective response from the Western democracies as they adjust to a world where, at least in economic terms, China is the other great power.”

Why It Matters


Despite the various tensions and currently frayed relations, China remains Canada’s second-largest trading partner after the United States for both imports and exports.

On a balance of payments basis, Canada imports about twice as much from China as it exports. In 2019, imports from China totaled $46.8 billion, and exports to China settled at $24.4 billion. As of July 2020, Canadian exports to China increased by 24% while imports rose 14%.

China is also Canada’s third-largest market for services, following the United States and the United Kingdom, worth $8.1 billion and accounting for 6% of of the country’s total services exports.

Graphic - Canada's Top 5 Export Products to China
As pointed out in a 2018 Canada West Foundation report, trade with China is especially important for the Western provinces. In 2017, British Columbia, Saskatchewan, and Alberta were the top three exporters to China ($6.8 billion, $3.9 billion, and $3.5 billion respectively). Manitoba exported $1.4 billion to China, representing just over 10% of its total exports, about half of that consisting of soy and canola shipments.

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