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04,Feb, 2020

Impact of Sino-US Trade war on Canada

The heat is on Canada

As the trade war between the US and China escalates, Canada is facing the heat despite the winter being unusually cold this year. Contrary to the prevalent belief that there was never a winner in a trade war; Canada is tasting the bitterness of this slugfest. There always was vulnerability in Canadian economy and the current crisis has made a deep gash in our trade and commerce. Early on in summer of 2018, doomsday prophets had predicted that conflict would deal the biggest blow to the Canadian economy since the Second World War and, now, coupled with the prospects of 5G technology, national security and diplomatic standoff with China, the issue has become a scrambled egg. The problem may get too hot to handle for the Liberal government in the election year. The economic and political shock has come as a heavy blow to us, especially, in light of the fact that Canada was already reeling under the pressure from the US due to imposition of tariffs on imports of steel and aluminum amongst other products in the “America First” policy. As part of this policy, import tariffs on Canadian timber have also been increased by 20% by the US. The increase in pork exports to Mexico have been offset by the losses incurred due to US-China trade turmoil. Mr. Donald Trump is trying to hold on ransom our dairy produce management system, considered “a protectionist regime for the Canadian farmer.” We, Canadians, also see a divergence of interests with US over the protectionism of its industry and agriculture and the national trade rhetoric it generates. The conflict is also increasingly making it difficult to reach out to new markets like India and Saudi Arabia. As of now pundits of economy wait in anticipation for Mr. Trump to back off from his threat on further imposition of $200 billion tariffs on Chinese goods.

AI, Huawei and 5 Eyes

The impact of trade war is visible in industries varying from agriculture to automotives and from technology to Artificial Intelligence (AI). The projected target of generating couple of trillions of dollars from AI by the US will not materialize without global cooperation, especially, in light of the fact that China has the keys of 5G network technology. We are part of the 5 Eyes community with UK, US, Australia and New Zealand. There is considerable pressure on Canada, with three of the five countries already having said no to Huawei coming to their country over security concerns. We too have national security concerns in introducing the technology. This is difficult for the Chinese to digest. Since Huawei is the carrier company of AI technology, we may not reap the right harvest of AI economy.

The exit clause in NAFTA 2.0

Rewind to NAFTA 2.0 (October, 2018), when we had to make a choice between the US and China as a preferred business ally. Neutrality was not an option. US is our time-tested trade ally. But natural choice also came with a price. After the pact, the Trump Administration went onto make a public declaration that the “continent was one” against the Chinese; and the new United States–Mexico–Canada Agreement (USMCA) was rolled out. According to Janyce McGregor of the CBC News, it made more sense for Canada to stay inside an “American tariff wall” than outside though that was not without damage to our economy. Signing the agreement has also given legitimacy to the American trade tariffs. And America played it extremely safe by adding a clause that could enable its immediate exit from USMCA, lest Mexico or Canada were to independently enter into a bilateral treaty with China.

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