Canada relies on trade for two-thirds of its GDP. So, to put it mildly, trade is important – as is setting policy for this trade.
What happens when the U.S., Canada’s biggest trade partner sets a new policy for its trade with China, which is Canada’s second-largest and fastest-growing trade partner, and drags Canada into the middle of its fight with China, going so far as to pick the lane for Canada to swim in the dispute and dictating which strokes Canada will use?
This is what’s lining up now as the U.S. Senate and House of Representatives focus, reorder and reorient U.S economic policy to counter the economic and political rise of China. In doing so, they place Canada front and centre.
The House’s America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength Act of 2022 and the Senate’s United States Innovation and Competition Act of 2021 are now in conference (reconciliation) and likely soon headed for presidential signature. For simplicity, the short name for the House bill America COMPETES is used to refer to both acts.
Canadians can skip a lot of the” inside the Beltway” debates to focus on the three points.
First, the legislation is a reorientation of U.S. economic policy to confront the People’s Republic of China (PRC). Analysis from insiders suggests that it’s aimed to counter China’s economic and political rise, or as the China Global Television Network describes it, “a manifesto for a new Cold War.”
Second, the legislation spends a lot of time on Canada with 37 mentions. Canada is the only country to have its own section of the legislation in both the House and Senate versions. Mexico is lumped in with Latin America, while Australia is placed with New Zealand and Oceania.
Only Canada has its own section that requires the administration to produce a unique strategy to “enhance cooperation with the Government of Canada in managing relations with the PRC government.” Only two other regions (not countries) face a similar call in the acts.
Third, the acts are quite explicit in what the U.S. wants from Canada. Section 247 in the Senate and Section 3247 in the House list identical areas for co-operation in managing economic relations with the PRC – promoting democracy and human rights; technology issues involving the PRC; defence and countering China in the Arctic; and countering China’s influence in international bodies.
All of this provides key insights into where the Americans are going next in rules, legislation, prohibitions and other actions to regulate trade with China. This includes trade by U.S. firms, firms that do business in the U.S., or even potentially firms that do business with U.S. companies. U.S. extraterritorial reach is something with which many Canadian companies already contend. Cuba is one of the examples.
Interestingly, the act explicitly calls for co-operation to advance the Canada-U.S. Joint Action Plan on Critical Minerals Collaboration. It also asks for help for Canada to deal with the cost of banning Huawei. There are additional calls for co-operation or co-ordination with Canada that pop up throughout the legislation.
All of this is to be done within 90 days of the act coming into force with updates every 180 days thereafter.
So, what to do with all of this?
The obvious first step is for those affected to start paying attention. This includes Canadian media, businesses that trade with the U.S., and federal and provincial agencies that manage trade with America. The usual tools – policy roundtables, analysis and dissemination – are critical. The act and how to respond to it need to be front and centre as Canada belatedly develops its own Indo-Pacific strategy.
Second, Canada needs to be wary that Americans are once again conflating security concerns with economic and trade issues to advance American objectives – potentially at Canada’s expense.
There’s a bit of history here. It’s what happened when the U.S. renegotiated the North American trade agreement and inserted at the last minute clause, 32.10, stating that it could withdraw if Canada or Mexico were to enter into trade negotiations with a “non-market country, a term used by the U.S. which includes China. The response in Canada was panic.
Meanwhile, before the new NAFTA agreement came into effect, the Americans were negotiating their own trade agreement with China that threatened to take market share from Canadian exporters. Canada got played once by the Americans in the NAFTA renegotiation. We should not let it happen again.
That Americans are going down this path again becomes clearer when looking at the full name of the House Act: America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act of 2022. The Americans are asking Canada to help it achieve pre-eminence in technology and economic strength. The only thing missing is a section calling for Canada to pick up the U.S. delegation’s dry cleaning at G7 summits.
Jokes aside, Canadian co-operation in areas of mutual benefit is a given. But for government, that requires going through the act line-by-line to evaluate where and how to co-operate. For business, that requires looking for areas where it may be impacted. This includes any extraterritorial measures that the U.S. may take unilaterally, using access or exposure to the U.S. market to impose requirements on companies that are also active in China.
Wariness extends to thinking about expanding co-operation on critical minerals. Here, past experience with energy co-operation needs to inform policy before jumping into an agreement, as tempting as it is. Current problems with overreliance on the U.S. market for oil and gas exports such as stranded assets, flip-flops on pipelines after money has been spent and price discounts on oil need to be a priority. None of this is to say that Canada shouldn’t co-operate with the Americans. It’s only a question of how we co-operate.
As America COMPETES moves closer to presidential signature, these questions will become more important for Canada. America COMPETES is in many ways a U.S. version of China’s five-year plans – a blueprint for where its political leadership wants to take the Chinese economy and which is largely ignored in Canada to our peril. America COMPETES will offer similar, but less wide-ranging, insights and foreshadowing of potential opportunities and problems in our trade relationship with the U.S., but only if media, policymakers and businesses start to pay attention.