As tensions prevail in the NAFTA talks, Canada is hedging its bets by fostering consensus for a trade agreement with China.
On Sunday, Canadian Prime Minister Justin Trudeau shall start a trade and tourism dialogue with Chinese officials during his ongoing visit to China. Canada and China began to talk about a free trade agreement (FTA) more than a year ago, following back-to-back meetings of Trudeau and Chinese Premier Li Keqiang in China and Ottawa.
While Canada completed consultations on the matter, three rounds of exploratory talks were held between the two sides from February to August.
Trudeau’s visit takes place after the fifth round of talks over the North American Free Trade Agreement (NAFTA) ended in Mexico City amid simmering tensions.
Hedging Against thePotential NAFTA Collapse
Last year, the US bought three-fourths of Canadian exports, while Canada sourced almost two-thirds of its imports from America. US direct investment in Canada amounts to some $306 billion, while Canada’s investment in the US is almost $370 billion. But the US investment in Canada represents almost 20 percent of the latter’s GDP; while Canada’s investment in the US adds up to only 2 percent of the US’s GDP. The outcome of the NAFTA talks is thus far more important to Canada than to the US.
If the US withdraws from NAFTA, that would start a six-month legal process before official termination. While the Trump administration may see this as a negotiating tool to force Canada and Mexico to accept its demands, the latter could use the time to complete trade talks with Brazil and the European Union (EU).
Canada and Mexico are hedging their bets against a potential NAFTA collapse by pushing for deals with new partners, particularly with China and some other Asian countries.
In 2015, China bought 12 percent of Canadian exports, whereas Chinese exports accounted of 4 percent of Canadian total. A Chinese-Canadian FTA could strengthen bilateral trade and investment significantly.
Last year, the combined investment from China and Hong Kong in Canada soared to $26.4 billion, which is almost half of Asia Pacific investment in the country. But since the starting-point is low, China was only the eighth largest investor in Canada.
Canada’s former China ambassador Howard Balloch believes that Canada “should be able to negotiate with China” during the NAFTA talks. Canada has a “huge interest” in China and trade diversification whatever the outcome of the NAFTA talks.
Intriguingly, the latter are likely to coincide with the time that Canada and China would need to finalise an FTA agreement.
About the Author
Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/