‘A dangerous exercise’: China has too much to lose to launch an all-out trade war with Canada, experts say
The growing diplomatic tit-for-tat between China and Canada isn't likely to flare up into an all-out trade war because both sides have plenty to lose, international trade experts say.
I can see China doing something symbolic, but they're such an export-focused economy, they need Western countries like Canada to buy what they're making," said Andreas Schotter, associate professor of international business at Western University's Ivey Business School.
On Tuesday, China expelled Canada's consul in Shanghai, Jennifer Lynn Lalonde, in retaliation for Canada's expulsion of Zhao Wei, a consular officer in Toronto. Canadian security officials have alleged Wei was involved in a plot to intimidate Conservative MP Michael Chong and his relatives in Hong Kong.
Last year, Canada imported roughly $100 billion worth of Chinese goods, Schotter noted, with consumer goods - including electronics - accounting for the largest share.
Just as Canadian consumers want those products, so, too, do Chinese manufacturers need the sales to Canadian consumers and businesses, Schotter said.
China desperately needs to get rid of those consumer goods. They need that trade balance. The domestic consumer in China can't absorb them all," said Schotter.
John Boscariol, head of the international trade practice at law firm McCarthy Tetrault, is hopeful cooler heads will prevail, but said there's a history of China retaliating economically in diplomatic disputes.
We saw the extremes of that when Meng Wanzhou was detained here for purposes of extradition to the U.S., to the extreme where they essentially took two of our citizens as hostages, but also took measures against canola, against pork," said Boscariol, referring to the arrest and detention of Michael Spavor and Michael Kovrig in China on state secrets" charges in December 2018. Meng had been detained two weeks earlier. Spavor and Kovrig weren't released for 1,019 days, just after Meng's house arrest ended.
Still, said Boscariol, China's economy is still struggling with the economic hangover from the global COVID-19 pandemic and can ill afford a trade war.
It's a very dangerous exercise if they start taking trade measures that prevent products that are needed in China - whether that's pork, canola or other agricultural products coming from Canada - from coming in," said Boscariol.
And Canada would effectively be cutting off its nose to spite its face if it started limiting Chinese imports, Boscariol added.
If we started limiting the import of Chinese products, especially products used in manufacturing and processing here in Canada, we could really damage our own industry," Boscariol said.
Gordon Houlden, a professor of political science and director emeritus at the University of Alberta's China Institute, said China likely wants to avoid an all-out trade war.
I think they're hoping this goes away," said Houlden, adding that trade measures taken in retaliation for perceived political slights aren't always particularly effective.
I don't know if those trade measures ever really work. They tried to limit canola exports after Meng Wanzhou was arrested, but Canada actually exported more canola to China through third countries the following year," said Houlden.
In some areas where China was once a vital export market for Canadian products, it's no longer such a significant player.
Canadian softwood exports to China, in lumber, paper and pulp form, accounted for $3 billion a decade ago. Now, says lumber industry analyst Kevin Mason, it's less than 20 per cent of that.
It's about half a billion dollars a year now, so China isn't nearly as much of a consumer for our softwood as it used to be," said Mason, president of B.C.-based ERA Forest Products Research.
Canadian consumer brands such as Canada Goose, Tim Hortons or Lululemon counting on sales in China could face a nationalistic backlash from Chinese consumers, retail analyst Bruce Winder told The Canadian Press.
If you look at the drawing boards of those companies, China's a big factor in the growth strategy," he said. It's a huge market. There are over 1.4 billion people and folks in China are getting rich, so you have a massive middle class."
Still, any backlash could prove to be short-lived, said Ivey's Schotter, who was working in China in 1999 when U.S. warplanes bombing Serbia hit the Chinese embassy in Belgrade.
There was outrage in China, especially in the media, but the same people who were outraged, like my staff saying, they did this on purpose,' they'd go to McDonald's for lunch," said Schotter.