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Business Commentary Canada-China relations have entered new territory. So, where do we go from here?

Huawei chief financial officer Meng Wanzhou, right, arrives at a parole office with a member of her private security detail in Vancouver, B.C., on Dec. 12, 2018.

DARRYL DYCK/The Canadian Press

There is an old Chinese saying for nearly everything, including one that aptly captures what China is doing to Canada after last month’s arrest of a top Huawei executive in Vancouver.

“Kill the chicken to scare the monkey.”

Canada is the luckless chicken in this unfortunate scenario. In effect, China is making an example of us – a weaker middle power – to threaten others who stand in its way, including the United States.

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So far, it has meant the arbitrary detention of innocent Canadians in China, a death sentence for a convicted Canadian drug smuggler, an official warning about travel to Canada and a barrage of verbal threats from top Chinese officials.

Canada is – as a more familiar saying goes – caught between a rock and a hard place.

And our closest so-called ally – the United States – put us in this mess by requesting the arrest of Meng Wanzhou, Huawei Technologies’s chief financial officer and daughter of the telecom giant’s revered founder, for allegations of bank fraud related to a violation of U.S. sanctions against Iran.

This all could not have come at a worse time. Canada’s ties to the United States are already frayed from the bruising renegotiation of North American free-trade agreement, and we desperately need new markets, including China, to drive our export-led economy.

Meanwhile, the United States is embroiled in a high-stakes trade showdown with China that is already weighing on global growth, and complicating the extradition saga.

Canada is also facing pressure from the United States and other allies to ban Huawei from supplying technology for next-generation 5G mobile networks because of cyberespionage concerns.

If this were a movie, we’d call up Mission Impossible’s Ethan Hunt or one of The Avengers to get us out of this mess.

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And many Canadians no doubt want Ottawa to fight back with every diplomatic and legal tool available. Ratchet up the rhetoric, demand a summit with Chinese President Xi Jinping and get the United States to drop its extradition case.

“Canada is in a really tough situation,” acknowledged economist Gordon Betcherman, a professor in the University of Ottawa’s School of International Development and Global Studies. And lashing out at the Chinese is counterproductive.

“I don’t think a little country like Canada wants to escalate things,” Prof. Betcherman said.

However, there are a few understated, Canadian-style tactics Ottawa should consider.

First off, rag the puck as long as possible on any final decision on banning Huawei products, even if that puts Canadian telecom companies in a bind. A decision should be delayed at least until there is a resolution of the extradition mess and the U.S.-China trade tensions are defused.

Secondly, Ottawa should do what it can to expedite the extradition of Ms. Meng, including demanding the United States produce compelling evidence of wrongdoing, or release her when the process runs its course.

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“This started with the Americans and there is no way you can get out of this without going through Washington,” said former Canadian diplomat Ron MacIntosh, a senior fellow at the University of Alberta’s China Institute.

Thirdly, work with our allies on numerous fronts. Canada needs to get other countries to publicly shame China for abusing the rule of law. Ottawa’s message to other countries should be clear: Today, we are the victims; tomorrow, it could be you. Canada should also seek out countries that have good relations with both us and China, such as New Zealand and Singapore.

Perhaps the most important thing we can do is continue to talk to the Chinese in an effort to rebuild confidence. Canadian business and tourist travellers are already cancelling trips to China. Ottawa should make it clear to Chinese officials that these flows – from Canada and elsewhere – will dry up unless they offer assurances that innocent people won’t be arbitrarily arrested.

And no area of diplomacy is more important to Canada than trade. Abandoning efforts to improve trade ties with China would be an own goal.

“It’s not a a viable option. China is not going anywhere,” Mr. MacIntosh said. “It’s the world’s largest trader, internet user and energy consumer.”

Counterintuitive perhaps, but Canada should encourage Washington to take a hard line with China in trade talks. Reports Friday that China has offered to buy up to US$1-trillion in more U.S. goods to eliminate the trade deficit is an empty promise that won’t change its behaviour. On the other hand, getting China to fundamentally reform how it interacts economically with the world would benefit everyone.

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“The biggest non-tariff barrier in China is how China runs, as a country,” Mr. MacIntosh explained. “It’s an outlier in the world.”

Canada is not the outlier.

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