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Why Canada must work with China in shaping global trade

William A. Macdonald is a corporate lawyer turned consultant with a long history of public service and social engagement.

Canada has two big China opportunities. First, an expanded relationship with China is important and timely. Second, China's Xi Jinping is the only major world leader who may have the strength and will to preserve a largely open-trading and rules-based global system on which postwar peace and prosperity rests. Canada can play an important role in this effort, which is crucial to its future.

An increasingly protectionist U.S. poses a threat to the current order. The last time the U.S. turned protectionist, in the '30s, there was a global depression that lasted a decade. There is no case to take such a stance on trade when growth is strong, as it is in the U.S. today.

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The most sensible alternative is to do as much business with China as possible, providing it is conducted within Canada's fundamental value system. Despite considerable societal and political gaps in values and interests, we can work together – though those big gaps call for wariness and patience on Canada's part. There will be high hurdles in the so-called Trudeau reset, but with sufficient will, we can find the way.

Canada is well placed to help if the U.S. and China are open to working together for a win-win for them and a win for the world. Canada has to move on two fronts: first, get on a path to a steadily improving set of trade arrangements with China; and second, bring its capacity for facilitating mutual accommodation to help the most single important relationship in the world – between China and the United States – work.

Canada's good intentions are not enough

The Trudeau team is "sunny" and eager about many things, including a reset of its relations with China. The differences between Chinese and Canadian political and legal systems mean that reset would be challenging under the best of circumstances. U.S. President Donald Trump's upending of the global order, his negative views of China, and his pro-Russian tendencies, complicate the matter. They also open up an opportunity for Canada to help itself by helping China to get through its current domestic and global challenges.

The less Canadian the public face on any China reset is, the safer and better – not because of China, but because of Mr. Trump. A U.S. that breaks agreements – whether with Iran or NAFTA – is not the best of partners, and Canada must ensure it does not aggravate an easily aggravated Mr. Trump.

Canada needs to be wary on two fronts: there must be no extradition treaty with China as the price of a new trade agreement; and no Chinese high-tech acquisitions of Canadian firms that have military implications, such as the O-Net Communications purchase of ITF Technologies. The fact that somebody wants something they should not have as the price for a deal is seldom reason enough to give it to them. Appeasement does not work.

China is a long way from having values that Canada shares with the U.S., let alone the capacity to replace or offset the U.S. as Canada's key economic partner. But right now, the U.S. is a better neighbour than partner. David Mulroney, our former ambassador to China, warned in a Globe and Mail op-ed earlier this year against Canadian naivety in relation to China. Former prime minister Stephen Harper was slow to grasp the need to deal with the reality of 1.4 billion Chinese, because it ran counter to his and the Conservative's ideological stance against China. The Trudeau risk, in contrast, is proceeding too fast. Canada needs to take as long term a view as China.

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China's place in the world China has earned its way to the centre of the world stage, but is still not seen as a leader that weaker countries can trust and the world as a whole can count on. It does have money and the currently unreliable U.S. gives China an opening to change its place in the world, though it will take time.

The Trudeau government is right to seek a stronger relationship with China, but if that meant violating the rule of law, it would undermine the reset. We have no choice but to live in the same world as other countries that we believe abuse human rights, and to make deals with them. But that does not require us to turn over people protected by our criminal justice system to a country without those protections, as any compromise with our extradition system would do.

On expanded trade and investment, the bigger practical problem with China will likely be to know at any particular time whom we are dealing with. China is not transparent. Canadians will have to get better at background checking individuals and at knowing what to do when things go wrong. The Chinese, in turn, will have to provide better and more timely information so Canada can keep the unwanted out.

Canada-China reset matters for everyone

Canada has enormous people-relationship strengths in China and the U.S. A successful mutual-accommodation approach can help the U.S. move forward with China in a reshaped but strong inclusive global order.

On the China trade reset, Canada must not be too eager or opportunistic. We must stand back (as China does), take time, and be wary. Big changes are under way in China, the U.S., and Russia. Canada can help – but it needs to be strategic in the larger context of world politics: the possible U.S. retreat into a philosophy of "every nation for itself"; Russia trouble-making; recent weak leadership in the U.K. and continental Europe; and much of the Middle East destabilized or in flames. China is the only major country today that says it supports an overall global economic order that remains inclusive but needs reshaping – a statement that should now be tested.

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What Trump needs

Mr. Trump is in a hurry. He has to keep winning and no win ever seems big enough or lasts long enough. But it is not only the U.S. that wants disruptive change. Others, including Canada, need a shaking up, too. China, in contrast, is being changed inexorably by its own huge moves forward; it has very big challenges, but is in less of a hurry. It has already experienced a lot of wins in its great leap forward. However, the combination of corruption and excessive restrictiveness at home and a protectionist global trading order could result in a great leap backward for China if it became unable to sustain the large rapid growth on which its social contract depends. This would be bad for everyone.

China can best enhance its strengths collaboratively; it can be strong in today's world only if it can get others to follow its lead. Much of the U.S. postwar strength came from that ability, which is now at risk. Mr. Trump has exploited the adverse outcomes of U.S. financial, economic, and geopolitical overreach in order to get a mandate to undermine many postwar U.S. achievements. In Mr. Trump's view, throwing others off balance is the way to get what he wants and needs.

Canada's unique, broadly balanced strengths in its relationship with the U.S. can be important to China. Canada is not the "danger" or "enemy" Mr. Trump likes and seems to need; China may be. In a Trump world of increasing U.S. isolation, Canada will always end up still standing. The U.S./Canada trade and current flows are big and in broad balance. Canada's current account deficits (which must come down) help other countries in the global economy.

Mr. Trump is at heart a deal maker. But if he wants to be a man of global hard populist vision, Canada's task will be to work with others to contain the damage. If he exhibits an insatiable need to bend policy toward his own personal view of reality, all bets are off and extreme care and attention to building one's own strengths will be very important. Alternately, he could demonstrate a mix of all three. The biggest sources of instability among the U.S., China, Russia and Europe all go through Mr. Trump. This global context must be remembered by Canada as it works with China, and by China as it works with Canada.

Big strengths to work with

The U.S. is coming out of a period of foreign and domestic overreach and domestic underreach. China is coming out of a period of too much reliance on the global (largely U.S.) economy for coping with the domestic challenges brought about by its huge economic leap forward. Unlike the U.S., China needs resources, many of which Canada has. Canada has a large Chinese diaspora and has had a good history with China over the past 70 years. China needs to work collaboratively with the United States, and in this Canada can help. Canada understands mutual accommodation is now the only good way forward for great powers. China and Canada can and should harness their complementary strengths as they seek to reset their relationship and support an inclusive global trading order.

Mr. Xi told the 19th Communist Party Congress this week that China had entered a new era – a good time for the Canada-China reset.

Justin Trudeau on potential for Canada-China free trade (The Canadian Press)
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