Oct 22 2019
Official relations between Canada and the People’s Republic of China date back to the early 1940s. However, diplomatic tensions and the ongoing trade war between the United States and China in more recent years have also caused the relationship between Canada and China to experience considerable strain as a consequence, beginning in December 2018 and continuing through to the present day.
The United States and Canada have long been each other’s most outspoken allies and largest trading partners, with an estimated three-quarters of all Canadian exports crossing the US-Canada border every year. It is precisely because of this well-established, crucial economic dependence on the United States that the Canadian federal government accommodated the US extradition order against Meng Wanzhou, the CFO of the Chinese technology giant Huawei Technologies Co. Ltd.
Canadian Justice Department officials arrested Wanzhou on bank fraud charges in Vancouver last December, and since then Canada has effectively been caught in the middle of the US-China trade conflict. As a result, a multitude of Canadian industries now have many of their individual commodities exposed to Chinese tariffs.
China institutes trade bans
Triggered by Wanzhou’s arrest, China escalated its retaliatory attempts against Canada in early 2019 by instituting trade bans on key Canadian exports to China, namely canola seed products, soybeans and peas. China justified its actions by citing pesticide and bacterial contamination and followed these agricultural bans by instituting yet another ban in late June 2019. This time, the additional ban was on all Canadian meat exports, including beef and pork products, with the Chinese government claiming the existence of forged certificates on the part of Canadian exporters. As of October 2019, these bans continue to be in effect, with industry operators in these particular sectors of the Canadian economy already feeling the effects of China’s various trade bans.
According to the Canola Council of Canada, 40.0% of the canola produced by Canadian farmers is supplied to China, which was also the largest importer of Canadian canola products in 2018. Moreover, China represented the third-largest export market for Canadian pork producers in April 2019, and data from Agriculture and Agri-Food Canada shows that beef and veal exports to China totalled over $63.0 million in April 2019, representing 6.1% of Canada’s total and a 344.0% increase year-over-year.
Consequently, operators in the Meat, Beef and Poultry Processing industry in Canada (IBISWorld report 31161CA) are likely to see an additional stagnation in the industry’s projected annualized revenue growth of 0.6% over the five years to 2024, should the meat ban persist for much longer. Further, the Soybean Farming industry in Canada (11111CA) and its expected annualized revenue growth of 1.4% during the same period also has the potential to suffer just as much, should Canada’s soybean producers continue to be barred from exporting to China.
In fact, analysis by Scotiabank predicts that China’s agricultural and meat tariffs would ultimately shave 0.1% off Canada’s GDP in fiscal 2020 should they remain in place, which is roughly the same as the economic fallout that the United States will likely experience for the same reason. As of October 2019, China’s red meat ban is estimated to have cost the domestic Meat, Beef and Poultry Processing industry almost $100.0 million.
Even though China comprises a crucial market for Canada, it’s worth remembering that China has never been the primary export market for Canadian industries; this top spot has always belonged to the United States. Furthermore, and amid Canada’s now-contentious trade relations with China, Canadian exports to the United States have increased 2.1% compared with where they were last year.
From January to August 2018, Canada’s total exports to the United States totalled $292.5 billion. Conversely, from January to August 2019, data from Statistics Canada indicates that Canada’s exports to the United States clocked in even higher, at $298.6 billion. As Canada and the United States have each struggled concerning their respective ties with China, Canada has taken the opportunity to further strengthen its trade ties with the United States.
All things considered, it does not seem as though the much-debated trade war between the United States and China has an end in sight anytime soon. As a result, it is unknown whether or not any additional Canadian industries will be exposed to economic fallout regarding their exports to China, and how this will continue to affect the broader Canadian economy as a whole.
Looking for additional industry coverage on Canadian trade relations? Check out our previous Industry Insider article on Canada and China’s exploration of a bilateral trade agreement!
Edited by Kieran Newton
Infographic Design by Tafannum Rahman