Will China be Canada’s future?

Canada has a neighbor that now fears for its future, elects to its Congress men and women who would repeal the mixed economy of the 20th  century, forgets to recognize Canada as a foreign country, and a president (and Canada’s most popular politician) that blocks the Keystone Pipeline Project, the centerpiece of Canada’s Western growth engine.

These developments, naturally, nudge Canadians to think about their options. The ensuing discussion, unfortunately, has settled quickly on an old Canadian idea: Hey, let’s find another great market and sympathetic friend—on another continent.

Trade diversification is an old, incremental, and immensely popular idea. However, Prime Minister Stephen Harper, an empiricist and bedrock North American conservative, has chosen to lead the parade and has given that lovably concoction “diversification” a real face: China.

You don’t have to be a visionary as well as a Canadian politician to pick China. Everything said about that country reeks of strategic necessity. It’s a superpower on the way to becoming the world’s biggest economy . . . right?

Almost everyone you meet from there is driven by the commercial incentives that thrived in North America’s younger days. Their executives and entrepreneurs come in private jets, flanked by distinguished Canadian retainers, carrying billions in their pockets.

Harper’s pivot to China has been easy—up to now. Corporate services in Toronto, land-locked energy companies in Calgary, and Canadians who generally think it’s the height of sophistication to make plans for America’s collapse have all applauded Harper’s shift, at least conceptually.  

The problem is that the idea is looking to be realizable—perhaps too much so.

The Chinese Government is interested—and has the means—to become a powerful player in the development of Western Canada. However, in order for China to secure ownership of and reliable access to Western Canada’s immense energy and natural resources, Canadians must be prepared to set aside the very concerns that worried them about those pushy 20th  century Americans—and accommodate a few new ones.

Can you imagine the outrage if even a duly-elected American federal government purchased a $2B Alberta oil sands project without a Foreign Investment Review hearing? Well, the Government of China—a totalitarian superpower—just accomplished that and also is effectively bankrolling the planning of a Northern Gateway pipeline alternative to the Keystone project. This is finally stirring concern.

Terry Glavin’s article “Pipeline to Beijing” in the National Post vigorously surveys many of the issues.

Click on: http://fullcomment.nationalpost.com/2012/01/29/terry-glavin-scrutinizing-canadas-pipeline-to-beijing/

My post of March 3rd last year also argued that ownership of Canadian resources by the government of a touchy superpower would involve infringements on future Canadian policy-making that would go dangerously beyond the normal accommodations that are made to attract private commercial investors.

Click on: http://les-horswill.blogspot.com/2011/03/chinas-public-corporations-are.html

Favoring a new superpower in the scramble to develop Western Canada entails a range of issues for liberals, economic nationalists, and conservatives—as well as environmentalists. Also, there is growing unease among those Canadians whose interests and hearts are emphatically aligned with the US.

Enhanced trade with China is a good thing. That objective, however, would be better secured if Harper stopped sounding like he’s willing to corrupt decision-making processes in Canada and strain his alliance with the US in order to get there. Indeed, he and President Obama would be well advised to jointly soothe concerns in both countries by getting a little more excited about advancing their shared economic interests. 

The China card and Canada’s frayed affair with America

Stephen Harper must have kicked something when he learned that Barack Obama had decided to delay the Keystone XL pipeline project. It’s been some time since he won anything significant for his political base in Alberta, and this $7 billion project would have greatly enhanced Alberta’s long-term economic credibility.

Yes. Harper too has made politically expedient decisions to secure his own majority—for instance, arbitrarily blocking the foreign sale of Potash Corporation of Saskatchewan. Nevertheless, as prime minister, Harper has taken, without reservation, numerous real political risks to bolster Obama’s foreign policy—on Afghanistan, border management and security, Israel, Libya, and, most recently, Iran.

Harper, however, left it to others to vent in public.

The Minister of Natural Resources, Joe Oliver, characterized the Keystone delay as a “wake up call” and then started dreaming about China.

“. . . Diversifying away from the US, particularly in energy, is right at the centre of our thinking. . . .It is a major fundamental strategic objective for Canada.”

Click on: www.theglobeandmail.com/news/politics/canadas-trade-vision-shifts-beyond-the-united-states/article2235094/

As a rhetorical gesture, the statement works.

It sounds big and elevates the strategic importance of the Enbridge Northern Gateway Project, an even more environmentally controversial system of pipelines across British Columbia and oil tankers down its exquisite west coast. Indeed, one retired Canadian strategist warned that Canadians not get too excited. “You can’t change geography,” Colin Robertson acknowledged. The US “is still the biggest market in the world.”

As a true description of what holds the strategic attention of the Harper Cabinet, however, Oliver’s statement is distressing.

Trade diversification is a natural outcome of globalization—the Americans, the Europeans, and the Asians are widening their markets even faster than Canada. But it doesn’t measure up as a comprehensive economic, ethical, or geopolitical strategy for Canada. Trade expansion builds on a strong economic base; it doesn’t substitute for one.

Canada’s geographic location isn’t regrettable; it’s a blessing.

Making Canada richer by being less North American is a lazy, vain idea. As a whole, Canada will only continue to prosper globally by improving its performance in North America and, yes, by helping the US remain a successful great power.

Two hundred oil tankers a year sailing off to China will not create for Canada a better trading partner than it has now or a more respectful American neighbor. The US is not on its knees to secure vast additional supplies of unconventional Canadian oil. A slice of China’s energy market will not make China any less ruthless as a superpower or the loss of North American markets less painful.

The 100 largest US cities alone are economically bigger than China; they are growing as markets and they already practice business, commercial law, and politics like Canadians. At the same time, Canada’s share of their imports is shrinking drastically.

“The numbers are devastating. Between 2001 and 2010, Canada’s share of U.S. imports has fallen to 9.1 per cent from 25.1 per cent in furniture, to 5.4 per cent from 10.1 per cent in electrical equipment, to 4.8 per cent from 10.3 per cent in beverages and tobacco products, to 2.2 per cent from 6.8 per cent in textiles, to 17 per cent from 30.3 per cent in printing, to 10.3 per cent to 18.1 per cent in fabricated metal, and to 19.9 per cent from 31.1 per cent in plastics and rubber.”

Click on: www.theglobeandmail.com/report-on-business/economy/economy-lab/daily-mix/stunning-loss-of-canadian-market-share-in-us-report/article1842144/

Canada isn’t failing as a communicator, it’s failing as an innovator—a competitive producer of goods and services that can create high paying jobs in its own wonderfully liveable cities.

Canada’s Maclean’s Magazine well represented a new confident Canadian nationalism with the headline “I thought we were friends. Obama’s backpedalling on the Keystone pipeline is just the latest slap in the face of Canadians. We do have other friends, you know.”

Is lovable Canada looking elsewhere for love?

Escape-America dreamers gain a polemicists, but not Canada’s trade ministry

Having concluded that stagnant, broke, and dysfunctional America is Canada’s “biggest liability,” Canadian author and economist Jeff Rubin has decided that it’s time for Canada to reorient its compass—to use China’s appetite for oil to find new trading partners.   

Click on: www.theglobeandmail.com/report-on-business/commentary/jeff-rubins-smaller-world/time-for-canada-to-find-new-trading-partners/article2132282/

Rubin’s tipping point is extremely small.

Because of bottlenecks in US oil pipeline infrastructure—that are addressed by the proposed Keystone XL pipeline from Canada—a temporary glut in the US oil market exists. Consequently, Canadian oil exporters are receiving $22 less for a barrel of oil from Americans than they would be receiving today from the Chinese. They are getting very rich off their closest friend, but could be getting even richer if they made China their new partner.

Jeff Rubin has the reckless brain power to take one problem and use it to change the world.  

In his recent book “Why Your World is about to get a whole lot Smaller” he decided that globalization would soon perish on the transportation costs of peak oil prices. Now, immediate frustration with the oil US market aligns him with phantom business and government leaders who talk of moving Canada away from the US. Apparently, globalization, geopolitics and good risk management practices now suggest that Canada would be safer and more prosperous as an Asian appendage.

One organization rather familiar with this Post-Watergate Canadian dream—the Canadian Department of Foreign Affairs and International Trade—isn’t buying it.

The department just released its official 2011 trade and investment update. While the front office was racing around South America helping Stephen Harper diversify Canadian trade, the professionals were finalizing a tough-minded, politically guts assessment of Canada’s long-term trade prospects. At the very end, it presented a forecast of Canadian trade shares out to 2040. Embedded in caveats, Section V concludes:

“Employing a frequently-used and well-tested model of trade in conjunction with private-sector forecasts of economic growth for each of Canada’s trading partners, we develop a long-term outlook for Canadian exports to 2040. The results of this forecast show that, due to size and proximity to Canada, the U.S. will continue to be, by far, Canada’s most important export market. However, as a result of their strong growth, China, India, and Brazil will all become much more important destinations for Canadian exports going forward.”

Click on: http://www.international.gc.ca/economist-economiste/performance/state-point/state_2011_point/2011_5.aspx?lang=eng&view=d

“By far” literally means three quarters of Canada’s merchandize exports will most likely continue to go to the US. The report is optimistic on world growth, emerging markets and globalization. So, Canada’s junior partners will likely change. China, Brazil, India, and Spain will rise, but the US will remain the cornerstone of Canadian trade.

Of course, this forecast’s assumptions will vary over time. Politics and polemists can also make the outcomes different, certainly smaller. Nevertheless, Jeff Rubin and others who wish to escape the dominance of the US market cannot claim they are merely embracing the inevitable. They want to do something big against the grain.