What is Canada’s economic ‘fourth option’?

Ahead of Trudeau’s visit to Asia, expected later this spring, an open letter to the prime minister on why a new export strategy would serve Canada well, especially when it comes to China.

By: /
March 29, 2016
Potash
A potash storage facility near Saskatoon, Saskatchewan. Canada would be wise to increase imports such as potash to China, writes John Bruk. REUTERS/David Stobbe

Dear Justin Trudeau,

Considering how much Canada’s prosperity depends on our exports, concerned Canadians are advancing their ideas how best to expand our trade to help your government in its deliberations, in line with your directive to consult broadly before making any decisions.

Thus, in a recently published opinion piece, Allan Gotlieb and Matthew Kronby highlighted the importance of further diversifying our export markets, specifically emphasizing China, Mexico and South Korea, and pointing out that the diversification is in accordance with the so-called ‘Third Option’ (Europe and the U.S. being the first two options). This third path was arrived at following a policy review undertaken by the government of the late Prime Minister Pierre Trudeau. The authors argued, therefore, that there is no need for a new policy review to tell us what we know already.

Looking at our international trade performance over a period of 27 years for China, South Korea and Mexico, and as reported by Statistics Canada, we find: in 1988, Canada earned a $1.6 billion surplus with China, and by the end of 2015 that surplus had turned into a $45 billion deficit; with South Korea a deficit of $1 billion increased to $3.8 billion; and with Mexico a modest deficit of $66 million increased to $2 billion.

Because Canada’s trade relations with Asia are separate from those with Mexico, which is a part of NAFTA, it is more appropriate that we look at our second largest trading partner in Asia — Japan. Over the same period of 27 years, Canada’s trade deficit with Japan increased from $500 million to $5 billion, a tenfold increase.

When combining Canada’s three largest trading partners in Asia — China, Japan and South Korea — we find that in 27 years of pursuing the ‘Third Option’ we have managed to turn a modest combined surplus of $534 million in 1988 into a very large deficit of $53.8 billion by the end of 2015, caused primarily by a more than fiftyfold increase in our trade deficit with China.  

During the same period of 27 years, our surplus with the U.S. increased from $14.8 billion in 1988 to $115 billion by the end of 2015, a tenfold increase. It is only thanks to our success in our trade with the U.S. that, notwithstanding Canada’s expanding trade deficits with many of our trading partners, Canada was able to generate a positive trade balance, albeit one substantially reduced from what it had enjoyed at the time of its greater prosperity. Unfortunately, even modest surplus have since vanished, thanks primarily to dismal results from the 'Third Option'.

Looking at those figures, would a prudent government judge the ‘Third Option’ to have been a great success, and continue along the same road? Or would a prudent government call for an urgent review to develop a better trade policy to reverse the trend? Otherwise those increasing deficits will surely erode Canada’s prosperity, and with it, its independence.

Next, on to Asia

So, Prime Minister Trudeau, you have been wise to insist that your government make no rush decisions, and to subject every important issue to a rigorous analysis before acting.

Your travel plans are also on target — first to Davos to tell the world at large about Canadian investment opportunities; earlier this month to the U.S., by far Canada’s most important trading partner and a strong partner in ensuring its security; and now to increasingly important Asia — a visit expected in the next several months.

On your trip to Asia be sure to have a large luggage allowance, to pack also samples of Canada’s fine quality food products and yes, potash too, being so encouraged by Han Jun, China’s Vice-Minister of Financial and Economic Affairs, who in discussions exploring a prospect of a free-trade deal with Canada said: “What is China most in need of? We have a shortage of agricultural products. China is the biggest importer of agricultural products in the world…If there is an FTA arrangement between China and Canada, you can see a flooding of potash, agricultural products and energy products from Canada to the market of China.”

That, prime minister, gives you an ideal opening to reply: As Chinese people now need more food products, and potash to help them grow food, here are samples of our fine products; we are ready and willing to help Chinese people meet their needs immediately. Why wait for the lengthy negotiations such agreements inevitably take? Substantially increasing your imports of agricultural products and potash would go a long way towards satisfying the Canadian people that China is equally concerned about lopsided trade and wishes to take immediate steps to redress a situation that might strain an otherwise long-standing friendship.

The ‘Fourth’ Option: Processing in Canada to add value before exporting

Because China is short of energy, you can offer assistance in that regard too, by inviting Chinese private sector companies to joint venture with Canadian counterparts, to process in Canada as much grains, etc. into the final products of the kind best suited to Chinese citizens. Not having to supply the processing plants with energy should relieve the pressures on China’s energy import requirements.

Prime minister, you can also help China to reduce its energy import needs by extending similar offers for joint ventures in refining and processing Canada’s bitumen into its derivatives, including petrochemical products China needs for its manufacturing industries. Canadians are concerned that exporting unprocessed bitumen may create major hazards for Canada’s coastal areas. Also, there is a risk of angering Chinese citizens, for in their minds Canada would be exporting pollution to them, adding to the already high levels of pollution that are endangering their health.

Just as, years ago, by encouraging our American friends to build automobile and other manufacturing facilities in Canada, both countries ended up winners, today the Canadian government should be considering extending similar mutually beneficial investment opportunities to our trading partners in Asia. You can assure Chinese leadership that expanding relationships with the Chinese people is uppermost in Canadians’ minds, and that they are further refining these ideas as they follow China’s sterling example of a long term planning based on rigorous analysis. In this way, Canada hopes to eventually build as strong a relationship with China as it has with the United Kingdom, France and the U.S.

So prime minister, travel the world and learn from the likes of China, Japan and South Korea how to forge a winning export trade strategy.

When you return, please allow for an in-depth national debate of those issues so vital to all Canadians. Thus, after hearing all diverse opinions, and most importantly from the provincial and First Nations leaders, your government will be well-informed and ready to develop a new national economic policy firmly anchored in Canada’s national self-interest. 

Sincerely,

John Bruk
Founding Chairman the Asia-Pacific Foundation of Canada