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Degrees of Freedom: Canada-China Relations in the Shadow of US Foreign Policy

Speech to Norman Paterson School of International Affairs, Carleton University

The Honourable Yuen Pau Woo, Senator for British Columbia

Good evening. Thank you for the opportunity to speak to the Norman Paterson School of International Affairs, or I should say the SENATOR Norman Paterson School of International Affairs.  Those of us who currently sit in the Red Chamber look in awe at Norman Paterson’s senatorial record, which includes having sat in the Upper House for 41 years. I assure you that I will not come close to his record. Indeed, it is not even possible for any current or future appointee to rack up that many years, which is probably a good thing – but that is a discussion for another day.

I begin my story today with your benefactor not because of what he did in the Senate but based on what he did outside of it.  Norman Paterson was a grain trader before he was appointed to the Senate, having founded his eponymous company in 1908 – a company which operates today as Paterson Global Foods.  This audience of international affairs specialists will be aware of the important role that wheat sales played in the establishment of Canada’s diplomatic relations with China.  The broad strokes of that historical episode are well known but – in the context of today’s challenges in Canada-China relations -- I would like to remind you of the fraught environment in which Prime Minister John Diefenbaker crafted a trading relationship with China, in spite of stiff opposition from the United States. 

Diefenbaker was no communist sympathizer and he wasn’t motivated by the establishment of diplomatic relations with China, but he understood Canadian interests and was especially attuned to the plight of prairie farmers who were struggling under depressed wheat prices due to dumping on world markets by subsidized American producers (Public Law 480).  The famine in China caused by Chairman Mao’s disastrous Great Leap Forward created the conditions for Canada to alleviate suffering in the People’s Republic and develop a new market for wheat exports.  But there was severe American resistance to Diefenbaker’s plan, and it came in the form of prohibitions under something called Foreign Assets Control (FAC), which was a law adopted by the Eisenhower administration under the provisions of the 1917 Trading with the Enemy Act.  FAC rules prevented foreign subsidiaries of U.S. corporations from exporting goods to China. The first wheat order from China had to be renegotiated when the American parents of grain companies in Canada were threatened with prosecution under FAC regulations.  As a result, the contracts had to be transferred to Canadian-controlled companies.  Incidentally, FAC affected not only Canadian wheat exports, but also manufactured goods.  A Chinese order of 1000 cars from the Canadian subsidiary of Ford Motors was also blocked by the United States, causing outrage on the part of the Canadian public.

Even though Ottawa was able to circumvent the obstacles placed by the US for the export of wheat to China, the Eisenhower administration continued to view Canadian trade with China as a matter of strategic interest to the United States and made its dissatisfaction known to Ottawa.   John Foster Dulles commented that “Beijing often placed orders simply to generate a clash between Washington, DC, and allied government.”  That was John Dulles, but it could just as well have been John Bolton. Eisenhower’s general approach was to grant exceptions to transactions that it felt were necessary for the welfare of its allies, rather than to accept the right of its allies to conduct trade according to their perceived best interests. 

Things did not improve after John F. Kennedy was elected to the White House. A new issue that emerged was that Imperial Oil, the Canadian subsidiary of Standard Oil -- an American company -- refused to provide bunkering fuel to the ships that had been chartered to carry wheat to China.  This refusal took place at a Canadian port -- on Canadian soil so to speak -- and it too caused outrage among the Canadian public.  JFK was not particularly helpful.  He offered for the United States to grant Canadian subsidiaries permits allowing them to conduct trade with the PRC at the request of the Canadian government, which effectively meant transferring authority over this aspect of trade policy from Ottawa to Washington, DC.  This proposal was not accepted by Diefenbaker and if you are shocked that it was even suggested, I suggest you look at section 32.10 of the CUSMA agreement – which we did accept.

Eventually, the United States decided that the conflict with Canada was not worth its limited control over Allied exports to the PRC and ended up relaxing its FAC regulations so that Imperial Oil was able to provide fuel to the vessels carrying wheat to China.

But it didn’t stop with oil. Soon after a purchase agreement had been struck with China, the United States Treasury Department decided to prohibit the export of US vacuators to Canada.

Vacuators are special suction devices required to load grain onto tankers prior to shipment. The US Government stopped the export of this machinery by invoking FAC regulations, as it did with other measures to hinder trade between Canada and the PRC. A solution was found when the State Department eventually granted licenses for these items as a “special concession to the Canadian government”.

Even after American impediments to wheat sales were mostly overcome, the nascent trading relationship between Canada and China was still framed by Washington DC as part of a strategic contest with the PRC.  At a high-level meeting in Ottawa in January 1962, the United States called for Canada to indicate to the PRC that in order for future grain deals to be possible, Beijing would have to curtail its actions in Vietnam, where the US was in the early stages of its Indochina quagmire.

My point in sharing some details of an iconic story in the diplomatic history of Canada-China relations is not that we find ourselves once again trying to manage our relationship with Beijing in the shadow of relations with Washington DC; it is rather that we have ALWAYS had to tread lightly with China because of pressure from the United States.  The perennial challenge for Canada is to identify, clarify, and amplify the degrees of freedom we have in pursuing ties with the PRC that are in interests of our country while managing the even more important economic and political relationship with our Southern neighbour.

This was true in 1949 when Louis St. Laurent wanted to recognize the People’s Republic of China but backed off because of American opposition, as it was with Lester Pearson who feared that the US would leave the United Nations if the PRC replaced Taiwan as the legitimate representative of China.  Pierre Trudeau of course took the plunge by recognizing the People’s Republic in 1970, but he did so in the face of strong opposition from Richard Nixon.  Later Prime Minsters may have had it easier, but even so Jean Chretien gave China MFN status against the wishes of Bill Clinton, and Paul Martin described China as a strategic partner at a time when the George W Bush was calling China a strategic competitor.  As for Justin Trudeau: Well, talk about a rock and a hard place. . . .

The leitmotiv of Canada-China relations since 1949 is that it has operated in the shadow of Canada-US relations.  What is new in today’s context is that it is also operating under the shadow of strategic rivalry between the two superpowers.  This has been the case at least since the Global Financial Crisis of 2008, when China emerged as the single most important source of global growth.  We saw the bluntest expression of US-China rivalry during the Trump years, but the direction of US efforts to counter China’s rise were already in place during Obama’s “Asia pivot”.  While the Biden administration has so far used more temperate language in framing its approach to China, the basic orientation of US policy has not changed.  In a context of hyper-partisanship on most domestic policy issues, the one area of rare common ground between Democrats and Republicans will be on China, which means Biden’s approach to Beijing will lean “tough”.  That is why I do not expect any near-term lessening of the tension between the two countries.

This is not a passing storm.  While dreamers in DC (and Ottawa) fantasize about a collapse in a “corrupt and illegitimate” CCP and jingoists in Beijing predict the implosion of “decadent and ungovernable” American society, the more likely reality is that we are looking at a decades-long strategic contest which is rife with danger not just for the two powers, but for everyone else in between.  In thinking about the question for this talk -- “What is China to Canada?” -- we have to imagine a China that will not just be the largest economy in the world during our lifetime, but also one that is locked in a strategic contest with the United States for the lifetimes of our children.  

Which gets to my question: What IS China to Canada?

Ask any Canadian about how they would define Canada’s relationship with China and the answer would be either a blank look, or more likely, a list of the problems that are currently dominating the headlines, e.g. Meng Wanzhou, Michael Spavor and Michael Kovrig, Hong Kong, Xinjiang, Canola, Wolf Warrior Diplomacy, foreign interference, and so on.

There is indeed a long list of problems that characterize current relations, but a list does not define a diplomatic relationship. A list is simply a list.  One could presumably make a list of good things that are happening between Canada and China, but that would also be simply a list and it wouldn’t go very far in terms of defining the bilateral relationship, or helping chart a course for the future.  Let me put it a different way:  We can identify lots of problems in the Canada-China relationship, but we have yet to identify the problematique.  A problematique is not a list of problems; it is rather a way of defining the overarching problem, or question, that you are seeking to address.  In foreign policy terms, I believe it boils down to how we see China in relation to Canada – now and in the future. Hence my question “What is China to us”?

To be sure, some commentators have already made up their minds:  In 2019, the Globe and Mail editorial board proclaimed China a “threat” to Canada, and much of the reporting in the Globe operates from this assumption.  If this is in fact the problematique for Canadian policy towards China, we must seriously consider all the implications that flow from branding a foreign country (and a superpower, no less) a threat.  In fact, much of the public discourse on China is already being conducted as if it were a settled issue that the PRC is a threat to Canada – with troubling implications for the way we manage all things Chinese, including Chinese enterprises, immigrants from China, ethnic Chinese Canadians who have no connection to the PRC, civil society groups with links to China, and so on.

There are of course other ways of identifying the problematique, including “competitor”, “rival”, “partner”, even “enemy”.  All of these terms have normative elements which would conform to the preconceived notions of an individual’s preferred nomenclature.  I would like to offer a term that is less value-laden, in the form of China as a “Global Neighbour”.  It may come as an affront to those who are repulsed by China that I would speak of the PRC as a neighbor – with all of its connotations of well, “neighbourliness”.  But think a bit more deeply about your neighbourhood and it is likely that you will be able to identify neighbours who are not “neighbourly”.  That troublesome neighbour may even be the one with the biggest residence on your block.  What’s more, we don’t get to choose our neighbourhoods – at least not in the context of international policy.  The idea of China as a global neighbour underscores the reality that Canada is in proximity with China on so many fronts and in so many places – not just in the geographic sense, but on all the issues that matter to Canada domestically and internationally.  In some geographies and on some issues, our stance to our global neighbor should be to build a sturdy fence; in other areas, we should have an open border; yet other areas, something in between.  But we have our territory and China has its own, and there will be times and instances when the governance of our territory is markedly different from that of China.    I have written on this idea of China as a global neighbour and what it means for Canada. In the interest of time, I will not repeat my arguments and instead invite you to read the article that will soon be published in International Journal.

Let me conclude with some comments on the current context for relations with China.  It is an understatement to say that ties between Ottawa and Beijing are in a deep freeze, for all the reasons we are aware of.  The proximate challenges in the relationship seem intractable, with both sides seemingly moving further apart with each passing day and after each official statement.  Canadian public opinion on China is at its lowest in years and COVID-19 has not helped. Across the country, the mood on China is febrile, and the fever is nowhere higher than in Ottawa, especially Parliament Hill.

There is a desire all round for “rethinking Canada-China relations”, and my speech tonight is a small contribution to the effort. In many ways, though, we are thinking through Canada-China relations for only the first time.  By that, I mean our relations with China since diplomatic relations have been largely transactional, with little thought to long-term strategic considerations and a lack of serious investment in capacity development and relationship building.  We don’t have much “connective tissue” with the People’s Republic, especially when it comes to our leadership class and civil society more broadly.  There are of course lots of kinship and societal links between Chinese Canadians and their connections in the mainland, but this is itself a problem because of the siloed nature of these ties, which are often looked upon with suspicion by mainstream Canadian society.  If you are wondering what the biggest factor in anti-Asian racism today is, the answer is anti-China sentiment.  That is as true for Chinese Canadians who are sympathetic to Beijing, as it is for those who are fervently anti-communist. But that is also another topic for another speech.

What has changed in the contemporary effort at “re-thinking China” is that whereas previous discussions on bilateral relations were premised on the general question of “How to improve Canada-China relations?”, the question today – in some circles -- is “Should we even seek to improve Canada-China relations?”.

There is a longstanding formula in diplomacy and foreign policy, especially when it comes to relations with major powers, which is to seek to “compartmentalize” problems in one area of a relationship so that other areas can continue to operate, if not flourish.  Is compartmentalization still an option for the Canada-China relationship? I hope so, but there are those who want to break down the “fire barriers” in the relationship and, if you will, let the flames course through the larger edifice of bilateral ties.

I am not naïve about the prospects for near-term improvement in Canada-China relations. It will be extremely difficult because Ottawa and Beijing have painted themselves into opposite corners of the room, and it is going to take some time before the paint dries.  Not to mention the fact that Canadian public opinion on China is at its lowest point in years, and Chinese officials don’t seem to care.  When Canadian officials boast about wearing Chinese sanctions as a badge of honour, and Chinese officials make the same boast in reverse, we have a classic case of a spitting match. And the two individuals who are getting most of the sputum are Michael Spavor and Michael Kovrig.

The immediate challenge is to limit an overreaction driven by the current partisan political competition in Ottawa to demonstrate toughness towards China. There is a serious threat to the compartmentalization and advancement of bilateral ties because of vocal critics in Canada who are fundamentally against the CCP and who reject the validity of any ties with Chinese counterparts that have links to the Party. I do not agree with this view.  On the contrary, I believe those of us outside of government (and I put myself loosely in that category, since I am an independent senator) who understand the long-term significance of China’s emergence as a global power have to find ways to build non-governmental ties with Chinese counterparts and keep our compartments fireproof. More than that, we should be able to celebrate connections with China which are of clear benefit to Canada, rather than skulking in the dark corners of society like outcasts who are taking part in a forbidden activity.  And yes, this includes working with companies and organizations that have links to the Chinese state. 

The case for shunning China is based in part on the view that Canada should focus on other parts of Asia for its trade diversification strategy (which everyone seems to agree on).  We should certainly pay more attention to Japan, Korea, Taiwan, and Southeast Asia.  But we would be kidding ourselves if we thought that those same Asian countries are pursuing economic development strategies that explicitly omit China as a key driver of growth.  Let me put it differently:  You may be able to have a China strategy without Asia, but you cannot have an Asia strategy without China. If you have any doubt about my assertion, consider this: According to the Asian Development Bank, intra-regional trade and investment in East and Southeast Asia have grown sharply in the last three decades, with the centrality of the PRC as a trading partner growing faster than trade links among the other countries.  The regional trade share with the PRC grew from 6 percent in 1990 to 24 percent in 2019. Conversely, the share of Asia’s (excluding the PRC) regional trade with North America fell by 50% between 1990 and 2019, from 25% to 12%.  The recent conclusion of the RCEP – the biggest trade deal in history – will further reinforce intra-regional trade and investment.

The lesson of wheat sales to China in the 1960s was the patient, strategic, and determined effort on the part of our leaders to increase Canada’s degrees of freedom in pursuing a China policy that was at odds with the United States. It was a successful strategy, and one that has been played out over-and-over again in our trilateral relationship with China and the US. It is still the same today, except that the stakes are much higher because the US perceives China to be a threat to its dominant position in a variety of economic, industrial, technological, and military domains. If we let it, our degrees of freedom will be reduced. Some might even say we don’t have a choice in the matter. But it is the job of those of us who work on international policy — officials, scholars, practitioners, commentators — to not stop trying. That is after all what it means to have an independent foreign policy.

Let me close with a brief comment about the context in which this discussion and many other discussions about China are taking place in this country.  It is not a healthy one, and I have to say that the example set by conversations in and around parliament are not helping.  Repugnance over Chinese actions on a range of issues, from the arbitrary detention of Canadian citizens to the curtailment of civil rights in HK, together with fear of Chinese power and anxiety about Chinese interference have created an environment where discussions about China have become very divisive and prone to reflexive labeling and denunciations.  For the opportunity to share with this audience what is likely an unpopular view, I once again thank Carleton University and NPSIA for the invitation, and now look forward to your questions.