The China card bluff

According to my morning paper, as Dalton Camp used to call it, the Chinese are greatly interested in buying Canadian oil, almost as much as we are in selling it to them. The Natural Resources minister, John McCallum, is quoted claiming China could be importing 400,000 barrels of oil a day in seven years.

This sounds like good news, especially if one is willing to overlook, as it seems nearly everyone is, China’s appalling record on human rights, the massive network of spies it maintains in Canada, its escalating threats against Taiwan, and the broader security challenge it presents to the West. Viewed strictly in trade terms, what’s good for China is good for Canada, and if the federal government favours selling oil to China, so do I.

Of course, it’s a little hard to square with the same government’s constant proclamations that China, India and other economic powers are in some sort of life-or-death, winner-take-all competition with Canada -- as opposed to Chinese companies competing with their Canadian counterparts, which is to our benefit as much as theirs -- but never mind: expanded trade is always good policy, with China or anyone else.

But then I read this: “The government’s new strategy of pitching oil to China is widely seen as a pressure tactic against Washington after its refusal to comply with the NAFTA softwood ruling.” Huh? What does selling oil to Beijing have to do with selling lumber to Washington? Are we to suppose that, were it not for the softwood dispute, Canada would not be interested in selling oil to China? That the only reason we’re pushing sales to China is to tick off the Yanks?

If so, what does this mean? Are these sales to China to come on top of our existing sales to the Americans, or in preference to them? If the former, how does that punish the Americans? If the latter, how is this to be effected? Does the federal government tell Canadian oil companies to tear up their contracts with their American customers? Does it order them to sell to the Chinese? At what price? And on what legal basis?

We’ll get to that last question in a minute. But meantime, let us count the ways this whole idea makes no sense whatever. Point one: on the merits of the softwood dispute, Canada is in the wrong. Provincial forestry practices, notably in B.C., do amount to an implicit subsidy, both in the setting of stumpage fees and in restrictions on exports of raw logs. We have been hiding behind legal technicalities, dragging out a dispute that could have and should have been settled years ago, always hoping that the latest narrow victory before the most recent trade tribunal might spare us from having to do what we should have been doing in any event: allowing the price of cutting and processing Canadian timber to reflect the real economic costs of each.

Indeed, before everyone went to the mats in June, our negotiators were in the process of conceding the point, offering to replace the “illegal” American duties with an export tax, to be drawn down as and when we moved to market pricing. That’s in our interest as much as the Americans’: selling timber for less than it costs to cut is dumb economic policy, and even dumber environmental policy. But it’s also in recognition of points two and three: we can’t win this fight, and if we could, it wouldn’t be worth the cost of a trade war.

Even if the dispute were greatly harming the Canadian forestry industry, which it isn’t, softwood lumber is only a tiny fraction of our overall trade. Our economy, moreover, is only a fraction the size of the Americans’. The idea that we could somehow do enough damage to their economy to make them see things our way, without doing even more damage to ours, is simply fanciful.

I’m not even talking about American retaliation. I’m talking about the measures that might be imposed on this side of the border, whether tariffs on American imports or limits on Canadian exports, which usually means energy. That’s point four: Cutting off the supply of oil to spite the Americans would be the very definition of a self-inflicted wound. The harm it would do to the energy sector would be immeasurable, to say nothing of what it would mean for national unity, and for Liberal prospects in the West. For the latter reason alone, it’s not going to happen.

Indeed -- back to Beijing -- it can’t happen, legally. Under the rules we agreed to in NAFTA -- and not only NAFTA, but the International Energy Agreement, the WTO, and other international treaties -- the federal government cannot simply turn off the taps any time it likes. It can restrict exports of oil in an emergency, but only in proportion as it restricts domestic supplies. So if the Liberals mean anything at all by this purported “China card,” which I rather doubt, it can only be by defying NAFTA.

And since the purpose of the exercise was to get the Americans to abide by NAFTA, this would seem more than usually counterproductive, even by the current government’s standards.