How Canada Can Lessen Its Alarming Dependence on China

Think tank report suggests greater ties with like-minded nations, focus on next wave of technologies
May 27, 2020 Updated: May 27, 2020

News Analysis

As early lessons from COVID-19 suggest a strengthening of deglobalization efforts, a new report highlights just how dependent Canada and some of its closest allies have become on China. It proposes strategies to decouple from China, with one key recommendation being to focus on frontier technologies that China doesn’t yet dominate and that will be vital to a nation’s long-term prosperity.

The Henry Jackson Society, a British think tank, released the report on May 14 saying that members of the Five Eyes intelligence-sharing network—Australia, New Zealand, the United Kingdom, the United States, and Canada—are dependent on China for 831 categories of imports of which 260 service critical national infrastructure such as telecommunications and pharmaceuticals.

Breaking the China Supply Chain: How the ‘Five Eyes’ Can Decouple From Strategic Dependency” considers a country to be “strategically dependent” on China for a good if China controls over 30 percent of the global market of that good, and if the country imports over half of its supplies from China and is a net importer of that good.”

“China has long shown a willingness to threaten the prosperity of those who question its activities. The seriousness of such threats grows when our economic system leaves us strategically dependent on China to keep our economy turning,” wrote Gisela Stuart and Michael Danby, two former U.K. Labour Party MPs, in the report’s foreword.

“The time has arrived for us to make trade and investment decisions with thought not just on finances but on security and human rights,” they added. 

Decoupling from China won’t be politically easy, and it will be expensive in the short- to medium-term, but long-term thinking is needed, according to the report. 

It suggests that countries determine where dependencies exist in relation to supply chains, review their strategic industries to prioritize them for protection from China, and see how existing trading relationships can be enhanced to lower dependency on China. 

The report says members of the Five Eyes nations should work toward a free-trade zone among themselves. It also suggests that the other four nations consider mirroring the U.S. entity listing—a list of parties deemed to pose a major risk to national security or foreign policy interests—to “act punitively against Chinese enterprises that have engaged in unfair trading practices.” 

Singled out in the report are the “Future 9”—core areas of the future economy, or the so-called “Fourth Industrial Revolution.” They are artificial intelligence and machine learning, autonomous robotics, computing hardware, cryptographic technology, materials and manufacturing science, nanotechnologies, networking and data communication, quantum technology, and synthetic biology.

The report describes the “Future 9” as “the most strategically consequential of any of the goods in the exchange of modern trade.” Control of these technologies now will ensure a leadership position in the future as they grow in prominence.

Former Canadian ambassador to China David Mulroney told Global News that there is a growing consensus among like-minded countries that coming out of the pandemic, there will be a reappraisal of engagement with China. Australia has been the torchbearer for questioning Beijing about the pandemic, but Canada’s been a “laggard,” he added.

“We’ve got to take a much more active role,” Mulroney said. And part of that involves decoupling, he added. 

“Perhaps having a less comprehensive engagement with China, … not feeling obliged to say ‘yes’ to everything that China suggests.

Worrisome Dependence

Canada is strategically dependent on China for 367 categories of goods, with 83 of them servicing critical applications. 

One example is magnesium. As of 2018, Canada was the world’s second-largest importer of the metal. China produces 80 percent of the world’s supply.

Canada is dependent on China for a number of other metals including rare earth elements, which are used in defence, telecommunications, and computing applications.

“China has been a major supplier of these minerals but Canada has an opportunity to play a larger role in this marketplace, as customers look for products made to high environmental standards,” said the Mining Association of Canada in a May 13 statement

Canada and the United States recently finalized a joint action plan to collaborate on critical minerals. 

Canada’s reliance on China extends beyond raw materials and into consumer electronics and industrial products like magnets, shipping containers, and steel and iron grinding balls.

Canada is also strategically dependent on China as it produces the bulk of the world’s vitamins, food supplements, and pharmaceutical products.

“When we lose control over medicines and somebody else is controlling that supply, whoever controls that supply controls the world,” said Rosemary Gibson, author of “China Rx: Exposing the Risks of America’s Dependence on China for Medicine,” in a recent interview on American Thought Leaders

She says there are two ways this control can be weaponized—via contamination of medicines or by withholding them.

The United States is actually slightly more strategically dependent on China than Australia and New Zealand. Regarding the number of goods that service a critical industry, the United States relies on China for 27.8 percent of such goods, with Australia at 27.6 percent, New Zealand 27.5 percent, and for Canada the dependency is 23.1 percent.

Differing Political Approaches

Conservative leadership candidate and former cabinet minister Peter MacKay contributed an essay to the report and said, “Canada’s strategic interests require us to shift towards partners that align and conform with our rules-based system, the values of freedom and human rights, and that pose no threat to our national security and that of our allies in NATO, the G7, Five Eyes, and beyond.”

MacKay says Canada must learn from its allies, including the United States and Australia, that have enacted laws to curb foreign influence, and it must ban Huawei from involvement in its 5G networks. Canada is the only member of the Five Eyes that has not made a decision on Huawei for its 5G infrastructure

By contrast, Liberal cabinet ministers like Bill Morneau and Chrystia Freeland have hesitated to demonstrate suspicion of Beijing’s activities such as its desire for investments in Canada despite warnings from the Canadian Security Intelligence Service. 

In an interview with Global News, Morneau said measures are already in place to review foreign acquisitions, such as the Investment Canada Act.

“We’re not making decisions about long-term structural issues during this time of the economic crisis,” he said.

The CCP (Chinese Communist Party) virus, commonly known as novel coronavirus, pandemic has given a powerful reminder that countries need to have some degree of self-sufficiency for things like personal protective equipment. The extension to strategic sectors and critical infrastructure then becomes evident.

In addition, Beijing’s “wolf warrior” diplomacy has reminded other countries of how an authoritarian regime can behave in times of crises.

Follow Rahul on Twitter: @RV_ETBiz