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Palace intrigue affects pigs and cows

Free Market Reflections with Steve Dittmer

It would seem a long way from the ancient halls of China’s government in Beijing to hog producers or ranchers and feeders in Canada. But such are the vagaries of global trade.

I thought the U.S. trade situation was leaning towards the crazy. Now Canada has almost inadvertently become embroiled in something akin to a James Bond thriller.  And all because Huawei, a state-run Chinese digital behemoth with tentacles all over the world, is suspected by many to serve or potentially serve as an information-gathering source for the Chinese government.

In short, pursuant to a longstanding extradition treaty between the U.S. and Canada, Canadian officials arresting Huawei’s very politically well-connected chief financial officer in Vancouver was a relatively normal process. Though not the typical arrest, everything from then on really has taken on that James Bond mystique. Canadian citizens are suddenly held in China, a Canadian man’s 15-year sentence in China is horribly revised, pork of unknown origin with forged export documents turns up in China and Canadian officials must keep mum about what’s going on for sensitive political and diplomatic reasons. Government officials on either side do not publicly connect the dots between trade and politics but everyone assumes it. This is like the nightmare from sneaking in a chicken dinner the night before when one’s system is not accustomed.

It would seem to have been a grand opportunity for Canadian agriculture. China slaps huge tariffs on American pork, sometimes over 50 per cent. African swine fever is decimating Chinese herds and the Chinese need pork. U.S. beef to China is not happening. What an opportunity. And indeed, it was happening.

In the first five months of 2019, Canadian pork exports to China had jumped from $217 million to $420 million, a 93 per cent jump. Canadian beef exports were more spectacular percentage-wise, from $20 million to $81 million, over 300 per cent.

Then this. The good news is that President Trump lifted the steel and aluminum tariffs so that trade between the States and Canada could resume normal levels. Pork prices in the U.S. have improved significantly with the resumption of Mexican trade. That means Canadian pork should be worth more per pig, and numbers may well increase during the rest of 2019.

The Trump administration has allowed U.S. companies to resume selling parts to Huawei if they pose no national security threat. But the company’s status with the U.S. is tentative. Other countries, especially in Europe, are torn. But some countries are allowing Huawei to come in and set up networks.

The problem is that Huawei is one of those state-run companies of which China’s President Xi is very proud — and President Trump is trying to slam the barn door on. Intellectual property theft, technology transfer and state-run, state-subsidized companies are the major targets of Trump’s China ire. Fundamentally, the concept of private property is very new to China, something heretofore nonexistent in Communist countries. Everything belongs to the state. That’s why intellectual property is a novel concept to China. Their attitude has been, if we can find it or steal it, it’s ours.

That is the opposite of Western ideas of rights, patents and private property. Worse, Xi has put special emphasis on fostering more state-run companies. And word is the bureaucrats who run China’s state-run companies were very unhappy with the agreement Trump’s team and Xi’s team had been negotiating. Those bureaucrats are a formidable political obstacle to restricting or phasing out state-run companies. There are Chinese officials both for and against state-run companies dominating their economy.

The Chinese economy’s growth has slowed, tax collections have dropped, its debt has topped 300 per cent of GDP, return on capital has halved, some companies are shifting production out of China to avoid U.S. tariffs and the pork situation is not improving. Will that be enough to entice China to deal? Also, Hong Kong’s defiance of tightening Chinese rule is not a good look for Beijing.

Despite stressful economic indications, there is no sign a deal is near. For nearly three weeks after President Trump and President Xi agreed to resume talks, no face-to-face meetings were held and none scheduled. A few phone calls were it. More ominously, China was demanding that restrictions on Huawei be lifted before discussing anything else.

I’m sure some Canadians are peeved that Trump’s trade war with China has enveloped Canada. But more countries are realizing that something needed to be done about China’s ignoring global trading rules. Trump has been the man. No previous leader of any country has had the gumption to confront China.

Is it possible that after being so close, there will be no U.S.-China deal? After the current flap over the Meng arrest has passed, will China restore access to Canadian pork and beef? It’s possible Canada could gain advantage and access the U.S. will not see for some time to come.

About the author

Contributor

Steve Dittmer is the CEO of Agribusiness Freedom Foundation, a non-profit group promoting free market principles throughout the food chain. He can be reached at [email protected]

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