Trump’s USMCA exit threat seen pushing Canada into China’s arms ‘as a hedge’
Analysts expect Ottawa to diversify trade as future of North American trade pact remains uncertain, while a US departure would ‘hit Canada like an earthquake’
Weighing in on the potential impact, Salvatore Pinizzotto, co-founder and managing director at Xida Communications in Italy, said: “Canada would almost certainly accelerate selective diversification, and China would be part of that – not as a substitute for the US, but as a hedge.”
“While it’s a no-brainer for Canada to attempt to draw closer to China, sticking points remain in the Canada-China relationship, and it won’t immediately be hugs and kisses,” Olson noted. “Recent signs of warming relations are positive but should not be exaggerated – there’s still a long way to go.”
The Canadian government will continue to look for opportunities to diversify trade, including with China
Kelvin Heppner, a farmer from the Canadian province of Manitoba, said there was an increased willingness in the nation for pragmatic approaches to trade with other countries, including China, as a result of Trump’s threats.
“There’s certainly anger [in Canada] towards the Trump administration,” he added. “The Canadian government will continue to look for opportunities to diversify trade, including with China.”
However, Heppner also noted that reports about the US pulling out of the USMCA were “overstated”, because he saw the move as unlikely to get congressional approval. Furthermore, he said, the three-quarters share of Canadian exports that go to the US could not be replaced or offset by exports elsewhere.
Under the USMCA, Canada currently maintains largely tariff-free access for most exports to the US, subject to sector-specific provisions or tariffs on steel, aluminium, automobiles and timber.
The US was Canada’s largest trade partner last year, and China was the third largest, according to India-based market research firm Seair Exim Solutions.
“On trade and growth, there is growing pragmatism,” Pinizzotto said. “Canadians generally support doing business with China, where risks are manageable and rules are clear, especially in sectors like agriculture, education and selected resources.”
Over the longer term, according to Olson, an American withdrawal from the trade pact would bring inefficiencies, raise prices and reduce corporate competitiveness for companies on both sides of the border. And in light of the US midterm elections later this year, he expects that “Trump will be very careful about taking actions – such as tariffs – that will increase costs for consumers”.
“[Trump] understands that the election will be fought largely on affordability, and that if the Democrats take over one or both houses of Congress, the remainder of his term will be considerably more difficult,” he said.