Canada’s Indo-Pacific future

There have been growing calls for Canada to diversify its relationships with Asia to balance the impact of an increasingly aggressive China and avoid being caught in the crossfire of a U.S.-China trade war. As countries in the region shape their own strategies for the “Indo-Pacific,” Canada needs to tread carefully so as not to be co-opted into a strategic framework in which it becomes a junior partner with few options. Developing a broad, inclusive diversification strategy for the region, which focuses on building stronger relationships with like-minded countries that share basic Canadian values, presents a path forward for Canadian policy makers.

Canada-China relations are in crisis. Reasons for this include the arrest of Huawei executive Meng Wanzhou at the Vancouver airport in December 2018, Canada’s vocal opposition to China’s repressive actions and legislation in Hong Kong, and China’s detention of tens of thousands of Uighurs, a mostly Muslim ethnic minority, in its Xinjiang province.

Tensions with China won’t soon evaporate, even if China releases Canadians Michael Spavor and Michael Kovrig, whom it has detained for almost two years in apparent retaliation for the arrest of Meng. This makes trade diversification in Asia look like an attractive strategy. It would involve shifting away from heavy dependence on China as a major market for Canadian products and as a primary source of supply for essential imports.

Recent polling by Angus Reid reveals that only 14 per cent of Canadians have a favourable view of China, a number that must be close to all an all-time low. It coincides, ironically, with the 50^th anniversary of the establishment of diplomatic relations between Ottawa and Beijing. A similar IPSOS poll revealed that only a small minority of Canadians want to suspend or sever economic relations with China, yet over 80 per cent favour reducing dependence on trade with China in favour of diversification.

But breaking free from China will not be easy, nor is a full decoupling from China desirable or even possible. China’s sheer economic scale and the reach of its supply chains mean that it will always play an outsized role in any Asian strategy. While the lessons of the COVID-19 pandemic have shown the risks of over-dependence on limited sources of supply, likely leading to some reshoring particularly in sensitive industries such as pharmaceuticals, China is not easily replaced as a source of low-cost, relatively sophisticated supplier of manufactured goods.

Many companies are finding that it is easier to talk about diversifying supply chains away from China than actually being able to do so. Some diversification is occurring as a result of economic forces. Simple assembly operations staffed with low-wage labour are moving to lower wage economies in South and Southeast Asia, for example. But China will remain a dominant supplier in a number of areas.

It will also continue to move up the technological ladder in terms of producing essential advanced goods. At the same time, it will maintain an appetite for Canadian resources and agricultural commodities, even as it demonstrates that it is not hesitant about using trade as a weapon to further its ends in other areas. Chinese actions against Canadian exports of canola, soybeans and pork as a result of Meng’s arrest are a good case in point, illustrating the vulnerability of relying too heavily on a centrally controlled non-market economy.

Canada’s economic and political strategy toward Asia, for so many years dominated by China, needs to change. The most obvious vehicle for trade diversification in Asia is the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), an 11-country trade pact that went into effect on December 31, 2018. This agreement, originally championed by the United States, includes Japan, Mexico, Australia, New Zealand, Chile, Peru, Singapore, Malaysia, Brunei, Vietnam and Canada. Canada was initially reluctant to participate in the negotiations and subsequently had to push hard to gain entry. America withdrew shortly after Donald Trump became president, leaving the remaining 11 members, under Japanese leadership, to carry on and reach a revised agreement without the United States.

While the negotiations were successful, four of the original signatories have yet to ratify the treaty. One of Canada’s top priorities must be to encourage these signatories (Peru, Chile, Brunei, Malaysia) to complete the process. Another should be to push for enlargement of the agreement to include several large Asian economies that have expressed interest in joining and which have the capability to meet the CPTPP’s high standards. These include Indonesia, Thailand, Taiwan, the Philippines and possibly South Korea. An expanded CPTPP has the potential to offset much of the negative impact of the U.S.-China trade war on the region and would provide Canada with a strong platform on which to build a diversified Indo-Pacific strategy.

The CPTPP, while important, is just one leg of a good Indo-Pacific strategy for Canada. Ottawa should continue to strengthen its various dialogue mechanisms with the Association of Southeast Asian Nations (ASEAN), a ten nation grouping that includes Thailand, Malaysia, Singapore, Brunei, Philippines, Indonesia, Vietnam, Cambodia, Laos and Myanmar, and continue to pursue a Canada-ASEAN trade agreement, which seems to be on a slow track. Canada should also build on its already productive bilateral trade, investment and political relationship with Japan, continue to promote our trade agreement with South Korea, strive to put more flesh on the bones of the Canada-India relationship and further develop bilateral non-diplomatic relations with Taiwan, including supporting Taiwan’s accession to the CPTPP.

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Different countries have different ideas of what constitutes the Indo-Pacific. The United States generally thinks of the region as including both the Pacific Ocean and all the lands bordering it, as well as the Indian Ocean.  It views the Indo-Pacific from a military and strategic perspective, with a focus on free and open navigation of the high seas from U.S. bases in Hawaii to those at Diego Suarez in the Indian Ocean. This strategy is devised largely as a counterweight to China.

India, as suits its geography, sees the region with the Indian Ocean at its centre. Australia, which borders both the Indian and Pacific oceans, tends to align with the United States. Japan has pushed for a more inclusive conception of the Indo-Pacific that encompasses rather than excludes China — while also retaining strong military ties to the United States. ASEAN has a similar vision of inclusiveness.

Canada needs to find its role amongst these competing visions and define its own Indo-Pacific strategy. There are many who will argue that given our close economic and strategic alignment with the United States, we have no effective alternative but to become part of and contribute to Washington’s Indo-Pacific strategy. But Canada does not need to participate in a U.S.-led Indo-Pacific strategy to deepen ties with Australia, India or Japan. We should consolidate and further develop relations with small and middle powers in the Asia-Pacific region, such as the ASEAN countries, while working closely with Japan and India, both significant economic powers and fellow democracies.

The core of a Canadian Indo-Pacific diversification strategy should be built on economic and diplomatic outreach and engagement with middle powers with which we share democratic values. This does not mean neglecting our all-important relationship with the United States, but nor does it mean becoming an automatic junior partner in a U.S.-led Indo-Pacific strategy heavily focussed on maritime and military security issues. Equally, it does not mean pulling up the drawbridge when it comes to dealing with China. China will always be an economic and political force with which to be reckoned, and it is just as much in Canada’s interest to find areas of common ground with China — on climate change, for example — as it is to strongly protect Canadian sovereignty and values in our dealings with China. The Japanese and ASEAN concept of an Indo-Pacific framework that seeks to work with and draw in China, while strengthening ties between open economies in the region and welcoming a continuing U.S. presence, provides a potential opening for Canada.

A Canadian Indo-Pacific strategy will require an investment of time and effort in strengthening and expanding our primary diversification platform in Asia, the CPTPP. It will also involve exploring new energy markets in Korea and Japan, working to revitalize the Canada-India, Canada-ASEAN and Canada-Taiwan relationships, and being ready for the day when the United States is ready, under a new administration, to resume a multifaceted, multilateral approach to leadership in the region. That is Canada’s path forward.

As part of the Canadian International Council’s Foreign Policy by Canadians initiative, the CIC’s Victoria branch is hosting several events about Canada and the global economy. We’d like you to be part of the conversation. Join Hugh Stephens and other panelists on December 1 for a discussion about Canada and the Indo-Pacific. Please register here.