Tariffs could help China-Canada trade: expert

As trade disputes continue to brew over tariffs, China and Canada could see an opportunity to enhance trade relations, if the US continues its aggressive behavior against the two countries, according to Canadian economist Paul Ferley.

At an economic briefing last weekend, Ferley said that even though geographical distance could limit how much of a diversification in trade could occur, there is some potential to increase trade activities between China and Canada, which have already enjoyed sound bilateral relations.

"The imposition of US tariffs on China and as well Canada may provide incentives for both China and Canada to see if there are more opportunities to replace that lost demand, so for Canada it's finding more markets in China, and for China, it's finding more markets in Canada," said Ferley, who is the Royal Bank of Canada's assistant chief economist.

The issue is that the US is a huge economy, so China could potentially provide a replacement for Canada's lost demand from the US. Canada is smaller, so a lot of the lost demand to the US can't be fully offset by the Canadian economy, but there is incentive to provide at least some offset, according to Ferley.

"We are not imposing tariffs on each other's products, so pricing remains competitive. Hopefully with Canada or China getting shut out of the US market, it provides incentives to look for markets and enhance the trade between us," he said.

The discussion raised concerns about the trading structure. Statistics show that the major product Canada sells to China is lumber, while China sends more machinery to Canada. Ferley foresees further progress and improvement in trade with China could be shifted to more value added products instead of traditional natural resource-based industries.

Especially with the growing incomes in China and a change in demand for Canadian products, there's an increase in opportunity for food processing, to which Canadian companies can respond.

"We think that such a move can be facilitated by more investments from China, which will direct products that won't be demanded in the Chinese market. I think it is pure business opportunities, and hopefully investment opportunities increase even more and result in better news for exports," he said.

Even with restrictions on both sides, it doesn't mean there will not be opportunities and attractive opportunities that "hopefully could help investments grow in Canada, and contribute to Canadian exports to China", he said.

On July 1, which is Canada Day, Prime Minister Justin Trudeau's government is imposing a dollar-for-dollar tariff countermeasure on $16.6 billion in US products in response to US President Donald Trump's decision to make good on his threat of tariffs on Canadian-made steel and aluminum.