Positive effects will come from China deal, but U.S. trade still important, economist says

The Liberal government reached a deal with Beijing to allow tens of thousands of Chinese electric vehicles into the domestic market in exchange for dropping duties on canola products, Prime Minister Mark Carney said Friday.

Jason Childs, University of Regina professor of economics, joined The Evan Bray Show to discuss the deal’s economic implications.

Read more:

• Carney reaches ‘landmark’ tariff-quota deal with China on EVs, canola
• ‘Excellent first step’: Sask. farmer welcomes progress on trade deal with China
• Short-term canola questions answered, long-term outlook still uncertain: business expert

Listen to the full interview here, or read the transcript below:

The following transcript has been edited for length and clarity.

Evan Bray: When you look at this deal, and the deal is multi-pronged, there’s a few MOUs, there’s a letter of intent. How do you view this overall thing from an economic standpoint?

Jason Childs: Well, I think we got to break it into two chunks. Let’s take what’s actually been agreed and what’s actually looking like it’s going to move forward in the near future, and that’s that basically returning us to where we were in about 2023-24 where we’ve got a situation where we had relatively low tariffs from China on Canadian exports and we were allowing some EVS into the country.

So the big headline part of this that’s actually being implemented is simply undoing what was bad policy. Some of the MOUs, the letters of intent, are a lot more interesting and have potentially a lot bigger implications.

How big of an impact will this have on Saskatchewan’s economy? 

Childs: You’re going to get some spill off, that transportation side, that storage and shipping side. Unfortunately, we’re not going to see much in the processing side, because, as I understand it, oil is still subject to some pretty hefty tariffs.

But we’re going to see seed move and seed in 2024 was about $4 billion worth of trade and that’s a lot of money — that’s bigger than the auto sector. So that’s going to come back, and that’s going to start to tick over again. That’ll be really good news.

The other part is meal, and that’s not as important but it still matters. Where I’m concerned on this is that oil is still not covered, so we’re not going to get much of an opportunity to see those spinoffs and that value add as we move up the value-add chain.

So when we look at at sectors like the manufacturing sector, is it safe to say that I was just at the Crop Production Show last week in Saskatoon at Prairieland, I mean the halls there were full with every part of the ag industry. Is it an instant flow of economic improvement to all parts of the industry. When we have a move like this happen?

Childs: I think a lot of that’s going to come down to animal spirits, if you’ll allow me the old Keynesian turn of phrase. Basically, everybody’s going to be bullish. Everybody’s going to be out spending money because they’re feeling good this, this is a load off everybody’s mind.

So I don’t want to downplay it on that, because there will be spillover effects just from everybody feeling better. That said, I think some some restraint might be in order here. There’s a lot of potential things that could happen here. But again, you’re not going to be feeling wildly better than you were in 2024 as a result of this deal, you’re going to be basically back to there.

Do do you see any risks for Saskatchewan’s economy?

Childs: Not from what’s actually been agreed. The other part that makes me a little twitchy with is there’s not really a formal agreement here that I can go and read the text of and say, ‘Okay, this is what this means.’

“We expect” — this is the language the prime minister used. “Expect” that those tariffs will be dropped on March 1, and the reduction in tariffs is to last at least until year end. So we don’t know what’s going to happen beyond that. There’s got to be a lot more work done yet. So some caution is probably warranted.

When the U.S. went in and grabbed Maduro from Venezuela, there was some fluctuation in markets. Are we seeing markets impacted the same way, or has it kind of settled a little bit, because there’s so much happening geopolitically in the world these days?

Childs: It’s hard to link any market movement to any one of these things. The Maduro thing was such a big surprise to a lot of people. But, I think a lot of people were expecting some sort of climb-down from Canada with respect to the Chinese EVs, and that would open up the possibility of the reversal of the canola tariff.

On that front we had some market movements, but some of it was anticipated. Some of it wasn’t. I think our total trade with China is only $30 billion; our trade with the U.S. is $600 billion. So, this is good news, but the elephant’s still in the room, right?

We still need to get that trade deal with the U.S. if we have any hope of of economic prosperity?

Childs: Yeah, and if we lose that deal, if we lose that market access that we’ve got right now under CUSMA, it’s not going to be a lot of fun.

Talk about the impact if any that deals like that with China has on our dollar. We almost always are comparing our dollar to the U.S. dollar. So is there any movement there?

Childs: I haven’t noticed any. I haven’t been watching that market like a hawk. I’m sure the currency traders are moving. Let’s say we completely wiped out canola from the Chinese market. That’s $5 billion on an economy of $3.33.6 trillion. So it’s big for us but in terms of the Canadian dollar trade with China, trading Canola is not that big a deal.

One of the things there’s a lot of people that are really worried about this handshake. Let’s open the door for more Chinese investment in Canada. Do we have the ability? Are we a big enough country to generate our own investment within our country or maybe we extend it to the United States? Can we turn a blind eye to countries like China when it comes to investment in the work we do here?

Childs: We can. The flip side of it is, how comfortable are we with Chinese investment, and given the way it’s been done in some other countries, it’s not always been a positive thing.

Now, Canadian investment in other countries isn’t always a great thing either. So some humility here is warranted. I’m not as enthusiastic about that sort of openness and the security co-operation and crime co-operation that was discussed, I’d want to know a lot of the details and what sort of guardrails were going to be put in place before I got excited about that.

Is less reliance on the U.S. for trade a good thing for our economy. Or is the relationship we have with the States still inevitably where we need to focus our efforts?

Childs: Diversification is always a good idea. I’m a big believer in trade. I think we should trade with as many different people as we possibly can. That’s that’s the basis of modern wealth, quite frankly.

And if we cut ourselves off, it’s going to hurt us as well as them. That said, the U.S. is still the biggest game in town. They are literally next door and they’re the most dynamic economy going right now, so turning our back on them, is a really bad idea.

That’s going to be the genesis of our continuing to see our living standards improve and cutting ourselves off from that is probably not a good strategy.

If we rewind the clock to the beginning of 2025 and if you were looking at what Canada needs to do to strengthen our economy, solidify our strengthened economy for a sustained period of time, are we doing those things?

Childs: We keep talking about these not quite trade deals, these agreements to talk about having an agreement and we’re not we haven’t gotten the job done yet. That ball is not crossed the goal line yet and we there’s still a lot of work to do.

We’ve got to diversify our trade portfolio. We also need to start engaging with the U.S. constructively, and that hasn’t happened yet. I don’t want to say who’s to blame, but we’ve got to figure this out. If we don’t, it’s going to be really painful for us for a very long time.

There’s nobody else in the game that can replace the U.S. in the Canadian economy. It’s proximity, it’s integration of supply chains, it’s all these other elements.

Europe is slow growing, they’ve gotten a lot of regulation, they’re relatively closed. They don’t want to give us market access in a lot of the things that we do produce, like steel or automotive. So Europe’s there. China’s got a long list of problems that we’ve had with them, and they, quite frankly, have had with us, and they’re just not as big an economy as the U.S. So I think you need to focus on the big game.

It feels like there’s been positive momentum for Saskatchewan in terms of just kind of an overall awareness about our resources. The prime minister invited our premier (Scott Moe) to go with him on this recent trip to China. From an economic standpoint, has this gained ground for our province?

Childs: I think so. I think at least we’re getting a seat at the table. We’ll see how long that persists. I think there are other political calculations, not economic calculations, that are driving that, and I think a lot of it’s based on what’s happening next door in Alberta.

— with files from The Canadian Press