Canada: Caught in the Crossfire of the US-China Trade War

Canada’s arrest of a top Chinese executive landed Ottawa in the middle of a feud it wanted to avoid.

By Jacob L. Shapiro


Canada has found itself in the middle of two diplomatic spats over the past five months. In August, Saudi Arabia took exception to a Canadian Foreign Ministry tweet urging Saudi authorities to release jailed women’s rights activists. In response, Saudi Arabia withdrew its ambassador in Ottawa and suspended all trade and investment with Canada. A few months later, Canadian authorities arrested Meng Wanzhou, a top executive of Chinese telecom firm Huawei, at the United States’ request. After Meng’s arrest, China detained two Canadians, including former diplomat Michael Kovrig, accusing them of threatening China’s national security. This week, another Canadian was sentenced to death in China after a brief retrial for allegedly organizing a methamphetamine smuggling ring.

Canada probably didn’t intend to provoke a conflict in either situation. It’s hardly the first country to accuse Saudi Arabia of violating human rights – under normal circumstances the Foreign Ministry’s tweet would have been quickly forgotten. But these weren’t normal circumstances. Canada publicly criticized the kingdom in the midst of Crown Prince Mohammed bin Salman’s consolidation of power and ambitious drive to transform Saudi society – which hinged on cultivating an image of the crown prince as a reformer. In that sense, the tweet was inadvertently prescient. Canada had no way of knowing it would enrage the Saudi political establishment as much as it did or that Saudi agents would kill a Saudi journalist in a Turkish consulate and bring global attention to the kingdom’s human rights record just two months later.

As for China, Canadian authorities detained Meng not at Ottawa’s directive but because a New York court issued a warrant for her arrest on Aug. 22. While the U.S. hasn’t yet produced an indictment or formal request for Meng’s extradition (it has until the end of the month to do so), Canadian prosecutors said last month she was being charged with conspiracy to defraud banks. Meng is accused of not disclosing to banks Huawei’s links to another tech firm called Skycom, which was doing business in Iran that violated U.S. sanctions. Canada has plenty of reasons to be suspicious of Huawei, but on Meng’s arrest, it’s simply fulfilling its treaty obligations to the U.S. That this justification is unconvincing to China is a subtle reminder of the very real differences between Chinese and Western legal systems.

The Saudi issue is ultimately a minor one – Saudi Arabia represents less than 1 percent of Canadian trade, and whether Canada will continue to sell military equipment and vehicles to the kingdom will be based on domestic political considerations in Canada more than anything else. The China issue, however, is more complicated and potentially more consequential. Canada might have hoped to avoid getting involved in the U.S.-China spat. The Canadian economy is overwhelmingly dependent on the U.S. economy, and though Canada can’t eliminate that dependence, it can try to reduce it – in part with China’s help. Indeed, as recently as last November, Canada’s trade minister said a free trade deal between Canada and China was posible.


That might not be the case anymore, however. Unlike the U.S., Canada has elected to remain in the revamped Trans-Pacific Partnership, which was designed in part to limit China’s expanding global economic influence. In December, it was reported that spy chiefs from the “Five Eyes” intelligence alliance met in July in Canada to coordinate efforts to prevent Chinese-made equipment from being used in 5G mobile networks. (The U.S., Australia and New Zealand have banned Huawei equipment from being used in 5G networks, and the U.K.’s largest telecom company announced its intention to avoid Huawei last month. Canada is likely not far behind.) In November, Canada deployed the HMCS Calgary to the Western Pacific to participate in anti-China drills and has signaled its intention to keep up to two ships in the region year-round.

Canada is, therefore, already part of an emerging U.S.-led alliance to constrain Chinese power. China is seeking a temporary trade deal with the U.S., so it can’t afford to confront Washington directly right now, especially not while its economy is under increasing pressure. But Canada is a much smaller and weaker country than the U.S., and Chinese power might have more of an effect there. From China’s perspective, it was already facing an escalating trade conflict with the U.S. and a concerted campaign to block Chinese companies like Huawei from the global economy. Now Canada, of all countries, is arresting Chinese nationals. The excuse that it was merely operating under the rule of law doesn’t make it any easier for China to accept. China has responded that it, too, has laws, not to mention roughly 200 dual Canadian-Chinese citizens in custody. If the West wants to play hardball, China will show it can play, too.

Unfortunately for China, its retaliation against Canada is somewhat self-defeating. China needs foreign investment and has been working hard to keep foreign businesses in China and attract more foreign companies that have the capital and technology to help Beijing manage its ongoing economic transition. Arresting Western nationals will only deter foreign companies from wanting anything to do with China. On the other hand, Beijing can’t afford to look weak, especially in the eyes of its own people. The potential impact on the Chinese economy of the U.S. trade war is so great that Beijing has no choice but to try to spin the situation as much as it can. (Chinese censors are already doing so.) The arrest of a Chinese national – the daughter of the founder of a globally recognized Chinese company no less – is much harder to spin. If the Chinese government can’t protect its own people when they’re abroad, the motherland is not nearly as strong as the Communist Party insists it is.
Canada didn’t intend to set off an altercation with China any more than it meant to offend the Saudi crown prince’s self-styled image as a feminist icon, but as is sometimes the case in geopolitics, intentions are irrelevant. From Ottawa’s perspective, Canada is simply observing the rule of law. China has a different interpretation – according to its ambassador to Canada, “the detention of Ms. Meng is not a mere judicial case, but a premeditated political action.” When China retaliates by detaining Canadians who it says are threats to its national security, and Canada and its Western allies decry this as a violation of the rule of law, China can’t help but express anger at what it sees as “double standards due to Western egotism and white supremacy.” But the Canadian government is obligated to honor a U.S. extradition request, and as a result, it’s now mired in a confrontation it didn’t want. Complicating matters, Prime Minister Justin Trudeau has ample political reasons not to appear weak on China, considering the 2016 around Chinese contributions to the Pierre Elliott Trudeau Foundation.

In the end, this diplomatic spat will come down to whether the United States is willing to drop the charges against Meng in light of its broader negotiations with the Chinese government. Earlier this week, China signaled it may be open to a face-saving resolution – Meng’s father and Huawei’s founder made a rare public appearance during which he described U.S. President Donald Trump as “a great president” and Huawei as “only a sesame seed in the trade conflict between China and the U.S.” If, however, the two countries, who will continue trade talks at the end of the month, do come to an understanding, it will only defuse the current problem. In the long term, the U.S. and the West are behaving in ways China can interpret only as hostile to its development, and China is behaving in ways the U.S. and the West can interpret only as hostile their interests. It’s looking increasingly doubtful that the two sides can break out of this spiral. In the meantime, Meng, Kovrig and Canadian foreign policy remain caught in the crossfire.

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