Canada and the Indo-Pacific Strategy

ABSTRACT

China’s ambition to be a great power has triggered a rivalry with the United States, the dominant hegemon in the Asia-Pacific since the end of the Second World War. The administration of Republican Donald Trump shifted the direction of U.S. policy, abandoning engagement and taking a hardline stance toward China diplomatically, economically, and militarily. The Democratic administration of Joe Biden, elected to the presidency in November 2020, is likely to continue this confrontational policy. Washington’s posture toward Beijing has put traditional U.S. allies in a difficult position. They must choose whether to join the effort to counter China’s ambitions, support those ambitions or take some intermediate stance. As one of the United States’ closest and longest-standing allies, Canada must make decisions that will affect its position in the world for the rest of the twenty-first century. The paper argues that Canada’s national interests are best served by alignment with the confrontational posture of the United States while at the same time joining the efforts of U.S. allies Japan, Australia, and South Korea to moderate the thrust of Washington’s Indo-Pacific Strategy in a direction more consistent with multilateralism and the preservation of the rules-based order.

RÉSUMÉ

L'ambition de la Chine d'être une grande puissance a déclenché une rivalité avec les États-Unis, l'hégémon dominant dans la région Asie-Pacifique depuis la fin de la Seconde Guerre mondiale. Le gouvernement du Républicain Donald Trump a modifié l'orientation de la politique américaine, abandonnant l'engagement et adoptant une position dure envers la Chine sur les plans diplomatique, économique et militaire. L'administration démocrate de Joe Biden, élu à la présidence en novembre 2020, va probablement poursuivre cette politique de confrontation. La position de Washington vis-à-vis de Beijing a mis les alliés traditionnels des États-Unis dans une position difficile. Ceux-ci doivent choisir entre se joindre à l'effort visant à contrer les ambitions de la Chine, soutenir ces ambitions ou adopter une position intermédiaire. Étant l'un des plus proches et des plus anciens alliés des États-Unis, le Canada doit prendre des décisions qui affecteront sa position à l'échelle mondiale pour le reste du 21^ème siècle. Cet article soutient que les intérêts nationaux du Canada sont mieux servis par l'alignement sur la posture de confrontation des États-Unis, mais aussi sur l'effort de ses alliés, le Japon, l'Australie et la Corée du Sud, pour modérer l'élan de la stratégie indopacifique de Washington dans une orientation cohérente avec le multilatéralisme et la préservation de l'ordre fondé sur les règles.

KEYWORDS:

• China
• United States
• superpower
• Asia-Pacific

Introduction

Canada’s posture towards China in relation to its foreign policy and alliance with the United States is one of the principal features, if not the centerpiece, of Ottawa’s foreign policy dilemma. The purpose of this article is to examine the theoretical foundation and empirical evidence needed to inform Canada’s development of a framework to guide its relationships with China and the United States. The key question is whether Canadian disillusionment with the “China dream” of moving Beijing to becoming a partner in advancing the liberal international order that began with the government of Pierre Trudeau is enough to push Canada into becoming a full-fledged partner in Washington’s China strategy and cooperate with the United States and its Pacific allies to press Beijing to change its behavior with regard to its trade practices, intellectual property theft, human rights abuses and aggression in the East and South China Seas. Canada is at a crossroad where it might need to take a clear stand in aligning itself more clearly and significantly with the United States or it might decide to explore other strategies. Successive Canadian governments have postponed placing Canada’s relationship with China in any strategic framework within Canada’s overall foreign policy (Paltiel, 2012), but pressure is building to do so.

For decades, the United States, Canada and other Western nations followed a policy of engagement with the People’s Republic of China on the assumption that, over time, the regime would evolve through close interaction with the West toward economic liberalism, democracy, and openness. It soon became clear, however, following the accession to the presidency of Xi Jinping in 2013 that these changes would not occur. Under Xi’s leadership, the regime has become increasingly authoritarian and illiberal. Washington, in a reassessment that began gradually with the Obama administration and accelerated during the Trump presidency, shifted from a policy of engagement to one of confrontation. The United States by 2020 viewed China as a threat both to its military hegemony in the Asia-Pacific and to the international liberal rules-based order nurtured under U.S. leadership since the Second World War.

China’s economy and military might have grown to the point where the Middle Kingdom now enjoys the status as the world’s sole “emerging superpower” (Cordesman, 2019, p. 11). That China’s ascendancy is the most important strategic consideration for the United States was revealed in the 2018 National Defense Strategy, where the Department of Defense stated, “Inter-state strategic competition, not terrorism, is now the primary concern in U.S. national security,” concluding,

As China continues its economic and military ascendance, asserting power through an all-of-nation long-term strategy, it will continue to pursue a military modernization program that seeks Indo-Pacific regional hegemony in the near-term and displacement of the United States to achieve global preeminence in the future. (U. S. Department of Defense, 2018, pp. 1–2)

The rise of China has triggered concern not only in the United States but also among its allies. As the Canadian Security Intelligence Service observed in a May 2018 report, “President Xi Jinping is driving a multi-dimensional strategy to lift China to global dominance. This strategy integrates aggressive diplomacy, asymmetrical economic agreements, technological innovation, as well as escalating military expenditures” (Canadian Security Intelligence Service, 2018). The United States, the dominant nation in both the Pacific and Indian Oceans (Amin, 2020), has taken several actions to counter its new competitor for regional hegemony. U.S. President Barack Obama in 2011 announced a “pivot to Asia” following the wars in Afghanistan and Iraq and his successor, Donald Trump, an “Indo-Pacific Strategy,” a term taken from Japanese Prime Minister Shinzo Abe, who in an August 2016 speech in Kenya announced his vision for a “Free and Open Indo-Pacific,” which would combine two continents, an Asia that is rapidly growing and an Africa that possesses huge potential for growth, and two oceans, the Pacific and the Indian, with the countries of Southeast Asia as the linchpin (Government of Japan, 2019). Both Obama and Trump, at the beginning of his administration, hoped for a cooperative relationship with China. Beijing, however, regarded both the pivot to Asia and the Indo-Pacific Strategy, not as initiatives to increase international trade, but as efforts by the United States to contain China (Wang, 2016; Wuthnow, 2019). Abe, indeed, regarded FOIP as part of a broader strategy to restrain China which he believed was trying to change the regional order through such measures as the Belt and Road Initiative (BRI) and the establishment of the Asian Infrastructure Investment Bank (AIIB). He also advocated, in response to Chinese claims in the South China Sea, an Asian “Democratic Security Diamond” to safeguard the common good in a maritime area from the Indian Ocean to the Western Pacific through cooperation among Japan, Australia, India, and the United States, the four corners of the diamond (Oba, 2020).

In response to these structural changes in the world’s power relationships, a bipartisan consensus between Republicans and Democrats formed in Washington around 2015 (and became even firmer due to the loss of life and economic damage inflicted on the United States in 2020 by the novel coronavirus that originated in China) to take a tough stance toward Beijing on a variety of issues (Democratic National Committee, 2020; Republican Leader, House of Representatives, 2020). China’s global assertiveness brought together the major constituencies of the United States in ways reminiscent of the cohesion on foreign policy that emerged during the Cold War with the Soviet Union. In contrast to the unilateral actions that President Trump took against China, such as imposing punitive tariffs and sanctions, the Biden Administration is likely to work to constrain China through multilateral organizations, such as the World Trade Organization, G-20 and World Bank, a strategy that China fears more than Trump’s “America First” policy (Amaro, 2020). The geopolitical rivalry between the United States and China is the world’s most dangerous and is forcing Canada to make difficult policy decisions. These tough choices for Canada regarding China will remain whichever political party is in power in Washington. In a 2020 summary of his foreign policy aims, Democratic presidential candidate Joe Biden said regarding the Chinese challenge,

The most effective way to meet [it] is to build a united front of U.S. allies and partners to confront China’s abusive behaviors and human rights violations … When we join together with fellow democracies, our strength more than doubles. (Biden, 2020)

Following his November 2020 electoral victory, President-Elect Biden promised to convene a “summit of democracies” in 2021 to forge consensus on how to deal with the global challenges to liberal democracy emanating from China and other sources (Fuchs, 2020). Biden’s selection for the position of Secretary of State, Antony Blinken, advocates pressuring China in conjunction with America’s allies to defeat Beijing’s effort to build an illiberal alternative to the current liberal international order (Blinken, 2017).

This article asks how the emergence of China as a great power affects Canada’s economic and strategic interests and weighs Canada’s options in responding to Washington’s demand that it join the coalition to restrain China’s diplomatic, economic and military influence in the Asia-Pacific region. Canada faces the same fundamental choice as other U.S. allies – whether to join Washington in pushing back against Beijing or continue to cooperate with China.

Strategic options for U.S. allies include:

1. pursuing a bandwagoning approach by seeking closer ties with China, as European Union members Greece and Hungary have done (Hemminga, 2020);

2. assuming a neutral policy that maintains equidistance between Beijing and Washington, as have France and Germany, an attitude recommended for Ottawa by the Asia Pacific Foundation of Canada in a September 2020 policy brief (Reeves, p. 4); and

3. pursuing a balancing strategy by joining the anti-Chinese alliance led by the United States, as have Australia and Japan (Grossman, 2020).

Each advanced democracy has taken a unique approach to China’s aspirations toward great power status, but the categories of pursuit of closer cooperation with China, equidistancing between Washington and Beijing, and alignment with the United States help frame policy making. The choice most consonant with Canada’s national interests is alignment with Washington’s confrontational approach.

Neither China nor the United States is interested in launching a new Cold War. Nor is Washington pursuing a policy of containing China, although Beijing frequently characterizes U.S. actions in this way. As President Trump’s Secretary of State Mike Pompeo explained, the situation of China is completely different than that of the Soviet Union. China is integrated into the global trading system. Countries from all over the world have businesses in China and China has worldwide investments. Although the Trump Administration did not specifically call for a policy of containment, Secretary of State Pompeo’s demand that China change its illiberal and aggressive behaviors is consistent with the way in which scholars on the right, such as Hal Brands, speak about China in Cold War terms (Brands & Cooper, 2019; Pompeo, 2020). The Quadrilateral Security Dialogue, or Quad, is an informal strategic forum among the United States, Japan, Australia, and India. The participating countries engage in summit meetings, exchange information, and conduct military exercises. Japanese Prime Minister Abe initiated the forum in 2007 as a response to growing Chinese military and economic power. He intended for the Quadrilateral to establish an “Asian Arc of Democracy.” In March 2020, New Zealand, South Korea, and Vietnam joined a meeting of the Quad for the first time. The Quad, however, is not a formal military alliance, and Quad press releases never mention the word “China” but simply call for a “free” and “open” Indo-Pacific (Grossman, 2020).

In this complex environment, with some U.S. allies joining Washington’s confrontational approach and some pursuing closer cooperation and positive engagement with Bejing, while others try to steer a middle course, how can international relations theory help frame Canada’s foreign policy choices? Moreover, how does the context of the U.S.-China, Canada-U.S., Canada-China, and Canada-Asia relationships inform arguably the most important strategic decision Ottawa must make in the twenty-first century? Finally, what are the opportunities and risks associated with each of Ottawa’s three basic options and which strategic choice best serves Canada’s long-term interests?

International relations theory, Canada, and the U.S.-China rivalry

In his seminal work, World Politics, first published in 1958, A. F. K. Organski utilized what he called power transition theory to explain why wars between the great powers over the past 500 years took place when they did. The pattern identified by Organski is that first a nation achieves hegemonic power and later is challenged by a great nation. The challenge leads to a war, which typically results in a transition of power to the challenger (Organski, 1980, p. 19). Organski predicts that the two countries with the greatest potential to become great powers through industrialization, and thus the two most likely to challenge the world leadership of the United States, are India and China, due to their large populations. Between 1958 and 2020, however, China made much greater progress than India in becoming an industrial and military powerhouse. In 2019, China had the second largest economy in the world, only behind that of the United States, and India was a distant fifth (Table 1).

Table 1. Gross Domestic Product, by Country.

Gross Domestic Product (nominal)^a
Rank	Country	GDP, in trillion USD
1	USA	21.4
2	China	14.1
3	Japan	5.2
4	Germany	3.9
5	India	2.9
6	UK	2.7
7	France	2.7
8	Italy	2.0
9	Brazil	1.8
10	Canada	1.7

^a (International Monetary Fund, 2019).

The inevitability of competition between the United States and China has been explained by other theorists, including Robert Gilpin, Paul Kennedy, Graham Allison, and Hans Morgenthau. Gilpin’s hegemonic stability theory predicted that the decline of U.S. power would restart the historic cycle of competition and chaos as rising powers such as China tried to reorganize the international system to their own advantage. This process, he observed, had always led to war between the old and aspiring hegemons. The possession of nuclear weapons by today’s adversaries, however, militates against war but may not prevent it (Gilpin, 1981). According to Kennedy, the international standing of a great power depends on a balance between its military expenditure and economic capability. The growth of one nation’s economy and the relative decline of that of its rival will inevitably lead to a change in the military balance and a successful challenge to the great power’s dominance (Kennedy, 1987). An ominous development for U.S. hegemony, then, is the date when the size of the Chinese economy exceeds that of the United States, currently forecast to be 2032 (Tang, 2020). Graham Allison, however, pointed out in October 2020 that, using purchasing power parity (PPP) as the yardstick, China’s economy is actually one-sixth larger than that of the United States (Allison, 2020), suggesting that the shift in military power in China’s favor will occur even sooner than predicted. Allison coined the term “Thucydides Trap” to describe the tendency towards war when an emerging power threatens to displace an existing great power as the international hegemon, drawing on a statement by the ancient Greek historian Thucydides that the Peloponnesian War between Athens and Sparta had been inevitable because of Spartan fear of the growth of Athenian power. Allison observed that over the past 500 years there have seen sixteen Thucydidean rivalries, with twelve ending in armed conflict, and that China and the United States are on a collision course for war (Allison, 2017). Allison, like Gilpin, sees the possession of nuclear weapons and a second-strike capability by both powers as a strong incentive for the United States and China to avoid war and cooperate as “a rivalry partnership” (Allison, 2019). Morgenthau, noted for his classic balance of power thesis, predicted that China would become the most powerful nation on earth and that the United States would be forced to contain China by holding a defensive perimeter following the island chain from Japan to the Philippines, leaving the mainland of Asia to China (Morgenthau, 1970).

If these various hegemonic rivalry theories suggest that China will prevail in the conflict with the United States for world domination, Canada would have to consider the cost of aligning with the losing side. Ottawa would have to weigh the long-term benefits of distancing itself from Washington against the short-term costs of pursuing closer cooperation with Beijing. Canada’s undefended 5,525-mile border with the United States, for example, would be in danger if Washington viewed Ottawa as allied with its chief adversary and its access to the U.S. market would be jeopardized. These analyses pointing to the relative decline of the United States in the Indo-Pacific, moreover, all rely on the realist approach to international relations, which downplays the role of ideals and principles as determinants of foreign policy choices (Keohane, 1984). Washington and many of its allies regard a resurgent China not just as a threat to the U. S. military, economic and diplomatic dominance of the Asia-Pacific but also as putting in jeopardy the future of democracy and the liberal international order in the region.

A critical influence on U.S.-Canada relations is the distribution of power among nations. In a multipolar world (1648–1945), with three or more great powers, relations among nations are relatively stable; in a bipolar world (1945–1991), where two superpowers face off, as in the Cold War, Washington will seek to build as extensive a coalition as possible, to include Canada, as will its adversary; and in a unipolar world (1991 to the present), with the United States as the sole superpower, Washington will tend to act unilaterally, resist control from multilateral institutions and place American national interests over loyalty to allies (Hawes & Kirkey, 2012). Under this realist understanding of international relations, it is imperative for Canada to assess whether the international system is shifting from a unipolar to a bipolar (U.S. vs. China) or multipolar (U.S., China, Russia, European Union, Brazil, India) configuration. Keating and Murray predict that even as the international system moves from a unipolar to a multipolar structure, Canada will ally even more closely with the United States to protect its survival and security (2014, p. 256). The evidence is that, among U.S. competitors, China is the only emerging superpower and the only nation capable of challenging the dominant position of the United States in the near- and medium-term (Cordesman, 2019). The key variable, then, for Ottawa to consider in choosing one policy option over the other regarding this conflict is what is the impact on Canadian interests of Chinese replacement of the United States as the Asia-Pacific hegemon. In the context of the U.S.-China rivalry, Canada must consider its foreign policy options as they are influenced by its relationship with the United States, China, and other countries in Asia, in particular Japan, South Korea, India, and members of the Association of Southeast Asian Nations (ASEAN). The facts suggest that Canada’s relationship with the United States is the most important for its economic prosperity and that its relationship with Japan, South Korea, India, and the countries of Southeast Asia has great potential for growth and could cushion the blow of any further deterioration in its relationship with a regionally ambitious and revisionist China. The interdependence of the U.S. and Chinese economies has important implications for Canada. The growth of China’s GDP depends not only on its growing domestic market but also on its trading and investment relationship with the United States and some of its closest allies, Japan and South Korea. In 2019, the United States absorbed 16.8% of China’s total exports, Japan 5.7% and South Korea 4.4%, and each was a major investor in the Middle Kingdom (CIA, 2021; UNCTAD, 2020). Thus, even after China’s economy supplants that of the United States as the world’s largest and Washington’s global power declines relative to that of Beijing, Canada will continue to benefit from its close ties with the United States and its Asian allies due to their linkage with a prosperous China.

The nexus of relationships: U.S.-China, Canada-U.S., Canada-China, and Canada-Asia

The U.S.-China relationship

The economic, diplomatic, and cultural linkages between the two rivals are extensive. China is the third largest export market for the United States, after Canada and Mexico. U.S. exports to China, totaling $106.6 billion (Statista, 2020a), support around 1.8 million jobs in sectors such as services, agriculture, and capital goods, but Chinese imports have led to loss of large numbers of low-wage jobs in manufacturing (Meltzer & Shenai, 2019). The United States runs a large trade deficit with China, $346 billion in 2019 (Statista, 2020b). U.S. foreign direct investment in China exceeds $116 billion (Statista, 2020c), Chinse FDI in the United States is more than $37 billion (Statista, 2020d), almost three million Chinese tourists visited the United States in 2019 (Statista, 2020e), more than 2.5 million U.S. tourists visited China the previous year (National Bureau of Statistics China, 2020), and in 2019 there were more than 369,000 Chinese students enrolled in U.S. colleges and universities, nearly twice as many as from India, the second largest source (Statista, 2020f). These people to people ties in areas such as immigration, student exchanges and language learning are evidence of durable U.S.-China connections.

The United States is a major debtor nation to China, which holds the second largest value of U.S. treasury securities, at $1.1 trillion, after Japan, at $1.3 trillion (Statista, 2020g). There is less cooperation and diplomatic engagement between Beijing and Washington, however, than there was four years ago, when the United States relied on Chinese support to exert pressure on North Korea to end its nuclear program and Washington and Beijing explored ways in which to work together on counterterrorism and climate change.

In 2018, the Trump administration’s approach to China hardened, evidenced by imposition of sweeping tariffs on Chinese imports, sanctions on Communist Party officials, and condemnations of Chinese military aggression, increased censorship and religious persecution, theft of intellectual property, currency manipulation, violation of human rights in Xinjiang and democracy in Hong Kong, interference in U.S. elections, turning the Chinese consulate in Houston into a “hub of espionage,” and failing to manage the coronavirus outbreak. In July 2020, U.S. Secretary of State Pompeo announced an about face in U.S. policy toward China, saying that engagement had failed and called on democracies worldwide to press China to alter its behavior and respect the rules-based international order (Pompeo, 2020). Deputy National Security Adviser Matthew Pottinger played a key role in effecting this competitive approach to China, described by National Security Advisor H. R. McMaster as “the biggest shift in U.S. foreign policy since the Cold War” (Nakamura, Leonnig, & Nakashima, 2020).

The U.S. interpretation of Abe’s Free and Open Indo Pacific (FOIP) was first presented by President Trump at the November 2017 Asia-Pacific Economic Cooperation (APEC) summit in Hanoi and later outlined in the 2019 Department of Defense Indo-Pacific Strategy Report (IPSR), and involves several elements (U. S. Department of Defense, 2019):

1. Enhancement of America’s economic engagement with the region, primarily through private-sector investment.

2. Expansion of security cooperation through alliances and partnerships.

3. Upholding the rules-based international order, especially the United Nations Conventions on the Law of the Sea (UNCLOS).¹

The doctrine envisages cooperation as well as confrontation. In May 2020 the U.S. Department of State issued a Fact Sheet on “Indo-Pacific Cooperation on COVID-19,” which concluded, “The United States and our Indo-Pacific partners welcome coordination with partners and international organizations that share our interest in a free and open Indo-Pacific in which all countries prosper side by side as sovereign, independent states” (U. S. Department of State, 2020a).

Washington cites several trends and actions by Beijing to expand China’s global presence that present a threat to the interests of the United States. They include not only China’s maritime and territorial claims in the East China Sea, South China Sea and Taiwan Strait, but also the Belt and Road Initiative and the accompanying “debt trap” for developing countries that borrow money from Chinese state-owned financial institutions to finance construction of public infrastructure projects, influence operations (United Front work), the “string of pearls” strategy in which China constructs military and commercial facilities along its sea lines of communication, extending from the Chinese mainland, through the Indian Ocean, to Port Sudan in the Horn of Africa, and a massive military buildup (Pompeo, 2020). Is a threat to the national interests of the United States, however, also a threat to those of Canada?

The Canada-U.S. relationship

Canada and the United States enjoy the largest trading relationship in the world. The bilateral trade and investment relationship exceeds $1.6 trillion. These North American neighbors traded goods and services worth $704 billion in 2019, and bilateral foreign direct investment totaled more than $982 billion. Canada and the U.S. are each other’s largest export markets, and Canada is the single-largest foreign supplier of energy to the United States (International Trade Administration, 2020). In 2019, Canada exported $319 billion worth of goods to and received more than 13 million tourists from the United States (Statista, 2020h). There was a trade surplus with the United States of almost $27 billion (U.S. Census Bureau, 2020a). In 2019, U.S. goods exports to Canada totaled more than $292 billion, exceeding total U.S. exports to China, Japan, South Korea, and Singapore combined (International Trade Administration, 2020). As of 2018, the United States had a stock of $401 billion of foreign direct investment in Canada, 46 percent of Canada’s total investment (Statista, 2020i). Canada’s FDI stock in the United States totaled $511 billion (U. S. Department of State, 2020b). Nearly 9 million jobs in the United States depend on trade with Canada (McCarthy, 2018) and almost 3 million Canadian jobs are tied to exports (Cross, 2016). Twenty percent of Canada’s GDP comes from goods exports to the United States (Embassy of the United States of America, Ottawa, 2020).

Diplomatically, the United States and Canada have historically enjoyed one of the closest partnerships between any two nations in the world. U. S. and Canadian troops fought side by side in two world wars, the Korean War, and the War in Afghanistan. They are founding members of the North Atlantic Treaty Organization (NATO) and partners in maintaining the security of the Arctic (Lackenbauer & Huebert, 2014). They have worked together to promote democracy, human rights, and respect for the rule of law in the developing world. Canada owes its prosperity, security, and place on the global stage to its relationship with the United States (Anderson & Sands, 2011; Bonder, 2019; Doran, 1985). Relations became frayed during the Trump administration, however, when the United States imposed tariffs on Canadian softwood lumber, aluminum, and steel, citing national security grounds in order to claim an exemption from WTO rules, and insisted on a renegotiation of the North American Free Trade Agreement (NAFTA). By contrast, Joe Biden regards Canada and the United States as “more like family, even, than allies” and has said, “The friendship between us is absolutely critical to the United States, our well-being, our security, our sense of ourselves” (Keenan, 2020). The first world leader to call Biden to congratulate him on his presidential election victory was Prime Minister Justin Trudeau (Independent, 2020).

The Canada-China relationship

Over the past 50 years in which China and Canada have had official diplomatic relations, the trade volume in goods between China and Canada grew from $150 million to $74 billion. Four percent of Canada’s total goods exports go to China, an increase from one percent in 2000. China is Canada’s second largest trading partner, after the United States (Statistics Canada, 2020a). Canadian exports to China are about five per cent of the value of its exports to the United States. Like the United States, Canada runs a trade deficit with China, $39.4 billion in 2019, an almost 10 per cent increase from 2017 (Government of Canada, 2020a). The value of Canadian exports to China declined slightly from 2017 but imports increased by six per cent between 2017 and 2019, as did the number of Chinese tourists (Statista, 2020j). Canadian foreign direct investment and Chinese FDI into Canada, however, continued to rise, as did the number of Chinese students at Canadian colleges and universities and Canadian tourists visiting China (Statista, 2020k). The countries’ economies are complementary, with Canada largely exporting natural resources to China and importing manufactured goods. The stock of Canada’s direct investment in China was more than $10 billion in 2019 and Chinese direct investment in Canada approached $16 billion (Statista, 2020k, 2020l). By 2015, more than 460 Canadian companies were doing business in China (Van Praet & Parkinson, 2019). There were more than 150,000 Chinese students studying in Canada, and more than 1.5 million people traveled between Canada and China in 2019 (Statista, 2020m; Statistics Canada, 2020b). The International Monetary Fund and the Organization for Economic Co-operation and Development predicted that China, due to the impact of the coronavirus pandemic elsewhere, will be the only major economy to achieve positive economic growth in 2020 and substantial growth in 2021 (Peiwu, 2020).

Both Canada and China are major beneficiaries of globalization and work together to support the multilateral trading system. In April 2020, China and Canada, together with 20 other WTO members, formally established the “multi-party interim appeal arbitration arrangement” in response to the efforts of the United States to dismantle the organization’s appellate dispute resolution function (European Commission, 2020). They are both members of the Paris Agreement, signed in 2016, with 195 signatories, whose central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise in the twenty-first century below 2 degrees Celsius above pre-industrial levels. The United States withdrew from the accord in 2017. Canada continued to cooperate with China in the World Health Organization (WHO) after the United States withdrew in May 2020, complaining that the organization had fallen under the influence of the Chinese Communist Party (U. S. Department of State, 2020c).

China at one time represented Canada’s best hope of diversifying its global trade and, thereby, reducing its reliance on access to the U.S. market and its vulnerability to American unilateral actions harmful to Canadian exporters (Table 2).

Table 2. Canada’s Top Export Destinations, 2019.

Canada’s Top Export Destinations, 2019 (Trading Economics, 2020a)
Rank	Country	Volume of exports, in billion US dollars
1	United States	$336.5
2	China	$17.5
3	United Kingdom	$14.9
4	Japan	$9.5
5	Mexico	$5.5

“Trade diversification” in fact became a policy under the Justin Trudeau government. In 2018 the prime minister announced the establishment of the position of Minister of International Trade Diversification. Canada has been trying to increase exports by acting on a central principle of liberalism and negotiating free trade agreements, currently 14, including the Canada-United States-Mexico Agreement (CUSMA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Comprehensive Economic and Trade Agreement (CETA), with 51 countries, and many more negotiations in progress around the globe (Government of Canada, 2020b). The emerging markets of Asia, especially India and Southeast Asia, represent an opportunity for Canada. While India’s GDP grew by 7.1 per cent and the Association of Southeast Asian Nations-5 (ASEAN-5) by 5.2 per cent in 2018, GDP growth in Brazil and Mexico was only 1.1 per cent and 2.0 per cent, respectively, with limited growth in the emerging countries of Europe and Africa (Government of Canada, 2019). Market diversification, however, is a difficult goal to realize.

The European Union, Canada’s second largest trading partner after the United States if the EU member states are considered one economy, also presents limited growth opportunities for Canadian exporters (Palamar & Jardine, 2012, p. 255). Consumption is affected by the age of the importing nation’s population. As a combination of low birth rates and rising life expectancy, Europe is the oldest region in the world (Population Reference Bureau, 2020). Since 2012, Canadian exports to the EU have grown at an annual average of 1.3 per cent, significantly below the 3.7 per cent growth rate for Canadian exports to the world. Compared to Europe, Latin America, Africa and most of Asia, China remains a very attractive market.

There are pressures, however, pushing Ottawa away from Beijing. China’s economic and political systems are very different from those of the Western democracies. It is a one-party state, ruled by the Communist Party. It is also described as a state under one-man rule, since Xi Jinping, General Secretary of the Communist Party, Chairman of the Central Military Commission, and President of the People’s Republic of China controls the party and the state and is free of all term limits (Marschik, 2018). China has a mixed economy, “a socialist market economy,” based on the predominance of public ownership and state-owned enterprises within a market economy. Individual liberty, such as freedom of expression, is limited. The Communist Party has a tight grip on the media and the internet and does not hesitate to silence dissent (BBC News, 2019). The Canadian government and Chinese officials reopened exploratory free-trade talks in 2017, but the process stalled again after Mr. Trudeau’s trip to Beijing that December. His desire for a “progressive” trade pact that would include human rights, labor standards and environmental protection rules reportedly put a chill on the discussions (Vanderklippe, 2018). The FTA talks were formally abandoned in September 2020.

The biggest reason Canada pulled away from China was the arrest by Chinese security forces in December 2018 of two Canadian citizens, former diplomat Michael Kovrig and businessman Michael Spavor, for “espionage,” and bans and restrictions on imports of large-volume agricultural commodities, including pork, beef, canola seed and soybeans in retaliation for the arrest in Vancouver of Huawei Technologies’ Chief Financial Officer, Meng Wanzhou, whose extradition was requested by the United States so she could stand trial on charges that Huawei violated U.S. sanctions on Iran. Canada’s exports to China dropped more than seven percent in 2019 (Global Affairs Canada, 2019). The Chinese Ministry of Foreign Affairs regularly denounced Canada and said relations would improve only after Ms. Meng was released (Carbert, 2019).

Not only has the government soured on the prospects of improved trade relations with China following the collapse of the 2017 talks, China’s “hostage diplomacy,” and restrictions on Canadian imports, but also Canadian public opinion has shifted in a negative direction, tracking a similar change in the United States and other advanced democracies. A Pew Research Center survey in 2020 found that the percentage of respondents who have an unfavorable view of China was 86 in Japan, 81 in Australia, 75 in South Korea, 73 in the United States, and 73 in Canada (Silver, Devlin, & Huang, 2020). In 2005, 58 per cent of Canadians held a favorable view of China, by 2020 that percentage had dropped to 14 per cent (Tri City News, 2020). Only 35 percent of Canadians now see China’s economic power as more of an opportunity than a threat – down from 60 percent two years ago (Bishop, 2021). More than seven-in-ten Canadians blamed China for the COVID-19 outbreak. A tracking poll found that 72 per cent of Canadians think the Government of the People’s Republic of China should take responsibility for its role in the COVID-19 outbreak (ThinkPol, 2020).

The size of the Chinese market and potential demand for Canadian exports, including pork, beef, canola seed, soybeans, oil, natural gas, seafood, timber, education, and tourism, will continue to elicit strong efforts by Canadian governments and businesses to cultivate good relations with America’s principal Asian rival. China, moreover, is uniquely attractive to Canadian investors intent on opening retail stores or manufacturing plants in the world’s largest emerging market. These initiatives to do more business with China, however, face difficult challenges. Canada needs China more than China needs Canada. While China can readily find other sources for its chief imports from Canada, Canada cannot easily find alternative trading partners with China’s purchasing power.

Canada’s relationship with Japan, South Korea, India, and Southeast Asia

A decision by Canada to align its foreign policy in the Indo-Pacific with that of the United States would undoubtedly lead to retaliation from China. One measure that would cushion the blow is for Ottawa to deepen its economic, diplomatic, military, and cultural ties with other Asian nations, especially those concerned with China’s growing influence in the region. Two logical choices are Japan and India, members of the Quadrilateral Security Dialogue. Canadian trade with Japan, South Korea, India, and the countries of Southeast Asia is substantial, if, even when combined, is less than trade with China (Table 3).

Table 3. Canada’s Trade with China, Japan, South Korea, India and ASEAN, 2019.

Canada’s Trade with China, Japan, South Korea, India and ASEAN, 2019
Country	GDP, in billion USD^a	Canadian Exports to, in billion USD^b	Imports to Canada from, in billion USD^c
China	14,343	17.5	58.3
Japan	5,082	9.4	13.0
S. Korea	1,642	4.1	7.3
India	2,875	3.6	4.0
ASEAN	3,172	5.5	13.9

^a (World Bank, 2020).

^b (Statistics Canada, 2020a).

^c (Global Edge Canada, 2020).

Canada-Japan relations are underpinned by economic, diplomatic, and cultural ties, bolstered by common principles, including democracy, respect for human rights, and participation in multilateral institutions (Government of Canada, 2020c). As middle powers, both Japan and Canada benefit from a rules-based international order (Gilley, 2011). Japan is the world’s third-largest economy, with a GDP of $6.4 trillion, and a population of 126 million. Japan is Canada’s fourth-largest trade partner, second in Asia after China, and largest source of bilateral foreign direct investment in Asia. Japanese FDI into Canada was valued at $29.6 billion in 2017, coming from approximately 450 Japanese subsidiaries and affiliate companies operating in Canada. Canadian FDI in Japan was $4.7 billion in 2017. Canada’s exports of goods to Japan totaled $12.9 billion in 2018, while imports from Japan were $16.8 billion. Canada and Japan closely cooperate on promoting security and stability on the Korean Peninsula. There are over 120,000 people of Japanese origin residing in Canada and approximately 300,000 Japanese and Canadians travel to each other’s country annually. There are more than 8,000 Japanese students enrolled in Canadian colleges and universities and another approximately 20,000 enrolled in Languages Canada schools (Government of Canada, 2020c). On the downside, the GDP growth rate in Japan averaged only 0.41 percent from 1980 until 2020, the median age is 47, second highest in the world, and the population is shrinking (Trading Economics, 2020b).

Canada’s only free trade agreement in the Asia-Pacific is with South Korea. The Republic of Korea is an important strategic and economic partner of Canada and like-minded state like Japan. South Korea is Canada’s sixth largest trading partner. Bilateral trade exceeded $15 billion in 2018, with Canadian exports totaling $5.9 billion and imports more than $9.4 billion. GDP was $1.6 trillion in 2019, and population was 51.7 million. South Korea is the third largest source of international students in Canada, after India and China. There are more than 200,000 Canadians of Korean descent (Government of Canada, 2020d). In 2019 South Korea’s economy grew 2.0 per cent, but its median age is 43.7 and the population growth rate in 2020 was only 0.09 (Worldometer, 2020).

Canada and India have a longstanding bilateral relationship built upon a shared British tradition, including commitment to democracy, human rights, and the rule of law. Almost six per cent of Canadians are of Indian heritage (1.9 million people). Canada and India enjoy a strategic partnership, encompassing foreign policy, trade, and investment. Canada and India are undertaking bilateral negotiations toward both a Comprehensive Economic Partnership Agreement and a Foreign Investment Promotion and Protection Agreement. India is the largest source of international students for Canada’s universities, colleges, and schools (Government of Canada, 2020e), 219,855 in 2019 compared to 141,400 Chinese students (El-Assal, 2020). While still a much smaller economy than China, India has been one of the world’s fastest growing major economies over the past 20 years, with average annual growth rates around seven per cent between 2000 and 2018. India’s GDP in 2019 was $2.9 trillion, population 1.4 billion, median age 28.1 and population growth rate 1.1 per cent (World Bank, 2020). In 2019, Canada did more than $4.5 billion worth of trade with India, making the country Canada’s ninth-largest export market and 10th largest trading partner. Sales to India accounted for seven per cent of Canada’s exports to Asia, the lion’s share of which went to China and Japan, making India the fourth most significant export market for Canada in the region (Government of Canada, 2020e).

The countries of Southeast Asia represent growing opportunities for Canadian trade and investment and attracting international students and tourists. The Association of Southeast Asian Nations (ASEAN) comprises 10 member states--Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. Canada became an ASEAN dialogue partner in 1977 and is one of only 10 countries with this designation. Canada’s trade and investment in the region are expanding quickly. ASEAN member states represent Canada’s sixth-largest trading partner. If ASEAN were one economy, it would be the fifth largest in the world. It is one of the fastest growing regions, with a growth rate of 4.9 per cent in 2019. In 2018 trade in goods reached almost $19 billion. More than 23,000 students from Southeast Asia currently study in Canada. Students from Vietnam constitute three per cent of foreign student enrollment, and between 2017 and 2019 the number of international students from the Philippines increased by 54 per cent (Canadian Bureau for International Education, 2020). ASEAN member states and Canada launched exploratory discussions regarding a possible free trade agreement in 2017 (Government of Canada, 2020f).

Over the past few years, a pro-China group and a bloc of nations more critical of China have emerged in the Asia-Pacific. China has enrolled many of the developing nations in the region in the Belt and Road Initiative and some of them have incurred large debts to Beijing. Revealing of China’s growing influence was a vote in the United Nations Human Rights Council in Geneva in July 2020 whether to back a statement presented by the United Kingdom condemning China’s imposition of a repressive security law on Hong Kong. Just 27 nations supported the statement, while 53 backed a counterstatement supporting China, including ASEAN members Cambodia, Laos, and Myanmar. The British condemnation of China’s infringement on Hong Kong’s autonomy was backed by Pacific nations Australia, Canada, Japan, and New Zealand (Albert, 2020). Canada’s vote was consistent with its attempt to forge an identity in Asia as a champion of democracy and human rights (Hanlon, 2012). The United States, a vocal critic of the security law, did not cast a vote because it had withdrawn from the Human Rights Council in 2018 in part because of the perception that China had too much influence in the body (Worden, 2020).

Canada’s options regarding its response to the U.S. FOIP strategy

Along with other allies of the United States, Canada has fundamentally three options regarding its response to the U. S. government’s formulation of a Free and Open Indo-Pacific – a pivot to China, maintenance of equidistance between the two geopolitical rivals, and alignment with U. S. policy. There are opportunities and risks for Canada associated with each choice.

Option 1: pivoting to China

In the first option, Canada would follow the example of NATO allies Greece and Hungary in treating China as a friend and “strategic partner” rather than as an adversary (Emmott, 2016). Actions consistent with this attitude could include release by the Government of Canada of a formal policy toward China that maintains the current Asia-Pacific geographic focus and specifically eschews Tokyo’s and Washington’s campaign to extend the region to include the Indian Ocean, where Canada has limited strategic interests. The likely economic, diplomatic, and domestic benefits of a pro-China policy would be substantial. Canada could be choosing the winning side in the power transition process and acknowledge the inevitable rise of China and decline of the United States as a great power in the Asia-Pacific. There are, however, serious risks to Canadian national interests of pursuing a policy of closer cooperation with China. Canada’s dependence on access to the U.S. market and security umbrella makes forging closer ties with its adversaries a gamble (McDonough, 2012). U. S. retaliation for developing friendly relations with Washington’s key opponent is likely and could take many forms, including retaliatory tariffs, increased barriers to trade and greater restrictions on the U.S.-Canada border. Canada’s military and intelligence partnerships with the United States would be in jeopardy, including membership in the Five Eyes intelligence network.

Option 2: keeping equidistance between Washington and Beijing

If Ottawa is unwilling to make cooperation with China a guiding star in its foreign policy, it could follow the lead of France and Germany, under Emmanuel Macron and Angela Merkel, and ASEAN in refusing to take sides between Washington and Beijing (Reeves, 2020, p. 112). If Ottawa decides to take this path, the first step could be to issue a policy statement announcing that Canada is in fact replacing its Asia-Pacific geographic reference with the Indo-Pacific. However, the document will make clear that the government is not adopting Washington’s security-focused concept of a “free” and “open” Indo Pacific but rather that of the ASEAN Outlook which emphasizes “diversity” and “inclusion” and regards China as a welcome partner in the region’s development and not an adversary to be checked (Reeves, 2020, p. 112). Canada would make clear that the Western Pacific and Indian Oceans are not a strategic priority for Canada and that it will not choose sides in the great power rivalry between the United States and China. In his statement on the 50th anniversary of the establishment of official relations between Canada and the People’s Republic of China, Chinese ambassador Cong Peiwu noted approvingly, “Many Canadian think tanks and media believe that Canada should not choose sides between China and the United States” (Peiwu, 2020). Neutrality will “create a favorable atmosphere for further strengthening economic and trade cooperation, and . . . create conditions for the bilateral relations to return to the right track” and result in “win-win cooperation” (Peiwu, 2020). Canada will join a group of like-minded democracies including France and Germany and developing Asian states such as Indonesia that do not want a Cold War between the United States and China.

Following the lead of France and Germany, as Ottawa did in its refusal to join the U.S. invasion of Iraq in 2003, also carries risks to Canada’s national interests. Refusing to get tough with China may result in U.S. retaliation, especially in military and intelligence cooperation. Proponents of a hardline attitude toward Chinese behavior will accuse the government of not being true to Canada’s identity as a nation committed to the rule of law, democracy, and human rights and of yielding to Beijing’s threats and economic inducements.

Option 3: aligning with the U.S. FOIP strategy

A third choice is for Canada to follow the lead of Australia and Japan, under the governments of Scott Morrison and Shinzo Abe, and broadly subscribe to Washington’s concept of a free and open Indo Pacific. Canada has an opportunity to be regarded by the United States as its closest ally and partner in managing a rising China (Bishop, 2021). Ottawa could become a leading member of the Biden administration’s “alliance of democracies” to confront China’s authoritarian and illiberal global ambitions (Biden, 2018). As China is seen more and more as a hostile military power threatening Ottawa’s interests in the Asia-Pacific, Canada’s deeply embedded preference for maintaining a small military and shunning large-scale defense procurement would drive it toward the United States (Salt, 2014, p. 259). As a member of the U.S.-led FOIP alliance, Canada would be in a position relative to China similar to its role in NATO, whose primary mission is to deter aggression from Russia, the other revisionist power, according to the Pentagon’s 2018 National Defense Strategy (U. S. Department of Defense). An appropriate step to realize the new policy would be for Canada to use its diplomatic capital to request inclusion in the Quadrilateral Security Dialogue, perhaps along with South Korea and New Zealand, democratic middle powers like Canada. As an ally of the United States in confronting Beijing’s territorial and maritime ambitions, the Canadian military could benefit from greater interoperability and modernization of forces, especially naval. The FOIP policy of Canada would clearly describe the reasons why the world’s advanced democracies must work together under U.S. leadership to manage China. Ottawa would be in a stronger position as a close ally to demand that Canada benefit from any trade deals between the United States and China, object to any punitive tariffs such as those imposed by the Trump administration on Canadian steel and aluminum, and request assistance from Washington in securing the release of Canadians Michael Kovrig and Michael Spavor and future hostages. Alignment with Washington’s FOIP would not only decrease tensions with the United States but also strengthen relations with other like-minded countries, especially Japan, Australia, India, South Korea and New Zealand, whose policy toward China is inching closer to that of Australia (Brady, 2020). Perhaps the greatest benefit of an alignment with U.S. strategy in the Pacific and Indian Oceans is how it would highlight Canada’s core principles as a middle power and advanced democracy, viz., commitment to a rules-based international order, the rule of law, human rights, democracy, and private-sector led economics.

The costs to Canada of firmly aligning with U.S. policy toward China could include further deterioration in Ottawa’s relationship with Beijing, including additional arrests of Canadian citizens in China and bans on imports of Canadian goods, expectations from the Pentagon that Canada would join confrontations with China’s military, including Freedom of Navigation Operations in the South China Sea, and cooling of relationships with developing countries closely partnered with China in the Belt and Road Initiative.

Canada, however, even as it aligns with U.S. policy, does not simply have to acquiesce in the belligerent attitude of the United States toward China which even went to the extreme of demands by members of the Trump administration to “decouple” the U.S. and Chinese economies (Wolfe, 2020), a policy that Biden’s choice for Secretary of State Antony Blinken called unrealistic, counterproductive, and ineffective (Lewis, 2020). Ottawa can join U.S. allies in the region, Japan, Australia, and South Korea, in moderating the thrust of the Indo-Pacific Strategy in a direction more consistent with the preservation of the rules-based order and that requires continuous engagement with China. Japanese Prime Minister Yoshihide Suga, succeeding Shinzo Abe in September 2020, announced the following month that Japan had no intention of building an Indo-Pacific NATO aimed at containing China (Shigeta, 2020). In 2020, Japan, Australia and South Korea joined China in the Regional Comprehensive Economic Partnership (RCEP), the biggest trade bloc in history. Because China is the largest trading partner of all three countries, they have a strong interest in continuing to engage with Beijing and support the rules-based international order, including the World Trade Organization, while they join Washington’s efforts to confront China’s territorial expansionism, growing authoritarianism and challenge to the liberal international order. Canada is likely to have more success in softening U.S. policy toward China during a Biden administration, whose Secretary of State designee, Antony Blinken, advocates simultaneously embracing China as a strategic challenger and seeking a reset in the trade and technology relationship with Beijing (Piliero, 2020).

Conclusion

Canada faces perhaps its most important foreign policy decision in the twenty-first century – how to respond to the emerging consensus among both Republicans and Democrats in the United States to confront China as an adversary, encapsulated in the Trump administration’s conception of a Free and Open Indo-Pacific. The response requires Canada to decide whether its strategic interests extend to the Western Pacific and Indian Oceans and whether a rising China is supplanting a declining United States in the region, as foretold by power transition theory. An informed choice will consider Canada’s relations not only with the two geopolitical rivals, the United States and China, but also with like-minded states and emerging economies in the region, especially Japan, South Korea, India, and the countries of Southeast Asia. U. S. allies among the Group of Seven, Italy, France, Germany, and Japan, have responded in different ways, in accordance with their national interests, to Washington’s security-focused articulation of a Free and Open Indo-Pacific. A weighing of Canada’s short- and long-term opportunities and risks, including its dependence on access to the U.S. market and security umbrella and the future of the liberal international order in the developing countries of Asia, the Middle East, and East Africa, clearly point to alignment with Washington’s competitive approach to Beijing as in the country’s best interests, while at the same time joining U.S. allies in the region, Japan, Australia, and South Korea, in moderating Washington’s bellicose conception of FOIP in the direction of preserving the rules-based international order on which Canada depends and continuing to engage with the world’s emergent superpower.

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Kenneth Holland

Kenneth Holland earned a Ph.D. in Political Science from the University of Chicago. He is President Emeritus of the American University of Afghanistan. He has been a Fulbright Professor at Tohoku University in Japan, a Visiting Professor at the University of Calgary, a Research Fellow at the Australian National University, and a Fulbright Specialist in Burma. He is a Past President of the Association for Canadian Studies in the United States.

Notes

1 It is somewhat disingenuous for Washington to accuse Beijing of violating UNCLOS when China is a signatory and the United States has refused to ratify the agreement, although it does recognize UNCLOS as a codification of customary international law.