Protectionism is new normal as WTO fails, ag report says

By Farmers Forum Staff
GUELPH — The world is in the process of a economic upheaval, one that puts Canadian agriculture in a bad spot.

An October report from Guelph-based Agri-Food Economic Systems, of which Al Mussell is the lead researcher, argued that “no stabilization payment package, nor crop disaster or livestock disease emergency elsewhere that shocks supply and temporarily lifts Canadian farm prices can change the fact that the world is turning away from liberalized, rules-based trade. Canada needs to face and adjust to this reality.”

It’s bad news for farmers who were hoping that the U.S.-China trade war was an aberration. But this latest report argued that the latest moves by the world’s largest superpowers are a sign of the times, and there’s not much farmers themselves can do to protect themselves.

Liberalized world trade is on the outs. Thank China. Its Belt and Road Initiative (BRI), a massive infrastructure project that has seen China invest massive amounts of money into projects across Asia, in Africa and in South America, is widely seen as part of its long-term project to dominate the world economically.

Since joining the World Trade Organization in 2001, China has been notorious for flouting the rules. The United States has demanded that China agree to end forced technology transfers, intellectual property theft, cyber intrusions into business networks, currency manipulations, high tariff and non-tariff barriers and unfair subsidies to state-owned businesses.

The inability to police China has concerned the Macdonald-Laurier Institute, an Ottawa-based think-tank, that argues the Chinese Communist Party has used its influence to garner China-friendly Canadian business operators and politicians. It seems to be working. The Canadian government recently offered to pay $50 million to build an Arctic road that only benefits a Chinese mining company.

It’s not surprising that the United States is now ignoring the World Trade Organization, which can take several years to make a decision. This move, of course, turns the WTO into an almost-irrelevant body. This weakening of the WTO puts countries like Canada, which relies on it, at risk, the report says.

Here’s the key takeaway for Canadian farmers from the report.

“Without a WTO appellate body, we lack the means of interpreting and learning what agreed upon trade rules mean, and lack the protection of a binding decision,” the report argues. “This surely heightens the risk and uncertainties of international trade-and especially for a small country like Canada lacking the weight to apply leverage in lieu of a rules-based system.”

Even if you aren’t a fan of the WTO (and the report points out that the organization has failed to regulate China), Canada relies on some kind of rules-based international trade system. If the bigger players, like the U.S., feel obliged to protect themselves (through protectionist trade practices), Canada just can’t keep up. With agriculture and agri-food a common target in trade disputes that, argued the report, are only going to get fiercer, Canada needs to be prepared for just that.

Many of the report’s recommendations would be unthinkable in a freer trade environment, something the report itself acknowledges. Broadly, it recommends a move to protectionism, if some lesser version of rules-based trade can’t be found. They include: Pursuing a revamped WTO amongst willing countries to preserve some kind of rules-based trade; pursuing a closer trade relationship with the UK as it leaves the EU; using agri-food as an entryway to trade with China, since China cannot feed itself with its growing population; developing alternative crops to reduce our reliance on monocultures; and consider a tax on agri-food imports.

“A number of these options would have been seen as extreme, wrongheaded, or even absurd only just a short time ago, and some may be inclined to write them off as antithetical to Canadian agri-food’s committed free and open trade posture. It is an indication of the seriousness and abrupt change in the situation that these now warrant some consideration.”

Grain Farmers of Ontario chief economist Rob Gamble said that these trade disruptions come at a time when cash crop farmers, particularly those growing soybeans, are already in a tough spot. “Some of our calculations would show producers are in a net loss with soybeans based on current prices and yield,” Gamble said.

It’s unrealistic to expect producers to switch away from the trifecta of corn-soybeans-wheat, he said. They make too much sense economically and rotationally. Certainly producers “would welcome a fourth or fifth crop, if there was one to grow.” But farms here are already quite efficient. Apart from tightening their belt, there’s not much farmers can do except count on government, for better or for worse. Said Gamble: “Some of the things we’re seeing in international trade will take more than Business Risk Management (programs). We need a rethink on how to support Canadian producers.”

How can that not include financial aid? The U.S. has stepped up and, by October, had given American farmers $28 billion and approved another $30 billion for trade war losses.

But international trade is still very much the way to go. Fraser Institute senior fellow Livio Di Matteo argued that Canada’s approach in the current trade environment has to be getting away from China but opening up our markets to other countries. The move towards trade with China has had as much to do with China’s booming wealth and growing population as it has with a “more capricious United States,” but in any event, Canada needs to focus on diversifying its markets, not closing them off. “Japan, India, Thailand, Vietnam, Taiwan, Singapore, Malaysia, Indonesia and the Philippines are all important economies that can serve as markets for Canadian products.”