OTTAWA - A new report on the emergence of China as a global engine of growth suggests Western countries like Canada had better get on board — and that the perils are less than critics maintain.
The report by former Canadian trade official Michael Hart for the Canadian Council of Chief Executives does not closely examine the prospect of a free trade deal with the world's second biggest economy.
But it argues forcefully that Canadians — not just individual firms, but the economy overall — stand to be a big winner in improving economic ties.
Hart's findings, which are to be released Thursday, come on the heels Prime Minister Stephen Harper's trade mission to China where he inked an investment protection agreement, several sectoral deals and was told China was prepared to begin exploratory talks on a full-fledged trade deal.
The report concedes that China's emergence is a threat to some firms and workers, particularly in the manufacturing sector, but it maintains that Canada has also made gains and cannot allow itself to miss out on the emergence of Asia in the global economy.
"On balance, a prosperous China is in Canada's ... political and economic interests and, while it may have short-term negative effects on individual firms and workers, the long-term impact on the prosperity of Canadians should be positive," the report states.
Hart, who is currently chair of trade policy at the Norman Paterson School at Carleton University, calls it "simplistic and misleading" to blame China for the loss of corporations and outsourcing of jobs. The shift of lower-paying assembly jobs has enabled domestic manufacturers to become more productive and competitive, he says.
Even without moving the economic relationship to another level, as Harper pledged to do, China is already becoming a big factor in Canada's economy.
While trade with the U.S. has stagnated in the past decade, China has helped pick up some of the slack. During that period, exports have risen five-fold to $12.8 billion as of 2010, while imports have increased to $44.4 billion.
China retains an almost four-to-one advantage on the balance of trade, but Hart says the numbers fail to account for the fact that much of what China exports, it first imports in components and raw materials.
China is the final place of assembly for electronics, sports equipment, clothing, household fixtures and other finished goods, but adds only about one quarter of the end value.
The report gives the example of an iPod exported to the United States in 2005 for $144 and sold there for $299. China's contribution to the product was only about $4 — most of the production value happened in Japan — although it is credited for the full $144 in trade data.
"The fact that many of the end products of these intricate global production chains are shipped from China gives the false impression that Chinese firms are the principal providers of this cornucopia of products, rather than relatively minor contributors," the report says.
China imports from Canada mostly raw materials, but Hart notes that beyond the actual purchases, the country's insatiable demand helps raise global commodity prices, which enriches Canadian firms and workers.
Hart's conclusion is that Canada should redouble efforts to expand trade links with Asia, including joining the newly-forming Trans-Pacific Partnership, and return to the bargaining table on free trade talks with Korea and Singapore.
Those will have a greater chance of succeeding if Canada relaxed its protectionist policies, he says, particularly on supply management in dairy and poultry.