This article was originally submitted as a letter to Global Affairs Canada’s consultations on potential new measures to advance and defend Canada’s economic security interests.
By Heather Exner-Pirot, September 30th, 2024
Freedom is more important than free trade.
So said outgoing NATO Secretary-General Jens Stoltenberg in his farewell speech on September 19, 2024.
For a trade reliant, export-driven economy such as Canada’s, this may seem contradictory, backwards or just painful to accept. But the liberal, rules-based order that free trade relies upon to work is under significant threat. Canada must act now to defend the conditions under which free markets can continue to thrive in the future.
Both the COVID-19 pandemic and the Russian invasion of Ukraine revealed the deep dependence of the West on foreign actors for critical products, from energy and transportation to health products and food. The benefits that globalisation provided in terms of access to inexpensive products also created vulnerabilities.
Perhaps in the post-Cold War period the trade-offs we accepted between security and economic growth were justifiable. But deteriorating geopolitical conditions have changed the calculus.
First and most obviously, Vladimir Putin’s illegal invasion of Ukraine led to immediate sanctions on Russia, coming at great economic expense to Europeans. Despite the measures and hardships, even today it has not been possible to wean the West off all Russian goods. Europe still imports significant amounts of Russian LNG, even as pipeline gas is sanctioned. Russian oil finds its way to markets around the world, albeit at a discount. Russian titanium products, essential in the aerospace sector and beyond, enjoy exemptions in Canada and elsewhere. Russian enriched uranium cannot yet be replaced by Western supplies, though efforts are underway to do so. And Russia continues to export grains, without which some parts of the world would experience famine.
The upshot of this is that the Russian economy has remained maddeningly resilient to the punishing sanctions regime imposed upon it; its brutal invasion of Ukraine continues. Our economic interdependence with Russia has undermined our security objectives.
The West’s dependence on China is far more entrenched, and from a security perspective it is intolerable.
Under Xi Jinping, China is intent on unification with Taiwan in the medium term. The Chinese Communist Party may prefer to achieve this through peaceful means, but Taiwan would resist such efforts, and Xi has not renounced the use of force. There is consensus in Washington that China is preparing to invade Taiwan this decade, with 2027 often cited as the timeline.
This explains the urgency of American lawmakers who, over the past two years, have worked in a largely bipartisan manner to diversify and friendshore supply chains; ramp up military industrial capacity; and impose tariffs on Chinese products to reduce dependence in strategic sectors, as well as provide advantages to non-Chinese suppliers.
This also explains Washington’s exhortations to Canada to increase defence spending to meet (and exceed) the NATO goal of 2 per cent of GDP, and to invest in Arctic defence so that our northern flank is not the weak link through which Chinese and Russian hypersonic missiles could pass by on the way to targets in the continental US.
The federal government has pledged to reach the 2 per cent target by 2032. But American and Canadian security communities believe the timeline is too long. Canada’s new chief of defence staff, Gen. Jennie Carignan, has estimated Canada has about five years to prepare to meet new long range threats to the continent.
The US and NATO are not looking to start a war. They want to deter one. And the best way to do that – the strategy that has provided unprecedented prosperity and security for the West since the Second World War – is to be so superior in collective military industrial capacity that our adversaries simply won’t consider using force as an option; the costs would vastly outweigh the potential gains.
As we have seen very recently with the Russian invasion of Ukraine and the Hezbollah and Hamas attacks on Israel, even when the odds seem to be against them, dictators and terrorists often persist in their aggressions. And that is why the West must also disentangle itself from reliance on Chinese products that will impose, or threaten, unacceptable harm to our economies in the event of a conflict.
In the face of Russian and Chinese provocations, what can Canada do to protect its economy while also bolstering the economic and national security of its Western allies?
First, we should coordinate trade policy with our allies and provide a united front on tariffs on China and sanctions on Russia. Criticisms that Canada is blindly following the United States on Chinese tariffs should be ignored. Canada is not “caught in the middle” of a great power rivalry between China and the US; we are irrevocably aligned with one of those sides.
This is not the time to free ride on American efforts, or advance bespoke solutions that limit the sacrifices Canadians must make at the expense of our allies. This is the time to maximize our contribution to collective security, something we have been lagging on for over a decade.
Tariffs will reduce our dependence on Chinese goods. But more importantly, from a security perspective, they will weaken China’s already struggling economy, and thus its military strength. China now relies on exports to absorb the goods it is structurally overproducing, and for which it does not have sufficient domestic demand. Let us not provide the outlet for them.
Second, Canada should accelerate its critical minerals and materials output, especially in those areas where China dominates or that are essential to defence supply chains. This includes not only rare earths, steel, copper, titanium, aluminum and more, but also chemicals needed for energetics production (e.g. toluene, nitric acid, sulfuric acid, nitrocellulose, nitroglycerin, stabilizers, ammonium perchlorate, and aluminum powder). Canada’s resource, chemical engineering, and advanced manufacturing sectors can help provide an arsenal for democracy.
Our allies are already looking to enhance cooperation around financing and stockpiling critical materials. Canada, with its formidable mining finance sector, can be a leader in developing policies that stimulate, rather than undermine, critical minerals markets. Canada should also consider funding critical minerals production as part of military industrial policy through the Department of National Defence, modelled on the US Defense Production Act.
Canada should also work to urgently reduce the burdensome regulatory processes that are stifling its resource and chemical development. Canada needs to slash its red tape so that it can quickly displace Chinese and Russian materials in Western supply chains.
Third, Canada should maintain and defend free trade with its allies. We are walking towards a slippery slope of protectionism. Trade measures should be targeted at potential adversaries, not provide an excuse to limit fair competition with like-minded trading nations. The Investment Canada Act, for example, makes foreign investment in Canadian mining – even from NATO allies – subject to intense scrutiny, hampering domestic investment attractiveness.
Canada has too many harmful policies (think the digital services tax) that restrict free trade with our allies. As Secretary General Stoltenberg said, “the more we limit trade with potential adversaries, the more important it is to preserve open economic relations among Allies and ourselves. NATO prevailed during the Cold War not least because we believed in open economies and competition between our countries.”
Fourth, policy-makers should build a more supportive and non-partisan environment in Canada for defence and security. If Canadians are reluctant to hit NATO spending targets or impose trade restrictions on China, it is in large part because our political leaders have not explained to them why it is necessary. Canada has let its military capacity atrophy. But the supply chain has also been hampered. Some of our financial institutions actively put up barriers to companies in the sector, for example by restricting investment or services to firms creating weapons, weapons delivery systems or components thereof. We are a G7 nation and NATO member that often sees defence contractors as bad actors deserving to be marginalised.
Canada has taken its economic and national security for granted for far too long. We will soon pay a heavy price for our inaction, and it will be a lot more painful than pricier Chinese-made EVs and solar panels. To remediate this, we need a multi-party commitment to defence spending and military preparedness. We need leadership, we need urgency, and we need to take our economic security much more seriously.
Heather Exner-Pirot is director of Energy, Natural Resources, and Environment at the Macdonald-Laurier Institute.
