What lies ahead for Canada as the Huawei saga continues
China was once a grand prize for Justin Trudeau, who sought to follow in his father’s footsteps by cementing stronger ties with the Asian powerhouse.
So much has changed since, culminating with U.S. charges Monday against Huawei Technologies Co. and its Chief Financial Officer Meng Wanzhou, whose arrest last month in Vancouver put Trudeau squarely in China’s crosshairs. Beijing has threatened retaliation, while detaining two Canadians and sentencing a third to death.
Though Huawei is part of a larger U.S.-China trade battle, the prime minister is increasingly caught in the middle, paying the price for heeding the American request to arrest Meng on Canadian soil. Chinese investment in Canada was already falling before the latest row and now risks falling further.
“There’s no near-to-medium-term solution, in my opinion, without a Meng solution -- no matter what we do,” Gordon Houlden, director of the University of Alberta’s China Institute, said in an interview. He thinks the two Canadians, former diplomat Michael Kovrig and entrepreneur Michael Spavor, are unlikely to be released soon. “I just am skeptical that the Chinese will let go until they are satisfied.”
Trudeau took office with high hopes on China, seeking to improve ties just as Pierre Trudeau did in the 1970s. He appointed John McCallum, his former immigration minister, as his ambassador to Beijing in 2017, with pledges to expand trade with the world’s No. 2 economy.
“Justin Trudeau told me very clearly he wants to do more with China,” McCallum said at the time. He pledged to balance trade ambitions with continued pressure on human rights. “Whenever you go to China as an ambassador, you have to walk and chew gum at the same time,” he said.
There were early stumbles. A personal visit by Trudeau in late 2017 aimed at spurring free trade talks fell flat over demands for labor, gender and environmental guarantees. Then Trudeau shot down a $1.2 billion bid by a Chinese construction firm for Aecon Group Inc., citing advice from national security agencies. China warned of fallout.
The arrest of Meng has sent tensions to a whole new level. Trudeau insisted he had no choice but to adhere to the U.S. request, in keeping with an extradition treaty. The prime minister later said he’d been given a few days’ notice, but didn’t intervene -- though some have said he quietly should have.
For the Chinese, this was a clear sign that Trudeau was nothing but a U.S. lapdog and they’ve been targeting their diplomatic furor at Canada ever since.
Nine days after Meng’s arrest, China seized Kovrig and Spavor -- and later increased the sentence of a third man, Robert Schellenberg, to death in a drug case. China’s envoy in Ottawa has accused Canada of “white supremacy” for protesting the detentions, and warned of repercussions if Canada bans Huawei from its next-generation wireless network.
The case escalated again last week, when McCallum told Chinese-language media near Toronto that Meng had a “strong case” to fight extradition. He later said he misspoke, then spoke again, forcing Trudeau to oust him over the weekend.
“The central job of an ambassador is to represent accurately the government’s position. John didn’t do that and that is why his position was untenable,” Foreign Minister Chrystia Freeland said Monday.
On Tuesday, China’s embassy in Ottawa said in an unsigned statement that Meng’s arrest was “a serious political incident,” and demanded her release. Canada should “stop risking its own interests for the benefits of the U.S.,” the embassy said.
It all leaves Trudeau’s government with an interim envoy and three Canadians in Chinese hands as the U.S. presses forward in its case against Huawei.
While Meng, who appeared in court again Tuesday, awaits a potential extradition trial under house arrest in her $4 million Vancouver mansion, the detained Canadians are enduring daily interrogations, and forced to sleep with the lights on 24 hours a day.
Meanwhile, Chinese spending is falling in Canada, according to a report this month by Houlden’s China Institute. Investment fell to C$4.4 billion last year from C$8.4 billion in 2017, with the number of new transactions dropping to 70 from 111.
Houlden said it was too early to say whether the drop in investment is linked to the feud that began in December, but predicted “there will be an effect if we don’t get out of this.”
Shares in Canada Goose Holdings Inc. have already dropped 26 percent since Meng’s arrest. The parka maker delayed its store opening in Beijing by two weeks after it became the target of a boycott.
The timing couldn’t be worse for Trudeau, as he gears up to campaign for an October election in which victory is far from certain. His ruling Liberal Party holds a 1 percentage point lead on the opposition Conservatives, according to the latest poll from Nanos Research. Conservative Leader Andrew Scheer is already trying to exploit Trudeau’s “weakness” over the China file and his handling of McCallum.
“I am worried about the fallout -- what happens next in terms of the potential escalation in this relationship that has been deteriorating now over a number of weeks,” said Peter MacKay, who served as foreign minister under Conservative Prime Minister Stephen Harper and is now a partner with Baker & McKenzie LLP.
MacKay told BNN Bloomberg he expects the impact from China tensions to be similar to that from a feud with Saudi Arabia, where an investment freeze is impacting Canadian firms like SNC-Lavalin Group Inc., whose shares were hit with a record decline decline after writing down its Saudi assets. The kingdom took offense to Freeland’s demands for the release of human rights activists.
With “some of our biggest trading partners now, we are on very thin ice. That could have dire consequences for the Canadian economy,” MacKay said Monday. “We have to do everything in our power now to try to lower the temperature and restore some normal relations.”