U.S. lawmakers planning economic battle with China have some questions — about Canada

The question is: What’s the strategy for dealing with China in an era of increasing international tension?

A bill that just passed the U.S. Senate with strong two-party support would force the Biden administration to lay out plans for working with allies on China-related issues.

And there’s a long section in it about Canada.

It represents one piece of a massive, 1,400-page bill aimed at preparing the U.S. for a long-term era of competition with China.

“[This is] something that looks potentially like a long-lasting new cold war strategy,” said Eric Miller, a Canadian-born trade consultant in Washington. 

“It’s going to set a foundation for years to come about how the U.S. thinks about working with Canada vis à vis strategy.”

The Canada portion of the bill, which is called the U.S. Innovation and Competition Act, begins by lauding Canada-U.S. ties — applauding Ottawa’s handling of the extradition case against Huawei executive Meng Wanzhou, and denouncing the detention of Canadians Michael Spavor and Michael Kovrig in China.

Then it raises challenging questions.

If passed by the House of Representatives, the bill will become law, and would force the administration to produce a report on Canada within 90 days.

That report would have to explain where Canada and the U.S. agree on managing relations with China — and where they disagree.

It would focus on trade, cybersecurity, Huawei and 5G networks, critical mineral resources, defence, the Arctic, global institutions, organized crime, and the spread of authoritarian government.

The bill would then require this U.S. administration, and perhaps a future one, to report to Congress at least twice a year for five years on how the strategy is going.

The report would be available for public viewing, though it might contain a classified portion. 

The U.S. has previously pressed Canada to take a more hawkish stance on some issues related to China, such as banning Huawei from the eventual 5G network, a decision Canada has yet to make.

The bill calls for similar reports about U.S. relations with other entities, such as NATO and the European Union; and with regions such as the Caribbean; and countries including Australia and Japan.

But that’s not the part of the legislation getting the most attention in the U.S.

What’s the context?

The bigger story of the bill is an economic one: That the era of free markets is falling out of fashion, replaced by government-mandated industrial policy.

The trend appears bipartisan.

The shift in attitude began under Donald Trump, whose trade representative, Robert Lighthizer, wrote in an essay that ideal trade policy had to be about more than cheap goods and should prioritize domestic manufacturing and working-class jobs.

A new strategy paper released this week by the White House underscores the extent to which the Biden administration shares this view.

The 250-page paper proposes building up domestic capacity to manufacture key products so the U.S. is less dependent on imports from certain other places (the paper mentions China 458 times).

Those key products include semiconductors, batteries, pharmaceuticals and critical minerals, which the U.S. also hopes to start importing more of from allied nations such as Canada. 

The bill advancing through Congress gives life to that strategy. 

The legislation would spend $250 billion for research and manufacturing, with tax credits and subsidies for products such as artificial intelligence, alternative energy, batteries, medical technology and quantum computing.

It’s essentially an American answer to China’s 2025 plan. 

Senate Majority Leader Chuck Schumer urged his colleagues to pass the bill, casting it as part of a pivotal contest between great powers.

“Around the globe, authoritarian governments smell blood in the water,” Schumer said.

“They believe that squabbling democracies like ours can’t come together and invest in national priorities the way a top-down, centralized and authoritarian government can.… We cannot — we cannot, we must not — let that happen.”

This week, the bill sailed through the Senate on a vote of 68-32, illustrating that the rivalry with China is one rare political issue these days that unites America’s political parties.

What’s next?

The House of Representatives must pass the legislation for it to become law.

The chances of that seem good. Any bill that passes the Senate with more than a two-thirds majority stands a solid chance in the other chamber.

However, it’s not assured. 

Democrats lead the House and will consider the issue this summer, but some want to make modifications; should the bill change, the Senate would have to pass it again.

The bill has drawn complaints from some progressives and conservatives for what they view as pork-barrel politics in the form of corporate subsidies. 

Some Canadians, however, see the bill as a compelling reason for Canada to consider ramping up its own industrial strategy.

Robert Asselin, a senior vice-president at the Business Council of Canada, said there are things in this bill that Canada could emulate, such as massive research and development investments in priority areas such as agricultural technology, energy and biotechnology.

“Get real on industrial policy,” Asselin said. 

“To me, [this] just shows the U.S. versus China is redefining economic competitiveness, and here we are in Canada, thinking it’s business as usual. We’re still playing in the margins.”

Eric Miller, the Washington-based trade consultant, noted another question mark on Canada-U.S. co-operation.

For all the talk about the U.S. sourcing more of its critical minerals from untapped Canadian mines in order to reduce dependency on China, he said nobody has sorted out the financing.

He suggested governments could provide early funding to get mines open. For example, he said, the Canadian government could fund projects at the outset in exchange for a long-term purchase commitment from the U.S. Defence Logistics Agency with a guaranteed refund.

“Huge opportunity,” Miller said. “But it’s going to take some effort.”