Trade diversification was supposed to make Canada less dependent on the U.S. But as the canola dispute shows, it has had a perverse effect. It has made this country more dependent on China.

Beijing’s decision to ban two major Canadian companies from exporting canola to China has Prime Minister Justin Trudeau’s government rattled.

Canola is Canada’s largest grain export after wheat. China is Canada’s number one market for canola. Last year Canadian canola seed exports to China were worth about $2.7 billion.

In short, the ban is a big deal — particularly since it is accompanied by a reluctance among Chinese importers to sign any new canola contracts with Canadians.

The ban has lowered canola prices and left Canadian farmers unsure of whether to plant a new crop this spring.

It wasn’t supposed to be this way.

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Until now, canola has been the poster boy for Canadian efforts to diversify trade away from the U.S. and toward the new markets of Asia. A rapeseed variant both developed in and named for Canada, canola is a hometown success story.

Appropriately perhaps, Canada is the world’s largest producer of canola. Virtually all of it is exported, with China, Japan and Mexico being the top three destinations.

When Finance Minister Bill Morneau wrote in his 2017 budget about focusing on technological change in Canada’s agri-food industry, canola was almost certainly one of the examples he had in mind. When Trudeau mused about free trade with China, canola was front and centre.

But as Canada’s long and complicated history with the U.S. shows, trade relations come at a cost.

For purely technical reasons, the Chinese have always been of two minds about Canadian canola. They fret that a plant disease found in North America and called blackleg may be transmitted to China’s relatively uncontaminated canola farms, thus threatening their domestic crops.

It’s worth remembering here that China is not only an importer of canola. It is the world’s second largest producer.

According to a 2010 article in the Journal of Plant Diseases and Protection, blackleg was detected in Canadian canola exports to China in 2009. That was the year Beijing slapped restrictions on Canadian imports, restrictions that it did not begin to ease until 2012.

In 2016, China again complained about impurities in Canadian canola that might let blackleg spread to its fields. It threatened to severely tighten the restrictions on allowable foreign content in canola imports.

Again, the Canadian side talked the Chinese down, persuading Beijing to put off any new rules until March 2020.

Then, in Dec. 2018, at the behest of the Americans, Canada arrested Chinese tycoon Meng Wanzhou and held her for extradition to the U.S. where she faces charges of fraud.

Meng is a member of the nominally Communist country’s new capitalist aristocracy. With her arrest, the canola dispute developed an entirely new, political dimension.

As a result, the Trudeau government is in even more of a bind. The Chinese have already retaliated for Meng’s arrest by imprisoning two Canadians on national security grounds and threatening to execute a convicted Canadian drug smuggler.

The canola ban, however, ratchets up the pressure to a new level.

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What is Trudeau to do? If he ignores the U.S. extradition request and releases Meng, he risks angering Canada’s largest trade partner — as well as abandoning his promise to follow the rule of law.

Yet if he does not release Meng, he puts in jeopardy not only the three Canadians held by Beijing but also his entire China-focused economic strategy of trade diversification.

The canola flap is a reminder that trade carries a price. By diversifying its markets toward Asia, Canada may be lessening its dependence on Washington. But it is also increasing its dependence on Beijing. If Ottawa is not careful, Canadians could end up trading one taskmaster for another.

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