How is Canada dealing with supply chain disruptions?
Pharmacies have to deal with a shortage of drugs.
Finance Minister Chrystia Freeland has many reasons to lose sleep.
The skyrocketing cost of living has Canadians lining up at food banks. The federal Liberals anticipate a possible recession. And Ms. Freeland is personally connected to people living across war-torn Ukraine.
But in April, the finance minister said she had another problem looming in mind.
If you were to ask what keeps me awake at night, I would say: China's zero-COVID approach and the very severe lockdowns we're seeing right now, Ms. Freeland said during the talk. an event organized by the Canadian Chamber of Commerce.
Canadian Finance Minister Chrystia Freeland
< p class="e-p">If Beijing's strict COVID-19 rules and factory closures worried her the most, it's because these measures, more than anything else, were sure to wreak havoc. in the supply chains that Canada relies on to keep its economy running.
In July, Canada avoided what could potentially have been an even bigger blow when the United States expanded a policy that would have dramatically boosted the sale of American-made electric vehicles. Washington finally included its partners in the Canada-United States-Mexico Agreement.
Yet the other problems remain.
Eight months after Ms. Freeland's comments, China is only beginning to ease its harsh lockdown policy amid public outcry, and Russia's invasion of Ukraine has continued to grow. drive up global commodity prices.
The war in Ukraine has been going on for almost 10 months now and is affecting the global supply chain in many sectors at the same time.
Prime Minister Justin Trudeau's government is now trying to strike a delicate balance in managing Canada's supply chains, trying to boost trade with like-minded countries while taking advantage of China's continued growth.
To say the least, there is some light between the two perspectives, said Michael Manulak, professor at the School of International Affairs Norman Paterson at Carleton University.
Supply chains have been out of whack since the World Health Organization (WHO) declared COVID-19 a pandemic in March 2020. Shipping containers have been diverted for medical supplies or lay unused in distant ports. And in the resulting chaos, Canadians have seen a myriad of effects: a shortage of semiconductors, a shortage of rental cars, rising lumber prices.
A Statistics Canada analysis in September found that businesses have yet to fully adjust, with manufacturers reporting that raw materials cost a fifth more this summer than a year earlier.
Companies expect supply chain issues to continue in the short term, especially when acquiring inputs, products or supplies at the nationally and internationally, and maintaining inventory levels, the agency's report says.
Mark Warner, a trade lawyer specializing in Canada and the United States, said the main factor was Beijing's containment policies, as many North American products are assembled at using parts made in China.
“It always comes from China, so when they slow down, or when they shut down a city or a factory because of COVID, it affects the world. »
— Mark Warner, lawyer specializing in commercial matters in Canada and the United States
China is struggling with a surge in COVID-19 cases after the easing of sanitary measures.
By way of quid pro quo, Liberal ministers have said during their visits to Washington that they want to emulate the American approach to “friend-shoring” (or affinity economics), which involves diverting the trade from China to allies like South Korea and growing markets in Southeast Asia.
Democracies must make a conscious effort to build our supply chains sourcing through other people's savings, Ms. Freeland argued in an October speech.
The "friend-shoring" is a historic opportunity: it can make our economies more resilient, our supply chains true to our most deeply held principles.
Later that month, Minister de l'Industrie François-Philippe Champagne made a similar comment.
What we want is certainly decoupling, certainly from China and I would say other regimes around the world that don't share the same values, he told a panel. p>
“People want to trade with people who, truly, share the same values.
—François-Philippe Champagne, Canadian Minister of Industry
Federal Minister of Innovation, Science and Industry, François-Philippe Champagne< /p>
But Me Warner said the idea would be difficult to implement.
Major democracies such as India are no match for China's infrastructure and regulatory framework, he argued. And Chinese-owned companies operate around the world, including in Southeast Asia, where Canada is negotiating multiple trade deals as a check on Beijing.
I am not convinced that autocracy or non-autocracy will drive supply chain changes. It's going to be about who we think we can count on, Mr. Warner said.
Ottawa's case for the affinity economy goes beyond what Canadians import. And improving its exports could help Canada avoid other thorny supply chain issues.
Liberals want to make Canada a hub for electric vehicle parts, arguing that the country can mine lithium, cobalt and graphite as reliably as countries with better environmental and human rights records is less shiny.
Canada already has easy access to nickel, but environmental reviews and consultations with Indigenous communities may block access to other critical minerals, a challenge Ottawa is only beginning to address.
This results in companies importing minerals such as cobalt from Congo, despite the known human rights abuses occurring in the country's mines.
Business groups have made similar criticisms of liquefied natural gas, for which Japan and South Korea have a voracious appetite. Despite this potential, only one export terminal is planned for operation on the west coast.
The government's Indo-Pacific strategy, launched last month, hints at the need to improve supply chains by calling for major improvements in maritime infrastructure, ports, airports, as well as infrastructure road and rail networks, thereby increasing capacity, fluidity and national commercial efficiency.
Ministers Harjit Sajjan, Mary Ng, Mélanie Joly and Marco Mendicino at the press conference in Vancouver announcing the Indo-Pacific Strategy.
But there are no clear objectives.
Some of the government rhetoric in this space exceeded reality, said Mr. Warner. We have to wait and see how well Canada is able to get the permits.
The strategy says Canada needs to be lucid about China, and put some money in to frame areas of collaboration and avoid cutting all ties, with the Liberals arguing that a balanced trade portfolio could help control the effects of inflation.
According to Michael Manulak, diversifying trade in Asia could help Canada's relationship with the United States, which has a critical importance in cross-border supply chains, as the government aims to support growing industries such as electric vehicle manufacturing.
Canada is actually more useful to the United States as an ally and partner — and carries the most weight in its relationship with the United States — when we have a well-developed set of relationships that we can call on, Mr. Manulak explained, especially with countries that are pl us at odds with the Americans.
This is what, in the longer term, makes us a more relevant and influential player in Washington.