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For the Trudeau haters out there, this was the moment they’d all been
waiting for: a vicious rebuke by a high-ranking US official. It happened
after the G7 leaders’ summit in June, when Prime Minister Justin
Trudeau criticized
US President Donald Trump during the concluding press conference.
Trump had just departed for Singapore, where he was meeting the North
Korean leader, when Trudeau told reporters that aluminum and steel duties
against Canada were insulting and that Canada would fight them “dollar for
dollar”.
The problem was, that’s not what Trudeau told Trump when they spoke during
the summit.
“There’s a special place in hell for any foreign leader that
engages in bad faith diplomacy with President Donald J. Trump and then tries
to stab him in the back on the way out the door,” trade adviser
Peter Navarro told Fox News. Senior White House economic adviser Larry Kudlow
piled on, calling what was said during the press conference “a cheap shot”.
Dealing with the United States has always been touchy for Canada’s top
politicians, especially when it comes to trade. It’s simply a matter of
scale. The United States has 10 times the population of Canada. We want
market access, but we don’t want to be bullied. On foreign policy, we depend
on the United States and its powerful military for protection, but we don’t
want that to influence our policies with other countries. It’s the classic
“middle power” dilemma. Culturally, we share many things with the United
States - movies, music, TV shows, a common language, food, travel
destinations, etc. - but we don’t want to be Americanized. This sensitivity
to being engulfed by American culture is of course most pronounced in Quebec,
which fears cultural assimilation will mean the death of Quebecois culture.
The Canada-US relationship is best symbolized by how the Canadian Prime
Minister and US President get along. We look on with interest, amusement, and
sometimes alarm, at how they interact.
Perhaps the most stark example of how this dynamic can shift was the
“bromance” between Barack Obama and Justin Trudeau that became much less
familiar when Trudeau was forced to deal with Donald Trump. Many predicted
sparks would fly immediately - the battle-hardened, baby-boomer business
tycoon clashing with the younger, effete, liberal-minded Trudeau - but it
took a few months for the relationship to gel.
At first it seemed the two would get along, surprisingly, with Trump
calling Trudeau “a great guy” and Trudeau mastering Trump’s odd handshake.
But when Trump refused to exclude Canada in a trade war and insisted on
fulfilling a campaign promise to re-negotiate NAFTA, a chill descended on
what is Canada’s most important leader-to-leader relationship.
Of course it was Trudeau’s smarter, more statesmanlike though insufferably
arrogant father who famously said, “living next to you is in some ways like
sleeping with an elephant. No matter how friendly or temperate the beast, one
is affected by every twitch and grunt.”
The latest “twitches” from the United States, felt strongly by Canada, are
the US sanctions against Iran, and the trade war with China. The two issues
became entwined with the arrest in Vancouver of Huawei executive
Meng Wanzhou. The US accuses Meng of committing fraud to sidestep
sanctions against Iran, and has called for her extradition. China calls the
arrest “a kidnapping” and has retaliated by taking three Canadians living in
China into custody. There’s a lot for Canada at stake, namely, its economic
and political relationships with the two most powerful countries in the
world.
Canada is also affected by what the United States doesn’t do. When
Washington Post columnist Jamal Khashoggi was murdered in the Saudi Arabian
embassy in Istanbul, the pressure was on to condemn Saudi Arabia’s Mohammed
bin Salman. But Trump, unsurprisingly, has taken a softer tone, preferring
not to insult a key Middle Eastern ally and oil producer. Canada has
similarly treated bin Salman with kid gloves, for its own reasons.
This article will explain why Canada has for the most part fallen in line
with the United States over the Huawei and Khashoggi incidents: it’s to save
our bacon.
Huawei
Canada is being forced to do the US’s bidding on what it deems a
technological and security threat to the United States. I’m talking about
Huawei Technologies, the Chinese telecommunications giant with close ties to
the Communist Party.
That’s the view of Jeffrey Sachs, an economist who writes for Project
Syndicate.
According to Sachs, the unprecedented arrest of a Chinese executive
is an example of the US creating “a new Cold War” in international trade. But
it’s Canada that’s having to fight.
Canadian officials arrested Meng Wanzhou, Huawei’s 46-year-old CFO
and daughter of the company’s founder, at Vancouver Airport, on an
extradition request from the United States. She has since been released on
$10 million bail and must not leave her Vancouver home.
Why the arrest? US prosecutors say Meng fraudulently deceived HSBC about
the level of control Huawei had over a company named Skycom, so
that Skycom could do business with Iranian telecoms. She has been
charged with conspiracy to defraud banks. However Skycom, a former
Huawei subsidiary, has been dissolved and Meng says Huawei sold its interest
in Skycom and that she stepped down from its board of directors.
Banks can be held criminally liable if they help move money out of a
sanctioned country.
But Sachs says the prosecutors’ argument is thin, considering that HSBC
has been slapped hard before for violating US sanctions and money-laundering
(in 2012 the bank had to pay $1.92 billion) but is not even under
investigation concerning Meng’s arrest.
“I think Canada's doing the bidding of United States policy that is not
well-controlled or well-modulated,” he said in a CBC
video interview.
“Maybe Canada's being used and manipulated, not only vis-à-vis China, but
for the United States to try to show anyone: ‘You dare cross us on any
business with Iran, you're going to pay a price.’”
The United States re-imposed sanctions on Iran in August - after a
two-year reprieve - and also withdrew from the multilateral nuclear deal with
Iran spearheaded by former President Obama.
The United States has had Huawei in its sights for some time. In May the
Pentagon banned the sale of Huawei and ZTE phones on military bases, fearing
the phones could be used to spy on soldiers. The government has also stopped
buying Huawei equipment and will not help any carrier that uses its
technology. Verizon and AT&T have backed out of deals to distribute Huawei
phones.
In Canada, Huawei already has equipment in the present 4G cellular
networks, and the company could be asked to help build the 5G network which
is expected to vastly increase Internet speeds. The worry here, and in the
US, is that Huawei could use its telecommunications technology to secretly
gather intelligence. While Huawei has said it would never do that, Chinese
law states that “any organization or citizen shall support, assist and
co-operate with state intelligence work.”
The Canadian government is currently weighing the risks of continuing to
use Huawei, which is the world’s largest supplier of telecommunications
equipment.
The White House says there’s no connection between Huawei’s arrest and
banning Huawei from doing business in the States. That’s BS. China and the US
are fighting a trade war and there is little doubt the arrest is connected -
if not directly. Part of the Commerce Department’s rationale for slapping
tariffs on China was to allay concerns over US firms having to surrender
intellectual property in order to gain market access to
China. Cypersecurity is also a serious issue and Huawei could be a
trojan horse. Recently American prosecutors charged
two Chinese nationals for economic espionage. They allege the
individuals hacked into the US Navy, NASA, the Energy Department and dozens
of companies.
The Huawei issue has gotten political - it’s no longer a simple matter of
extradition. President Trump waded into the fray by stating he would
intervene if it helps the United States to win the trade war. Here Trump has
overstepped his authority. Extradition is supposed to be a purely legal
process, insulated from politics. If Trump gets involved (and why wouldn’t
he, he’s done it with Amazon, CNN and General Motors, Bloomberg
points out) to suit his objectives, it’s not only disregarding the rule
of law, it could also help Meng, who might say that, if the American
President can intervene, why can’t the Prime Minister, to set her free?
One could also argue the US Justice Department is playing politics with
the case as well, the Toronto
Star editorial board writes:
No one believes China’s courts are free from pressure by the
government and the ruling Communist Party.
In the Huawei case, though, we are asked to accept that at a time of
high tension between Washington and Beijing, focused on trade but involving a
broader struggle for leadership of the world economy, it’s just a coincidence
that the American Justice Department picked this moment to ask Canadian
authorities to arrest and possibly extradite one of the most senior leaders
of China’s premier international technology company.
There’s no connection, says the White House, between the arrest and
the fact that Washington has been on a campaign to prevent Huawei from taking
a leading role in next-generation 5G communications technology. At stake is
who will dominate future global telecom networks, and there’s genuine concern
that allowing Huawei to emerge on top would open the door to industrial
espionage on a massive scale by a company tightly linked to the top levels of
the Chinese government...
Using the law and the court system as part of a political shake-down
is the kind of move we might well expect from China itself. Under the Trump
administration, sadly, it’s something we can’t rule out much closer to home.
This issue is turning out to be a major test of the relationship not only
between Canada and the US, but Canada and China. China has cast a diplomatic
frost over the two nations by detaining three Canadians (detainee
update). Our government is now warning Canadians traveling to China to
exercise caution. Unlike North America, in China no-one has legal rights to
fall back on should they be picked up by the police for any reason. Canada
wants to negotiate a trade deal with China even though doing so could
jeopardize the re-negotiated NAFTA (The partners to the deal are not supposed
to ink trade deals with “non-market economies”). Will China engage in trade
talks while one of their top executives is technically imprisoned in
Vancouver? Unlikely.
So the question is, should Canada refuse to extradite Meng and let her go?
Or do what it usually does in these cases - 90% of them actually - and comply
with the United States by allowing her extradition? If Meng is convicted in
the US, she could face a 30-year sentence or $1 million fine (is there any
doubt which she’ll choose?)
It will all come down to the Justice Minister, Jody Wilson-Raybould. The
Toronto Star explains the parameters:
Canada’s extradition treaty with the U.S. is pretty clear; if there’s
evidence the crime she is accused of in the U.S. would constitute a crime if
it were committed on Canada, Canada would ordinarily agree.
There are mandatory grounds for refusing extradition, such as if the
person’s already been tried for the offence in Canada; if extradition would
violate an individual’s Charter rights to due process, a broad category; or
if a prosecution would be for an “improper purpose,” including to prosecute
or punish an individual by reason of their race, religion, nationality, ethnic
origin, language, or colour, or on other discriminatory grounds.
A minister has discretionary powers to refuse a request; Canada does
not extradite to countries that have the death penalty without first
obtaining assurances from the other country that it won’t execute the
extradited individual.
Technically, then, the minister could refuse to extradite her. But
doing so would set a dangerous precedent, offending not only libertarians who
fear that legal processes are being interfered with by politicians, but the
US president himself.
“[T]he law allows Canada to turn down any request if it is seen as a
bid to prosecute a “political offence,” the Star quotes a law professor at
Dalhousie University, who describes extradition law as “a weird mixture of
law and politics.” However, he adds “It would be unheard
of for the minister to say a prosecution on the part of our good friends the
Americans was politicized and refuse extradition on that basis.
“That would be like punching Trump, himself, in
the nose.”
So what is Canada to do? Extradite Meng, and incur the wrath of the
world’s second largest economy and home to hundreds of thousands of the
Chinese diaspora, and possibly kill a trade deal that could offset American
economic power to boot? Or refuse to do so, and offend the American
government and its volatile President?
Siding with China against the US on Huawei is likely to invite more trade
retaliation.
The Khashoggi incident
One of the things about being the largest crude oil exporter, in a world
still run by oil, is you get to do certain things with impunity. That
includes “taking care of” dissident journalists like Jamal Khashoggi, and
being part of a coalition of Arab states that is fighting a civil war in
Yemen. The conflict is horrifying in its civilian casualties. According to
the UN Commission for Human Rights, Saudi air attacks accounted for almost
two-thirds of reported civilian deaths last year. Save the
Children estimates at least 50,000 children died, or 130 every day.
This seems like a war worth stopping - an international crisis like the
Ethiopian famine or the wars in former Yugoslavia - but you’d be wrong. The
West has done nothing to help Yemen, mostly because it’s a proxy war between
the Middle East’s two most powerful actors, Saudi Arabia and Iran. Nobody
wants to get between these two. Good luck even understanding it. If you’re
interested in knowing more, check
Al Jazeerah.
The US has a longstanding relationship with Saudi Arabia - basically
agreeing to defend the oil-soaked country in exchange for selling oil in US
dollars. But Canada has no such obligation. For years our criticisms of the
House of Saud for its dismal human rights record (48 people were beheaded in
the first four months of this year), have fallen on deaf ears, but that all
changed in August when Foreign Minister Chrystia Freeland decided
to go all Trump and fired off a tweet calling for the release of jailed human
rights activists.
Riyadh immediately severed diplomatic and trade ties, then later recalled
all of its foreign students. Reuters
reported Saudi Arabia’s unusually strong response was
likely because it is “emboldened by Washington’s willingness under
Donald Trump to de-emphasize rights issues when it comes to its allies”
versus his predecessor, Barack Obama. Recall it was Obama who signed the Iran
nuclear agreement, to Saudi Arabia’s horror, and Trump that withdrew from it,
further solidifying their alliance.
All of this is background for what happened next: the alleged murder of
Jamal Khashoggi. While we’ll never know precisely what happened to the late
journalist, we do know that the Saudi leadership wanted him gone. In the last
year of his life, Khashoggi went into self-imposed exile in the US, from
where he wrote a monthly column in the Washington Post criticizing the Saudi
government and Crown Prince Mohammed bin Salman, known as MBS.
The grisly killing of Khashoggi (the BBC reports the
Saudi public prosecutor saying he was given a lethal injection after a
struggle and his body dismembered) prompted just about every leader in the
Western world to condemn MBS for it, but it looks like nothing is going to
happen. An international incident in October has turned into a nothing
burger. The best Canada could do was to freeze the assets of 17 Saudi
nationals and prevent them from entering Canada.
Why would that be? Well again, we only need to follow the money. Prime
Minister Trudeau said he pressed
MBS on the killing while they were at the G20 together in Argentina,
but we don’t know how hard he really pushed. What we do know is that Canada
has a US$13 billion deal to export armored vehicles to Saudi Arabia. The
vehicles would be made by a unit of US Military contractor General Dynamics,
London Ontario-based General Dynamics Land Systems.
Suspecting what happened to Khashoggi, Trudeau is now trying to get out of
the deal, but the reality is, it would cost a billion dollars to cancel it.
Does the Prime Minister really want to make taxpayers eat that? No. There’s
also the matter of about 500 production workers at General Dynamics, some of
whom would likely be shown the door if that contract gets deep-sixed.
London is only 240 clicks away from Oshawa, where the closure of the GM
plant will put 2,500 workers on EI. Combine that with the fact that a federal
election is less than a year away, and you know the contract is going ahead.
Then there’s the oil. As protesters were gathering to shout down the
Kinder Morgan pipeline proposal this summer, Saudi oil was flowing into the
massive Irving Oil-owned New Brunswick refinery. Saudi Arabia is second to
the United States for the amount of crude oil imported by Canada. It used to
be the fifth largest importer. According
to the National Post, in the first six months of 2018, the Irving
Oil refinery imported $10 million a day worth of Saudi oil, versus just $3.8
million worth of US oil. The refinery counts on Saudi Arabia for 40% of its
crude.
Three
graphs from the Globe and Mail are also illuminating. While Canadian
politicians complain about Saudi Arabia jailing dissidents and executing
homosexuals, we are churning out tanks/ tank parts and buying their oil -
lots of it; the National Energy Board estimates 80,000 barrels a day, or 12%
of our oil imports. The value of Canadian military goods and equipment
exported to Saudi Arabia in 2017 was the most in five years.
How about the United States? The Trump Administration has also turned a
blind eye to Saudi transgressions, proving that oil might be thicker than
blood. Like Canada, it’s all about weaponry and oil, although these days, it’s
less about oil.
In 2017 Saudi
oil shipments to America dropped to 1988 levels, due to Saudi
Arabia, the leader of OPEC, slashing exports to the United States in 2016 as
part of OPEC’s production cuts. With so much domestic shale oil production,
the States in no longer dependent on the Kingdom for its oil supplies.
Instead, the trade now is in arms. Saudi Arabia was the first country
Trump visited after being elected President in 2016. When he was there, the
Saudis agreed to buy $110 billion worth of military equipment. Saudi Arabia
is the top buyer of American military hardware; according to the Stockholm
Institute, it accounted for nearly a fifth of all US weapons exports over the
last five years.
Currently, some of those arms are going to fight the war in Yemen - where
the US government has provided intelligence, munitions and midair refueling
to Saudi warplanes since the conflict began in 2015, states an article in
Time.
The Senate on Dec. 13 passed a
resolution calling for an end to US Military support for the Saudi Arabia-led
coalition fighting the war, although it could still be vetoed by the
Republican-led House of Representatives (until mid-January). According to
Time, Saudi lobbyists have spent between $5.8 and $9 million on lobbying
Congress this year.
While arms dealing is obviously key, another
article, by Project Syndicate, argues the most important aspect of the
US-Saudi relationship is that Saudi Arabia provides a bulwark against Iran:
The kingdom has supported proxies in Lebanon, Syria, and Yemen to
contain Iran’s machinations.
Any steps to hold the Saudis responsible for Khashoggi’s death would
force the U.S. to assume responsibilities it is far more comfortable
outsourcing.
Understandably though, President Trump chose to focus on the money when
explaining why no action would be taken (ie. canceling weapons contracts)
against the Saudis for the Khashoggi killing:
“If we foolishly cancel these contracts, Russia and China would be the
enormous beneficiaries - and very happy to acquire all of this newfound
business. It would be a wonderful gift to them directly from the United
States!”
A statement
by Trump bragged that Saudi Arabia promised to spend $450 billion in
the United States (talk is cheap) including the aforementioned $110 billion.
As for Khashoggi, one can picture Trump extending his hands, palms up, in the
words, “Our intelligence agencies continue to assess all information, but it
could very well be that the Crown Prince had knowledge of this tragic event
-- maybe he did and maybe he didn't!”
Conclusion
Multilateralism is nice, but when national interests are at stake, it’s
the money and the power that matters. Obviously. We have seen this
money-power dynamic play out in the Khashoggi and Huawei incidents. Canada
and the US are loathe to criticize their allies when the chips are down,
especially when there is big money at stake. Regarding Huawei, Canada is
being played by the US, caught in the middle of a trade spat it has no say
in. Back against the wall, though, it will be the United States that Canada
turns to, not China. If no diplomatic solution is found to free Meng and the
three imprisoned Canadians, Canada will reluctantly turn her over to American
authorities. We may not like it, but we know what we have to do to save our Cdn.
bacon.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources
he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts
no responsibility or liability as to its accuracy or completeness.
Expressions of opinion are those of Richard Mills only and are subject to
change without notice. Richard Mills assumes no warranty, liability or
guarantee for the current relevance, correctness or completeness of any
information provided within this Report and will not be held liable for the
consequence of reliance upon any opinion or statement contained herein or any
omission.
Furthermore, I, Richard Mills, assume no liability for any direct or
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