Canada can soften possible trade turbulence with U.S. by embracing India

The Prime Minister, Shri Narendra Modi with the Prime Minister of Canada, Mr. Justin Trudeau, at Hyderabad House, in New Delhi on February 23, 2018. (File Photo By Prime Minister’s Office (GODL-India), GODL-India/Wikimedia Commons)

Polls indicate Donald Trump has a slight edge over Joe Biden in the U.S. presidential election in November. 

Prime Minister Justin Trudeau – recalling the first Trump administration which forced a renegotiation of NAFTA and imposed tariffs on some Canadian exports – says a second Trump term could lead to “unpredictability” in the trade sector. 

Therefore, it would be prudent for Ottawa to explore India, a significant emerging market, as a strategic counterbalance to a possible Trump 2.0 era, despite current tensions between Ottawa and New Delhi. 

In a report last October, the World Bank said India had achieved a remarkable economic growth rate of 7.2 per cent in the 2022-23 fiscal year – second-highest among G20 countries and nearly double the average for emerging market economies. 

Canada-India relations have been severely strained since 2018 but hit a new low last September when Trudeau said agents of the government of India were involved in the assassination of Hardeep Singh Nijjar, a Canadian citizen and a pro-Khalistan separatist leader. 

Both sides expelled each other’s diplomats and put other measures into place. However, tension appears to have calmed recently. 

The dispute has thrown a wrench in Ottawa’s plans to make the South Asian country the centrepiece of its Indo-Pacific strategy – part of a move by Western countries to decrease their supply chain reliance on China and counter Beijing’s rising influence in the region. 

However, whether Trump or Biden wins in November, there are many compelling reasons for Canada to resume stalled negotiations and promptly finalize the comprehensive economic partnership agreement (CEPA) with India, which has the potential to boost Canadian GDP by up to $8 billion by 2035, according to an Indian government agency. 

Wide-ranging trade options 

First, a finalized CEPA would offer Canada a suitable market for renewable energy, an area of economic strength. India remains highly reliant on fossil fuels even as it tries to move toward alternative energy sources. 

Canada can supply clean energy technology and know-how based on its own renewable energy and grid modernization projects. Upgrading India’s power grid infrastructure with renewable energy options is an idea that India is likely to welcome. 

Global Affairs has outlined other potential areas for co-operation, including emerging sectors such as transportation infrastructure and life science, as well as more traditional sectors such as natural resources, defence and security, value-added food products, mining, and oil and gas. 

Additionally, CEPA could play a role in mitigating Canada’s heavy reliance on fruit imports from the U.S., which account for nearly 39 per cent by value and 33 per cent by volume, according to Statistics Canada. 

The Indian government said last year both countries had agreed to increased access to Canadian markets for Indian agricultural goods such as sweet corn, baby corn and bananas. An agreement that opens up other avenues for less-expensive agricultural produce could ease the inflation burden on the average Canadian household. 

Canada is the second-largest exporter of wood products worldwide but our wood exports to India rank below those of the U.S., China and Japan. CEPA could increase Canada’s share. 

There are strong personal links between the two countries, as well, that argue in favour of a deal. Canadian government data shows 41 per cent of the study permit-holders among international students in Canada in 2022 were from India. 

Although the current temporary cap on the number of international students may impact this, Canada continues to be a top choice for Indian students seeking to study abroad. 

Despite these advantages, it won’t be an easy task for the two countries to get back to negotiating the trade deal after talks were paused in September over the assassination of Nijjar. 

However, since the U.S. indictment of alleged Indian agent Nikhil Gupta, who is charged in connection with a conspiracy to plot the assassination of another Khalistan leader, the matter seems to have been pushed behind the diplomatic curtain away from the public glare. 

This provides the Trudeau government a window of opportunity to get back to the table and attempt to seal the deal this year, 14 years after the negotiations started. 

The two sides had concluded seven rounds of talks toward an early progress trade agreement (EPTA), a transitional step towards CEPA when the talks were paused in September. 

India has said it is keen to continue the talks because Canada has an “advanced and resource-rich economy which will be a good relationship for India to uphold,” according to the India Brand Equity Foundation, an agency under India’s Ministry of Commerce and Trade. 

Indian Prime Minister Narendra Modi won a weaker mandate in national elections in early June but has retained his top ministers in both commerce and trade, and finance – indicating continuity in policy. 

India has also been actively pursuing trade deals with countries across various regions. It finalized one with the UAE in early 2022 and an interim trade deal with Australia in December 2022. It is currently in talks for free trade agreements with the U.K., EU and Oman. 

Apart from the Trump re-election threat, India will remain a very significant geopolitical counter to China that Canada cannot afford to disregard. 

Therefore, Canada must try to get the Indian government to unfreeze the trade negotiations to help provide a buffer for any shock that a Trump presidency, or any other trade-limiting issue, might bring. 

This article first appeared on Policy Options and is republished here under a Creative Commons license.