China dispute casts shadow on Canadian election, and on Trudeau

By Steve Scherer

OTTAWA (Reuters) - Canada's dispute with China, an economic powerhouse, has been a nagging headache for Liberal Prime Minister Justin Trudeau, and the feud is showing no signs of going away before his October bid for re-election.

Foreign Minister Chrystia Freeland on Tuesday warned that relations with China - which has a population 37 times that of Canada's - continue to be “challenging,” dashing hopes that last week's meeting with her Chinese counterpart would lead to a breakthrough in the eight-month stalemate.

The dispute broke out in December after Canada's detention of Huawei Technologies Co [HWT.UL] Chief Financial Officer Meng Wanzhou on a U.S. warrant, and Beijing's subsequent arrest of two Canadians. China has also blocked imports of some Canadian commodities.

The Canada-China dispute is a showdown between “a mouse and an elephant,” said Goldy Hyder, president and chief executive officer of the Business Council of Canada, which represents many of the country's largest companies.

“Whatever it is that's been happening (behind the scenes), it hasn't worked. And as the election draws near, there's a greater risk that we're going to be squeezed even harder and I don't know what our response is going to be,” Hyder said.

Meanwhile, China's blockade against canola, pork and beef is beginning to bite economically. Growers will have to find alternate buyers this year, and meat processors are starting to feel the pinch, industry groups say.

With no end to the dispute in sight, there may be a political toll to pay, too.

On Friday, Freeland said the government will continue to negotiate with China outside of the public eye, a process that exposes the government to criticism from its Conservative Party rival.

Trudeau is locked in a statistical tie in opinion polls with Conservative leader Andrew Scheer ahead of an Oct. 21 federal election, and Scheer has attacked him relentlessly for being soft on China.

“Canada is being bullied by the Chinese government and you have done nothing to stand up for Canada in response,” Scheer wrote in letter to Trudeau last month.

Scheer has said he will examine imposing retaliatory tariffs if elected, and that the government should make an official complaint to the World Trade Organization. The government's approach, on the other hand, has been more restrained.

“Scheer is trying to score political points instead of making the safety of two Canadian citizens the priority,” a government source who was not authorized to speak on the record told Reuters.

In a written statement to Reuters, the Chinese embassy in Ottawa expressed hope that “no matter which party in Canada comes into power,” it will “bring our bilateral relations back to the right track at an early date.”

China hopes the winner of the election can “show the courage and wisdom and make joint efforts with China on the basis of mutual respect and equality to overcome the current difficulties,” the statement said.

Trudeau's administration has reached out to allies for support. Many, including the European Union and the United States, have made public statements calling for the release of the Canadian men.

Still, commentary from former Canadian ambassadors to China has appeared to undermine the government's approach aimed at preventing further escalation.

Trudeau fired his ambassador to China in January for saying Meng had a strong legal argument to fight extradition. Two other former ambassadors, after criticizing the government's handling of the affair, received calls from a foreign ministry official urging them to tone down their rhetoric.

“It really speaks to the prime minister's failure to get things done,” said a source close to Scheer. “There has been no progress. We need to stand up more forcefully for Canada's best interests.”

The Business Council's Hyder said Trudeau's administration has a “a romantic view of the world that is not grounded in reality,” but she added that Scheer's solution would increase tensions and that what is needed is a “a more pragmatic, sensible strategy” to “bring the temperature down.”

Roland Paris, a former foreign policy adviser to Trudeau, said Canada has limited leverage to counter China's “hostage diplomacy.”

“You can't just make it go away. ... The Chinese have made it pretty clear that the two Canadians will not be released as long as Meng remains in custody,” he said.

“Nevertheless, we must do everything we can to secure their release, including working with other countries to apply more pressure on Beijing.”