Wednesday28 August 2019 ★ FINANCIAL TIMES 3INTERNATIONAL
JASON KIRBY— TORONTOWhen Justin Trudeau vowed that Can-
ada would “not escalate but... not
back down” in itsdiplomatic spat with
Chinalast week, Beijing dismissed the
comments as “loudness”.
Yet to many onlookers the prime min-
ister’s response to China’s nine-month
campaign of insults and snubs, the
detention of two Canadiansand an
onslaught of trade blockades was any-
thing but loud or forceful.
While Mr Trudeau gingerly noted
China had become “increasingly asser-
tive” on the world stage, he also paid
homage to the “deep people-to-people
ties” between Canada and China and
touted the “real economic opportuni-
ties” China offered Canadians.
It was a muddled message that
reflected a government “having diffi-
culty accepting that its previous
assumptions about China were wrong”,
said Charles Burton, a senior fellow with
the Macdonald-Laurier Institute in
Ottawa. Those assumptions, he said,
centred on the belief that ifCanadatol-
erated China’s behaviour it would gen-
erate goodwill in Beijing and lead to
Canadian prosperity through trade and
investment. “That’s all turned to dust
now,” said Mr Burton.
The dispute began in December when
Canada arrestedHuaweiTechnologies’
chief financial officerMeng Wanzhouon
a US warrant after the Department of
Justice accused her and the tech com-
pany of doing business in Iran in viola-
tion of sanctions.
China retaliated by arresting Canadi-
ans Michael Spavor and Michael Kovrig
on accusations of spying. It imposed
bans on importsof Canadian agricul-
tural commodities, including canola
seed, soya and all pork and beef prod-
ucts.
With less than two months to go
before afederal election, Mr Trudeau’s
handling of the diplomatic rift is being
closely watched.
One poll this summer showedthree-
quarters of Canadians felt China was
trying to “bully” Canada. Conservative
leader Andrew Scheer, whose party is
tied with the governing Liberals ahead
of the October 21 vote, has accused Mr
Trudeau of doing “nothing to stand up
for Canada in response”.
A spokesperson for Chrystia Free-
land, Canada’s foreign minister, said the
government’s priority was the welfare of
the two men “arbitrarily detained” by
China and that it had “rallied an unprec-
edented number of partners around the
world in support of Can-
ada’s position”.
Last week Mike
Pompeo, the US sec-
retary of state, joined
their ranks, pledging
to pressure China to
free them “until suchtime as they are home and returned to
their families”.
The approach was necessary to show
that Canada “still has friends who are
powerful and willing to go to bat for us”,
said Stephanie Carvin, an associate pro-
fessor at Carleton University and a
former national security analyst.
She added that Mr Pompeo’s “strong
and forceful” statement was exactly
what Canada needed from a US admin-
istration that was no longer seen as hav-
ing Canada’s back. “With China it’s all
about a long game,” she said.
Even so, Mr Trudeau’s party has
repeatedly found itself on the defensive
over Ms Meng’s case as rifts emerged
within his Liberal party over how to
manage China.
In January Mr TrudeaufiredJohn
McCallum, Canada’s ambassador to Bei-
jing and a former longtime Liberal MP,
after he echoed China’s claim that the
US charges were politically motivated.
Canada’s position was also under-
mined by reports of a proposal being
floated by former Liberal prime minis-
ter Jean Chrétien this summer that Can-
ada should cancel the extradition proc-
ess in orderto curry favour with Beijing.
Ms Freeland rejected the capitulation
strategy, saying it set a “dangerous prec-
edent”.
Mr McCallum further complicated
things forMr Trudeaulast month when
he warned China that further retalia-
tory actions could result in a Conserva-
tive government which would, he said,
be “much less friendly to China than the
Liberals”.
It has all put Mr Trudeau’s own views
on China under a microscope. Like
his father, former prime minister
Pierre Trudeau, who was one of
the first world leaders to recog-
nise China’s Communist party
in 1970, Mr Trudeau has long
had a soft spot for the regime.
In 2013 heprofessed hisTrudeau muddles message in China dispute
Canada prime minister accused of not standing up to Beijing ‘bullying’ after nine-month campaign of insults and snubs
PETER WELLS AND COLBY SMITH
NEW YORK
BRENDAN GREELEY— WASHINGTONThe Federal Reserve was forced to reas-
sert that “political considerations play
absolutely no role” in policymaking
after the former head of the New York
Fed urged the central bank to consider
Donald Trump’s re-election prospects
in setting rates.A spokeswoman for the Fed’s board of
governors told the Financial Times that
the central bank’s rate-setting body
rejected the suggestion by Bill Dudley,
who also served as the Fed’s vice-chair-
man. Mr Dudley also wrote thatthey
should “refuse” to dole out stimulus to
cushion the damaging effects of Mr
Trump’s trade war.
“The Federal Reserve’s policy deci-
sions are guided solely byits congres-
sional mandate to maintain price stabil-
ity and maximum employment,” the
spokeswoman said. “Political consider-
ations play absolutely no role.”
The rare rejection of a former official’s
public statements came after Mr Dudley
wrote a column for Bloombergyester-
day saying that providing additional
stimulus would encourage Mr Trump’s
aggressive trade policies, doing long-
term damage to the US economy.
He also urged officials to consider how
their decisions could affect the outcome
of next year’s presidential election.
There is no official policy on commu-
nications for former Fed governors orpresidents. Generally, they comment on
the state of the economy but avoid
discussing the Fed’s mandate. “It’s
unlikely he speaks for the Fed”, a former
Fed official said.
The comments from Mr Dudley come
days after the annual central banker
gathering at Jackson Hole, Wyoming,
where Fed chairman Jay Powellraised
concernsabout how the Fed responds to
uncertainty around the trade war.
“Trump’s re-election arguably
presents a threat to the US and global
economy, to the Fed’s independence
and its ability to achieve its employment
and inflation objectives,” Mr Dudley
wrote in his column. “If the goal of mon-
etary policy is to achieve the best long-
term economic outcome, then Fed offi-
cials should consider how their deci-
sions will affect the political outcome in
2020,” he concluded.
Ebrahim Rahbari, chief G10 currency
strategist at Citigroup, said the resil-
ience of the US economy and the Fed’s
ability to react is something that allows
Mr Trump greater freedom in making
policy decisions that, in principle, pose
risks to the US economy.
Traders are currently pricing in a 94
per cent chance the Fed will cut its
benchmark interest rate by 25 basis
pointsin September, with the odds of a
more aggressive 50 basis point cut much
smaller, at 6 per cent. Following Mr
Powell’s speechand Mr Trump’sthreat
of fresh tariffson China, the probability
was as high as 17 per cent.Interest rates
Ex-Fed chief asks central bank
to think about Trump ‘threat’
admiration for the country’s “basic dic-
tatorship” which allowed Beijing to turn
the country’s economy round “on a
dime”.
“It turns out dictatorships aren’t so
great. Who would have thought,” Ms
Carvin said.
In recent weeks the Trudeau govern-
ment has faced pressure to take a
tougher stance with China. Mr Scheer
said that if elected he would rescind
Canada’s five-year, $250m commitment
to the China-led Asian Infrastructure
Investment Bank and consider retalia-
tory tariffs.
Mr Burton said Canada had several
other options. It could step up inspec-
tions of all Chinese shipments into
Canada on the grounds that China had
failed to stem the flow of fentanyl, an
opioid. He said Canada should also
adopt foreign influence transparency
legislation similar tomeasures Australia
implemented last year.
The situation was deteriorating, said
Mr Burton, “and there’s no perceivable
basis for thinking that if we carry on the
same way things will get better”.In the spotlight:
Justin Trudeau
arrives at the
G7 summit in
Biarritz. He has
long had a soft
spot for China
AndrewHarnik/AP‘There’s no
perceivablebasis for
thinkingthat if we
carry on thesame way
things willget better’
Meng Wanzhou:
arrested by
Canada in
December
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