This year鈥檚 budget reveals the federal Liberals envision Canada relying more on its allies for trade in the future, economists and geopolitical experts say 鈥� even if that could result in higher prices or missed opportunities.

鈥淚t鈥檚 a reframing,鈥� University of British Columbia professor Vina Nadjibulla said after the budget鈥檚 release this week. 鈥淚t鈥檚 essentially saying what we鈥檝e been doing for the last 30 years of engagement is over.鈥�

U.S. Treasury Secretary Janet Yellen coined the term 鈥渇riendshoring鈥� a year ago, saying allies should rely on each other to make supply chains more resilient, and defang hostile actors from taxing or withholding goods.

The Liberals have sent mixed messages in the past year on the extent to which they agree with that approach. Last October, Industry Minister Fran莽ois-Philippe Champagne said Canada was 鈥渄ecoupling鈥� from China, but days later Foreign Affairs Minister M茅lanie Joly said she wanted to 鈥渞e-establish ties鈥� with Beijing.

The language in the federal budget paints a clearer picture. But some experts warn that the us-versus-them language means Canadian businesses will need to adjust in order to avoid losing out on opportunities with the developing world.

Nadjibulla, speaking at a Wednesday panel held by the Canadian Global Affairs Institute in Ottawa, said Tuesday鈥檚 budget contains the government鈥檚 clearest articulation yet of where the world is now.

鈥淭he language there is that it is a more dangerous world and a more competitive world. And in that world, Canada needs to deepen its connections with its allies,鈥� she said.

Specifically, the document says trading with other democracies prevents 鈥渆conomic extortion鈥� and being 鈥渧ulnerable to exploitation鈥� by 鈥渉ostile foreign powers鈥� who are buying up Canada鈥檚 natural resources.

鈥淒epending on dictatorships for key goods and resources is a major strategic and economic vulnerability,鈥� the budget reads, echoing comments U.S. President Joe Biden made during his recent visit to Ottawa.

Nadjibulla, who specializes in international security and the Indo-Pacific region, said the rhetoric marks 鈥渁 big departure from previous budget documents鈥� in its frankness.

鈥淓ven more so than in the Indo-Pacific strategy, we see the direction of travel,鈥� she said.

Mark Warner, a Canadian and American trade lawyer, told a panel that the implementation of 鈥渇riendshoring鈥� is already raising questions from his clients.

The automotive and textile sectors have asked him how much material they can use from China before Washington labels a product made in Canada, Mexico or Guatemala as including Chinese content, he warned.

He said that question is coming up for electronics and will likely affect pharmaceuticals, too.

鈥淭he question of how much Chinese content gets called Canadian is coming,鈥� he said. 鈥淚f we鈥檙e seen as being the back door for China, or whatever, that鈥檚 going to be more problematic.鈥�

Warner said Canada鈥檚 geography means it will always make sense to rely on Washington, even if Ottawa needs to tweak how it treats other countries under a 鈥渇riendshoring鈥� policy.

鈥淚f the Americans are serious about this, then we really have to figure out our way to be in that (space) in a way that鈥檚 coherent. And that鈥檚 how we鈥檒l protect our manufacturers,鈥� he said.

Yet Mary Lovely, an American economist with the Washington-based Peterson Institute, said the U.S. has been inconsistent in listing who actually qualifies as a friend.

鈥淭he U.S. language and the rhetoric can be interpreted in a lot of ways,鈥� she said, adding that this goes back to the Trump administration鈥檚 steel and aluminum tariffs on Canada, Europe and Mexico.

鈥淲e saw some confusion in U.S. trade policy over who鈥檚 a quote-unquote friend,鈥� she said.

For example, on Friday, the U.S. Treasury Department announced an electric-vehicle tax credit that would apply to goods from Canada, Nicaragua and Oman, but not to those from France and Germany.

Canada is already setting the stage for a cross-border salvo with Washington, announcing in this week鈥檚 budget that Ottawa is considering retaliatory policies if the U.S. doesn鈥檛 stop blocking Canadian companies from certain government contracts and green-tech programs.

Still, Washington has successfully been wedging countries against China, such as with language in the United States-Mexico-Canada free-trade agreement that forbids Canada from signing a trade deal with Beijing without U.S. consent. The same language has appeared in recent agreements with Japan and Taiwan.

Last October, the Biden administration announced sweeping restrictions on China鈥檚 access to semiconductor chips made in any country using U.S. technology, in order to slow Beijing鈥檚 technological and military rise.

Washington is already talking about similar restrictions on biotechnology and quantum tech, Nadjibulla said. She added that this is causing consternation in Southeast Asia, where countries want to maintain economic links with China, Australia, Europe and the world.

But Lovely said many countries are willing to go along with these rules because they crave American investment and a guarantee they won鈥檛 be suddenly frozen out of the world鈥檚 largest economy.

鈥淭hey fear coming a closure of the American market, and they want to be on the right side of that door,鈥� she said.

Lovely expresses skepticism about governments combining 鈥渇riendshoring鈥� policies with subsidies for their domestic businesses. She said this imposes a necessity to make subsidized companies succeed even when they鈥檙e inefficient, and positions foreign trade as a threat to local firms.

鈥淲e can think of these (partnerships) as secure, like-minded, that speak to our values 鈥� however you want. But they are going to be higher-cost,鈥� she said.

鈥淲e do need to be aware of the fact that closing markets will lead our own economies to be less competitive on the export side.鈥�

She said this will further isolate countries and make it harder to rally global investment to counter climate change.

South Africa鈥檚 high commissioner in Ottawa expressed a similar view.

In an interview, Rieaz Shaik argued that Yellen鈥檚 term lets rich countries divide the world without acknowledging the realities of developing countries and the need to address the climate crisis.

鈥淚t is the most dangerous term in the history of global political relationships, 鈥榝riendshoring,鈥� because it鈥檚 exclusionary. Worse, it says that your non-friend is the other,鈥� Shaik said in a wide-ranging interview.

鈥淲e know how apartheid South Africa dealt with the other. They dehumanized us and they removed all our rights to exist. As the other, they could do whatever they want. So I detest 鈥榝riendshoring.鈥欌��

In any case, Nadir Patel, a senior strategic advisor with Norton Rose Fulbright Canada, said Ottawa鈥檚 simultaneous rhetoric around shoring up trade with allies and developing deeper ties with regions such as Southeast Asia will only come to fruition if corporate Canada follows suit.

鈥淐anadian business needs to step up and do more in other parts of Asia, where we鈥檙e not active,鈥� said Patel, a former Canadian high commissioner to India, during the panel.

鈥淏usinesses need to step up and want to leverage that, and not just kick tires once in a while, but really be out there with a presence on a regular basis.鈥�

Dylan Robertson, The Canadian Press

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