Blackleg or Blackmail? Economics of the Canada–China Canola Trade Dispute

The Chinese government's recent decision to suspend the export licenses of two Canadian grain firms has garnered international attention. The dispute has been portrayed by some as a diplomatic dispute between two countries, and by others as a concern about plant health. We analyze the economics of the dispute, including a simple economic model of international trade in which a large-country importer imposes a targeted import ban on one large-country exporter. The model provides a framework for understanding the economic effects of a trade ban under various market conditions. We also discuss the legal framework and dispute settlement process that would be encountered if the disagreement proceeds to a formal dispute in the World Trade Organization.