Electric taxis near the headquarters of BYD, a leading battery maker, in Shenzhen, China, Jan. 29. China is outpacing other countries in research fields like battery chemistry, crucial to its lead in electric vehicles.GILLES SABRI/The New York Times News Service
Meredith Lilly holds the Simon Reisman Chair in International Economic Policy at Carleton University. She previously served as foreign affairs and international trade adviser to prime minister Stephen Harper.
In June, Deputy Prime Minister Chrystia Freeland delivered a serious speech at an Ontario auto plant about the threats posed to Canada of importing EVs made in China. China was engaged in an “intentional, state-directed policy of overcapacity, undermining the Canadian EV sector’s ability to compete in domestic and global markets” she said. She vowed strong action, referencing the rarely used Section 53 of the Customs Tariff Act, which gives the Minister of Finance broad latitude to impose steep tariffs on foreign imports to protect Canadian interests.
By the time the minister made that speech, the Biden administration had already imposed 100-per-cent tariffs on Chinese EVs, and Europe announced a plan to impose tariffs of as much as 38 per cent. Thus, when Ms. Freeland launched the 30-day consultation period to gauge the views of Canadian stakeholders on potential measures, Canada was fully expected to launch similar actions shortly after the 30-day window closed on Aug. 1.
She still hasn’t announced any action – and it’s not clear why. Even if the announcement comes tomorrow, it will have been more than two weeks since the end of consultations. And in the context of the issue, two weeks is a long time.
Since Canada linked arms with the United States on EV incentives to match those in the latter’s Inflation Reduction Act, the die has been cast. After launching more than $50-billion in federal and provincial government incentives to stimulate a domestic sector for EVs and battery manufacturing, it has been inevitable that Ottawa would also need to align with Washington on tariff action as well.
Just as the U.S. already determined, if Canadian governments are serious about their manufacturing investments in EVs, the sector must also be protected until it is more firmly established. Canadian products are simply not cost-competitive relative to Chinese-made alternatives, which sell for a fraction of the price.
And no one should be taken in by the counterargument that placing tariffs on cheaper Chinese EVs delays uptake by consumers. U.S. President Joe Biden and Prime Minister Justin Trudeau both used the green transition as a reason to invest in North American industrial policy – their ultimate objective is job creation at home.
In addition to pricing Canadian products out of the market, large-scale imports of Chinese EVs would also threaten Canada-U.S. trade more broadly through increased border scrutiny. The number of Chinese-made vehicles exported to Canada skyrocketed after the imposition of U.S. tariffs. If Canada fails to stop the flow, we will be forced to dramatically increase monitoring and enforcement to avoid transshipment of those vehicles into the U.S.
This is the same reason Canada must use additional strong measures to stop the establishment of Chinese-headquartered EV manufacturing plants on Canadian soil as well. Once operational in Canada, Chinese manufacturers will be able to export vehicles to the U.S. tariff-free under CUSMA – that is, until a future U.S. administration imposes measures against Canada to stop it.
This is perhaps the real reason for the Canadian government’s delay. The U.S. Department of Commerce is due to report later this month on its study into “connected cars” from China. The study is designed to address the national security threats posed by software systems on wheels, especially if they are designed or made by Chinese firms. If the U.S. resolves to ban all EVs designed or manufactured by Chinese firms or other countries of concern, Canada will have to do the same. Both the integrated North American auto supply chain and Canada-U.S. border efficiency are at stake.
Yet if this is the reason for Canada’s delay, the government should roll out its announcement in two phases. Ms. Freeland can announce tariffs on EVs now and follow up with new cybersecurity restrictions after the U.S. announcement.
Another possible source of Canada’s delay could simply be cold feet, including potential Chinese retaliation on unrelated sectors, such as canola and pork exports. These are valid concerns, and Ottawa should anticipate a response. No doubt Trade Minister Mary Ng got an earful from her Chinese counterpart when she visited Beijing last month.
However, we must be realistic about Canada’s role in this complicated global competition. China will always take economic measures to protect and close off its markets when it is in China’s interest to do so, and Canada should not shrink from tough policy decisions over such concerns.
In reality, Canada has little room to manoeuvre. What is Ms. Freeland waiting for?