Three months after the United States announced a 100% tariff on Chinese electric vehicles (EVs), Canada has followed suit. The decision places Canada in a delicate position, balancing the potential for retaliatory tariffs from China against the importance of maintaining a strong relationship with the United States ahead of the 2026 renegotiation of the United States-Mexico-Canada Agreement (USMCA).
In 2019, China imposed tariffs on Canadian products such as canola, pork, and soybeans in response to Canada’s arrest of Meng Wanzhou, leading to billions in lost trade. With this history in mind, the Trudeau government faced a difficult choice.
Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland stated, “China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industry. We simply will not allow that to happen to our EV sector, which has shown such promise.”
However, there is debate over this justification. Many development economists agree that successful industrialization often involves significant state involvement, as seen in countries like Japan, Germany, the Republic of Korea, the United States, and Canada itself.
The right to pursue industrial policy is recognized by the World Trade Organization (WTO). Furthermore, both the United States and Canada have discussed implementing industrial policies and state subsidies in sectors facing competition from China.
A study by the Massachusetts Institute of Technology highlighted China’s success in EV development as a result of effective industrial policy. Since 2001, China has invested in the EV sector, focusing on research and development of lithium iron phosphate batteries, which are safer and cheaper than other types. These efforts have led to advancements in battery technology and have positioned China as a leader in the global EV market.
China has also encouraged foreign investment, inviting companies like Tesla to operate within the country and offering them the same tax and subsidy benefits as domestic producers. This approach has stimulated competition and innovation within the EV industry.
Canada’s decision to impose tariffs on Chinese EVs raises questions about the balance between protecting domestic industries and engaging in fair trade practices. As global markets evolve, the interplay between industrial policies, trade agreements, and international relations continues to shape the economic landscape.
Reference(s):
cgtn.com
