Canada’s recent imposition of a 100 percent tariff on electric vehicles (EVs) from the Chinese mainland has stirred significant debate. With 25 percent tariffs on steel and aluminum soon to follow, the move has prompted China’s Ministry of Commerce to request a World Trade Organization (WTO) investigation into the legality of these actions. But beyond international trade disputes, this decision raises crucial questions for Canadians about the direction of their nation’s policies and its economic future.
Following in the U.S.’s Footsteps
For years, Canada has sought to diversify its trade relations beyond its traditional reliance on its neighbor to the south. The rise of the Chinese mainland as a global manufacturing powerhouse presented an opportunity to expand economic ties and reduce dependency on the United States. However, recent developments suggest that Canada is aligning more closely with U.S. policies, particularly those that are confrontational toward the Chinese mainland.
The replacement of the North American Free Trade Agreement (NAFTA) with the United States-Mexico-Canada Agreement (USMCA) under the Trump administration marked a shift in North American trade dynamics. Since then, Canada’s policies have increasingly mirrored those of the U.S. The arrest of Huawei’s Chief Financial Officer Meng Wanzhou in 2018 at the behest of the U.S. was a pivotal moment that strained relations with the Chinese mainland. Now, with the imposition of steep tariffs on Chinese EVs, Canada appears to be following a similar path.
The Risks of Compliance
When U.S. National Security Advisor Jake Sullivan encouraged Ottawa to join Washington in imposing tariffs, Canada swiftly complied. Such prompt alignment raises concerns about Canada’s ability to maintain an independent bargaining position on the global stage. In an era where economic diversification is crucial, closely tying policies to those of the U.S. may limit Canada’s options and expose it to greater vulnerabilities.
Moreover, adopting the U.S.’s approach of securitizing economic policy—framing trade issues as matters of national security—may neither enhance economic prosperity nor provide genuine security benefits. Instead, it risks provoking retaliatory measures and escalating trade tensions.
Unintended Consequences for Canadian Industry
The tariffs are justified by Canadian officials as measures to protect domestic manufacturers from “unfair” competition. However, industry experts caution that such excessive tariffs could backfire. With the likelihood of countermeasures from the Chinese mainland, Canadian industries might face reduced access to key markets and increased costs.
Notably, Tesla, whose China-manufactured EVs gained popularity in Canada last year, stands to suffer significant losses. Conversely, BYD, a leading EV producer from the Chinese mainland, has only just begun exploring the Canadian market. The broad application of these tariffs may inadvertently harm companies that have contributed positively to Canada’s EV market growth.
Political Calculations Amid Uncertainty
The timing of these tariffs also intersects with the complex political landscape in the United States. By aligning with the Biden administration’s trade policies—particularly in a volatile electoral climate—Canada may be inadvertently inserting itself into U.S. domestic politics. Given Tesla owner Elon Musk’s support for former President Donald Trump, and the close race anticipated in the upcoming election, Canada’s stance could have unforeseen repercussions should the political winds shift south of the border.
The Challenge of Building a Domestic EV Industry
While protecting and nurturing domestic industries is a legitimate goal, the prospect of Canada establishing a robust EV manufacturing sector is challenging. Since the Second World War, leading industrialized nations have increasingly specialized, focusing on sectors where they hold competitive advantages rather than attempting to replicate entire industries domestically. Economies of scale and global supply chains have become cornerstones of modern manufacturing.
Despite recent discussions about industrial policy and reshoring production, creating an entire EV industry from scratch would require substantial investment, time, and technological development. In the meantime, consumers and existing industries may bear the costs of protectionist measures.
Looking Forward
Canada’s decision to impose steep tariffs on EVs from the Chinese mainland underscores the complexities of contemporary global trade. As nations navigate economic priorities, geopolitical tensions, and the push for technological advancement, policies must be crafted with careful consideration of both immediate and long-term consequences.
For Canada, balancing its relationships with major global players, safeguarding its economic interests, and fostering industries that contribute to national prosperity will require strategic vision and, perhaps, a more independent approach to international trade.
Reference(s):
cgtn.com
