Chinese President Xi Jinping and Canadian Prime Minister Justin Trudeau (R) stand with other world leaders.Kent Nishimura/Getty Images
Jeff Mahon is director of geopolitical and international business advisory at consulting firm StrategyCorp and an executive-in-residence at the Canada West Foundation. He has worked in Global Affairs Canada’s greater China division.
Canada’s decision last week to impose tariffs on Chinese electric vehicles makes sense in the context of the pursuit of its economic development goals. In this case, it involves building a buffer that can foster a nascent manufacturing base. But the means taken to achieve this end lacked critical thinking and irresponsibly ushered in unnecessary risks while missing a leadership opportunity.
Ottawa’s use of unilateral tools to implement 100 per cent tariffs on EVs is a hallmark of a trade war. Top this off with the politically charged rhetoric Canada has used, then we shouldn’t be shocked that China has responded in kind.
Indeed, Beijing waited one week before launching an anti-dumping investigation into Canadian canola. By acting rashly and inviting such retaliation, the Canadian government has effectively sacrificed Western interests for those of Ontario and Quebec.
While both Canada and the United States have legitimate concerns over how Chinese practices undermine market competition and threaten economic development, Canada abdicated leadership by blindly following the U.S.’s approach, not only in matching its 100-per-cent tariff, but also using unilateral tools to do it.
Canada instead reached for Section 53 of the Custom Tariff to avoid following the multilateral rules-based process that requires a thorough investigation before determining the amount of countervailing duties to apply. Section 53 is the Canadian equivalent of the notorious Section 301 of the U.S. Trade Act of 1974.
But more concerning is the rhetoric employed in the government’s announcement. It accused China of intentionally seeking to undermine Canada’s prosperity. Of particular note is the repeated reference to “unfair” trade practices.
Again, we’re following the U.S., which uses this term in its own pronouncements. However, the U.S. uses this language for legal purposes because it is directly tied to Section 301, which is formally named Title III – Relief from Unfair Trading Practices. Canada’s own legislation doesn’t use such value-laden wording.
Instead, Canada’s legislation speaks to how other countries’ policies could adversely affect trade in Canada. It makes no reference to unfair trade practices or intentional efforts to undermine our industry – the kind of rhetoric that the government is using to justify the tariffs. And China took note: it parroted back our own rhetoric accusing Canada of “unfair competition” in announcing its investigation.
The challenges we face from China’s socialist market economic model that’s full of subsidies and other non-market practices are real. But Canada also has trade complementarities and interests at stake. The U.S. can afford to be tough because China is more circumspect about economic retaliation against it. Canada, being a mid-sized, trade-dependent country, needs to be more diplomatically nuanced.
While China has reverted back to targeting the major Canadian export of canola, it appears to be adjusting its playbook.
In previous instances, such as when Beijing targeted canola for alleged health and safety concerns after the arrest of the Huawei executive Meng Wanzhou, such actions were criticized as opaque and arbitrary as China didn’t engage to provide evidence. But more recent bouts of such retaliation against Western countries, including Monday’s announcement on canola, have utilized a more formalized process, such as anti-dumping investigations, to give a veneer of legitimacy.
Canada’s confrontational approach signals a missed opportunity to exercise leadership by finding a new modus vivendi with China. We should’ve sought a more constructive way of dealing with this challenge because EVs aren’t going to be the last trade irritant we face with our second-largest trading partner. We could’ve still achieved our desired results in a manner less inviting of retaliation by framing our actions in language that allowed China to save face.
It’s now more difficult to bring China to the bargaining table. And it’s here where Canada is best positioned to make meaningful contributions. Today’s geopolitical conflict has much of its basis (though not all) in conflicting economic interests. Liberal market democracies and China are all pursuing similar economic development goals of maximum employment and enhancing productive capacity. However, we pursue this through different institutional frameworks.
The challenge is that trade and development are linked, thus achieving our objectives are not solely a product of our actions but are affected by others’ policies. Canada essentially used this logic in aligning with the U.S., but it missed the bigger strategic picture in rolling it out with China.
Canada could have led by example by casting our decision in language China understands. We should have emphasized the importance of safeguarding the development of this emerging industry while pointing to China’s long track record of limiting trade to pursue similar objectives. We should have used the recent opening following Foreign Minister Mélanie Joly’s July visit to Beijing to build a platform for carrying out difficult negotiations. However, by sassing off and carbon-copying the U.S.’s approach, we denied ourselves a seat at the bargaining table and opted for one at the kids’ table instead.