World leaders watch a skydiving demo during the G7 world leaders summit at Borgo Egnazia, Italy, on June 13.Domenico Stinellis/The Associated Press
Karthik Nachiappan is a non-resident senior fellow at the Asia Pacific Foundation of Canada.
The Liberal government’s decision to slap a 100-per-cent tariff on Chinese electric vehicles the past week should not have been a surprise. Yet, how the decision and rationale were unveiled in Halifax was wanting.
Liberal ministers kept justifying the need to align Canada’s response with the United States and European Union, our closest trading partners, and stressing China’s unfair domestic advantages that have caused EV overproduction. That’s only a part of the story. What the Liberal government omitted was that the decision was influenced by security considerations that are now affecting trade discussions and decisions.
Global trade has changed. It is buffeted by international pressures, from security tensions to climate burdens and technological shifts. Security competition is denting trade between “blocs,” altering long-standing trade dynamics. Conflicts in Europe and the Middle East are roiling and rewiring supply chains. And key economies are using environmental and digital policies to restructure production and trade.
By imposing tariffs on Chinese EVs, Canada clearly recognizes this reality. But its overall strategy lacks both heft and vision.
Canada must prepare for a heightened era of economic turmoil in which trade, technology and investment matters are securitized. The U.S.-China rivalry has multiple effects on trade. It manifests sharply through U.S. and Chinese industrial policies that distort trade patterns. Both countries are using their deep wallets to craft government initiatives to rework supply chains in their favour. Both “friendshoring” and “nearshoring,” where businesses move operations to friendlier and nearer countries, are accelerating, despite constraints, with countries such as Mexico, South Korea, Thailand and Vietnam benefiting.
Some difficult trade effects are widespread, as the U.S.-China rivalry crosses geographies and issues, such as semiconductors, artificial intelligence and electric vehicles. The U.S.-China contest for chip supremacy will reverberate across industries and countries. G7 efforts that impair competitive Chinese industries through export controls and tariffs could stifle China’s economic position and spur global economic fragmentation, potentially reducing global GDP over the next few years.
Canada will suffer if we do not refocus and adapt our economic playbook for this geoeconomic landscape.
There are those that have done so. Countries in Europe, Southeast Asia, Japan, Australia and India are taking various protective measures to shore up domestic industries. These economic efforts are framed and embedded within a security logic that protects and leverages their economies for geopolitical reasons.
Ottawa has been trying to shore up domestic industries, too, but it has largely decided to throw money at the problem through tax credits, subsidies and research and development investments to kick-start production in Canada.
Justin Trudeau’s trade policy also relies on trade missions, gateways and agreements with leading and emerging economies. Such measures are necessary but insufficient as trade becomes fundamentally strategic and inflected through issues such as security, climate and technological change. No strategy is in place to manage, mitigate and exploit this competitive trade landscape. We are using old economic ideas for a new economic terrain.
Instead, we must defend and advance Canadian interests through an economic security strategy. It requires strengthening and embedding the Investment Canada Act’s provisions under a security strategy.
We can better protect our sectors and firms from the effects of unilateral European and U.S. policies such as the EU’s General Data Protection Regulation, European Green Deal and the U.S.’s Inflation Reduction Act. We have to negotiate narrower trade agreements with like-minded countries, including Japan, Australia, the United Kingdom and Singapore, covering digital and environmental issues, such as critical minerals, data, artificial intelligence and cybersecurity to ensure our exports reach key markets.
We can use our market power in industries, including natural resources and commodities, to prevent retaliatory trade measures from our competitors. We should align our digital rules and standards with close trade partners. And Ottawa must partner with Canadian firms increasingly affected by domestic and external trade policies.
Canada must adapt for an intensely competitive global economic context. Trade is no longer just trade. It is about establishing and correcting the conditions that enable countries to exchange goods and services. It is about devising appropriate rules to regulate problems and using those measures and market power to generate compliance from others.
Our trade policy must reflect and advance the ambitions of its climate transition, security concerns and interests and technological strides. Anything less will not be fit for purpose.