BYD electric cars wait to be loaded onto a ship at the international container terminal of Taicang Port at Suzhou Port, in China's eastern Jiangsu Province, Sept. 11, 2023.STR/Getty Images
Back when she was foreign affairs minister, Chrystia Freeland rarely missed an opportunity to champion the postwar “rules-based international order” that had come under assault by then-U.S. president Donald Trump.
In 2018, when Mr. Trump slapped tariffs on Canadian steel and aluminum imports as part of a broad protectionist thrust directed mostly at China, Ms. Freeland used a speech in Washington to denounce the move as “a naked example of the United States putting its thumb on the scale, in violation of the very [international trade] rules it helped to write.”
She then offered her American audience some free advice on dealing with China.
“Allow me, as your friend, to make the case that America’s security, amid the inexorable rise of the rest, lies in doubling down on an improved rules-based international order,” Ms. Freeland said in accepting a diplomat-of-the-year award from Foreign Policy magazine.
On Monday, nearly four years after she became Finance Minister, Ms. Freeland struck a very different tone when she announced a 30-day consultation period, after which Ottawa will decide whether to slap punitive tariffs on Chinese-made electric vehicles and batteries. This follows U.S. President Joe Biden’s announcement last month of a quadrupling of U.S. tariffs on Chinese EVs – to 100 per cent – and a 25-per-cent tariff on Chinese EV batteries.
The outcome of Ottawa’s consultation appears to be a foregone conclusion. Canada seems poised to join Washington in an EV trade war with China, dragging the world into what Chinese Premier Li Qiang this week warned could be “a destructive spiral where the fierce competition for a larger slice ends up in a diminishing pie.”
Sure, Ms. Freeland blamed “unfair competition from China’s intentional, state-directed policy of overcapacity” that is “undermining the Canadian EV sector’s ability to compete.” China, she insisted, “is actually not playing by the global trade rules.”
But who is kidding whom? By inundating their own EV sectors with government subsidies, Canada and the U.S. are hardly models of free and fair trade. Washington’s US$7,500 rebate for EV buyers already excludes cars with batteries or battery components from “foreign entities of concern.” And Ms. Freeland suggested Canada’s rebate could also soon be denied to buyers of Chinese-made EVs.
Washington and its allies have valid national security concerns about China’s dominance of EV supply chains. But it is mostly because they dragged their feet on developing their own EV sectors that Canada and the U.S. are now scrambling to block Chinese EV imports – and resorting to the flimsiest of excuses to do so.
China has a 15-year advance over Western automakers in developing EVs. Yes, it has heavily subsidized its domestic EV players – to the tune of US$230-billion since 2009, according to a recent Centre for Strategic and International Studies estimate. But 80 per cent of these subsidies have been in the form of non-trade-distorting rebates and sales tax exemptions. And, over all, its EV subsidies are declining.
China’s EV startups not only learned how to make EVs more cheaply than Western legacy automakers hooked on profits from internal combustion engine (ICE) vehicles; they learned to make arguably better EVs than legacy ICE automakers, including those on which Canada is banking to make it an EV leader – Stellantis, Volkswagen and Honda.
The federal and Ontario governments are now so heavily invested in the EV sector, and in automakers with unproven track records in mass EV production, that the only way they can hope to earn a return on their investments and protect the jobs that go with them is by resorting to the same protectionist tactics that Ms. Freeland railed against in her 2018 speech.
As Scott Kennedy, author of the Centre for Strategic and International Studies report and its trustee chair in Chinese business and economics, noted: “The 100-per-cent [U.S. tariffs] do not appear to be based on an analysis of specific Chinese subsidies, but instead likely reflect a rough estimate of how high tariffs would need to be to dissuade Chinese producers from even contemplating exporting their vehicles to the U.S. at all.”
In other words, the goal of U.S. tariffs is not to level the playing field, but to shut Chinese EVs out of the U.S. market entirely to insulate North American EV and battery plants from competition. And Canada now appears poised to follow suit.
As for the prospect of Chinese EV makers building plants in the U.S. or Canada, as Japanese automakers began doing four decades ago, don’t bet on it. Japan was and is a Western ally. China and the U.S. are locked in a great power rivalry reminiscent of the Cold War.
What this all means is higher EV prices for Canadian consumers, less competition and certain Chinese retaliation against Canada – not to mention a kick in the shins for the rules-based international order Ms. Freeland once claimed to champion.