Canola plants grow in a field near Cremona, Alta., on July 15. China has announced an anti-dumping investigation into Canadian canola imports.Jeff McIntosh/The Canadian Press
The canola industry is Canada’s first casualty in the West’s escalating tariff war with China. But Prairie farmers’ exports to China – predictably targeted for retaliation – are only the start.
Tuesday’s announcement by Beijing of an anti-dumping “investigation” of Canadian canola exports clarifies a few important facts about Ottawa’s announcement last week of steep tariffs on Chinese exports of electric vehicles, and of aluminum and steel.
First, trade wars are costly, an excellent reason to avoid them if at all possible.
As this space said last month, the decision by the United States to impose tariffs on Chinese EVs, steel and aluminum left Canada with little immediate choice but to follow suit. China’s retaliation to Canada’s tariffs will be economically damaging. A U.S. decision to extend its tariffs to Canada would be economically devastating. That the tariffs were unavoidable does not mean they are good policy.
Canadian consumers will end up paying more for electric vehicles. The 100-per-cent tariff that comes into effect on Oct. 1 will largely spare Canada’s electric-vehicle manufacturers the inconvenience of price competition with lower-end Chinese models. In the longer term, those competition-squelching measures will also slow down technological innovation.
Similarly, the 25-per-cent surcharge that will apply to Chinese exports of aluminum and steel as of Oct. 14 will put upward pressure on prices paid by Canadian businesses. Those increased costs will inevitably flow through to consumers. Tariffs may look to punish another country’s exports, but domestic customers are the ones who feel the pain.
That’s just the fallout from Canada’s actions. China’s reaction will intensify the economic pain, starting with the canola sector. Beijing said on Tuesday that it will conduct an anti-dumping investigation into Canada’s canola industry, threatening that sector’s $5-billion in exports. (Chemical products are also on Beijing’s list.)
And that is the second lesson – protectionism begets protectionism. China’s retaliation was beyond predictable; the only surprise is that it took eight days. And there is no guarantee that China will not act further. Canada’s pork producers, for instance, would be right to worry about whether their third-biggest export market will be targeted, given that Beijing is threatening the European Union with an anti-dumping investigation into its pork exports as a retaliation for EV tariffs.
There is a third, and unfortunate, fact that the emerging trade war has made clear: the politics of protectionism work. Both the Liberals and Conservatives have stated their support for tariffs to protect the EV industry, a rare point of agreement. Neither party will accept being outbid in their enthusiasm to benefit a privileged few companies and workers at the expense of millions of Canadians, and to the detriment of sectors willing to compete in free markets. The same holds true in the United States, where both Democrats and Republicans have embraced tariffs.
And then there is the fourth lesson, that subsidies and protectionism are the ugly twins of economic nationalism. Both Canada and the U.S. insist that their true concerns are China’s shoddy labour and environmental standards, and its determination to use state power to build up industrial exports.
Ottawa and Washington may be shocked – shocked! – to discover that China is indulging in state capitalism, and is less than completely fastidious in adhering to Western standards in labour relations and green business practices. But no one who has paid the slightest attention to China in the past three decades would be.
The reality is that the United States and Canada cannot allow the sectors on which they have lavished tens of billions of dollars in subsidies to be threatened by cheap Chinese imports. Too much financial and political capital is at stake.
That underscores why the subsidies were such terrible policy to begin with: governments have become a player in the game rather than the referee. Unsurprisingly, they are rewriting the rule book in their favour.
When the final cost of that folly is tallied, it should include the economic costs of the tariffs erected to protect those subsidized producers. Every extra dollar that Canadian families spend on an electric vehicle, every dollar that a Saskatchewan farmer loses in sales, is another dollar added to that already enormous bill.