Canada's unjustifiable tariffs on EVs from China

Editor's note: Radhika Desai, a special commentator on current affairs for CGTN, is a professor of political studies at the University of Manitoba in Canada. The article reflects the author's opinions and not necessarily the views of CGTN.

Three months after the U.S. announcement slapping 100 percent tariffs on Chinese electric vehicles (EV), Canada has followed suit. As local observers see it, the Trudeau government faced a choice. On the one hand, it could risk retaliatory tariffs from China on Canada's much smaller economy: The memory of those imposed on Canadian canola, pork and soybeans worth billions in trade in 2019 in retaliation for Canada's illegal arrest of Meng Wanzhou remains fresh. On the other hand, it could risk U.S. anger should China extend even part of its EV supply chain into Canada to get the United States-Mexico-Canada Agreement access to the U.S. market. Such anger would be bound to spill over into the renegotiation of that agreement in 2026.

Canada chose to avoid risking U.S. anger. But that was not how it justified the decision. Instead, Canadian Deputy Prime Minister and Minister of Finance Chrystia Freeland claimed that "China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industry … We simply will not allow that to happen to our EV sector, which has shown such promise." This justification is clearly cooked up.

Let's take all the elements of that statement in turn.

The reference to "intentional state-directed policy" is a bizarre instance of trying to tar a virtue as a vice. The most authoritative development economists will agree that there are no known instances of successful industrialization where the state has not played a central role. This is as true of Japan or Germany or South Korea as it is of the U.S. itself and even Canada.

The right to pursue industrial policy was recognized by the erstwhile General Agreement on Tariffs and Trade and is recognized by its successor, the World Trade Organization. Moreover, both the U.S. and Canada are themselves talking about industrial policy and state subsidies to sectors facing competition from China. 

As an study by the Massachusetts Institute of Technology pointed out, China's success in EV development is a classic case of a successful industrial policy. It began investing in the sector as early as 2001 when it became clear that its internal combustion and hybrid car industries were too far behind major manufacturers in the U.S., Germany and Japan.

Moreover, EVs would also have beneficial effects in reducing pollution and oil imports. Chinese authorities concentrated resources on this nascent industry, particularly focusing research and development in making lithium iron phosphate batteries that were safer and cheaper than lithium nickel manganese cobalt batteries almost as energy dense as the latter. They also began providing the fledgling industry with markets by buying its vehicles for public transport.

Nor was China at all autarkic. On the contrary, it invited Tesla in, giving it the same tax and subsidy treatment as domestic producers. Tesla extended its supply chains into China while also stimulating domestic producers to compete with it.

Next, let us come to "overcapacity and oversupply." Since when did the production of low-cost and high-quality products, particularly those that advance the world towards its critically important climate goals, become a matter of overcapacity and oversupply? If anything, the world needs more production of these things. Canada, the U.S. and the West should join in the effort to produce such goods.

What such complaints really mean is that there is a market for high-technology goods that is no longer being supplied by the U.S. or the West, thus endangering their 200-year-old monopsony on such goods. Well, for all the crocodile tears Western politicians weep over the poverty and lack of the development in so much of the world, they do get mighty upset when one part of it, namely China, manages to develop and even push back the technological frontier.

As for "crippling our (Canadian) industry," that's pretty ridiculous coming from countries that have been sparing no effort – sanctions, tariffs, military alliance and base building, "freedom of navigation" and other military exercises, propaganda, fear-mongering and false "development" advice – to prevent the rise of China and, one might add, that of most of the developing world.

Finally, Freeland speaks of Canada's own EV sector "that has shown so much promise." Undoubtedly, the thing that countries like Canada and the U.S. ought to do is find a sector or product that they have the unique strengths to develop, as China did with EVs, knowing that it could not compete internationally on conventional cars or hybrids.

However, there is a big distance between "should" and "can." Today, notwithstanding the corporate subsidies that the U.S. and Canada are giving to their manufacturers, it is unlikely that they will be able to replicate China's success in manufacturing, not least because, as they have gone down the road of neoliberalism and financialization, they have lost the capacity for sustained industrial policy they once had.

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