There was a time, not so long ago, when Canadian politicians boasted about their liberal, free-trade convictions.
In 2007, Stephen Harper’s first industry minister was Maxime Bernier, now leader of the People’s Party of Canada. He recounted with relish how he lost hundreds of new jobs for his riding in Beauce, Que. after a local bicycle factory owner asked him to impose tariffs on cheap Chinese imports that were undercutting his product.
“I said it would be difficult for me to impose quotas that would add $72 to the cost of a bicycle for all Canadians for only 200 jobs in the Beauce,” Bernier said. That response, almost unthinkable in today’s charged political environment, was lauded by his constituents.
Contrast that with the statement by Liberal Finance Minister Chrystia Freeland earlier this month after Canada launched a 30-day consultation into the potential policy response to the prospect of a wave of cheap Chinese electric vehicles flooding the Canadian market.
“Canada’s workers and the auto sector are facing an intentional, state-directed policy of overcapacity, undermining the Canadian electric vehicle sector’s ability to compete in domestic and global markets,” she said. “This consultation will help us take action to protect our workers, level the playing field and prevent trans-shipment of oversupply from China.”
The “consultation” is somewhat redundant. Canada is a policy-taker and it will likely follow the Americans, who imposed a 100-per-cent duty on Chinese EVs in May. To do otherwise would be to invite hostility from Washington, particularly under another Trump administration.
The government said another possible additional measure is to adjust the federal incentive for its zero-emission-vehicles program, which offers rebates of up to $5,000 for Canadians who buy EVs.
In its statement, the government raised the spectre of the “significant risk” to the privacy of Canadians and the country’s national security interests posed by the technology in Chinese cars, which it said collects information from drivers.
The panic is understandable. The auto sector supports around half-a-million jobs, directly and indirectly, and contributes $18 billion to the Canadian economy.
The ‘China shock’ of de-industrialization that changed liberal trade attitudes and pushed politicians toward industrial policy and protectionism is deeply ingrained
Steve Verheul, Canada’s former chief trade negotiator and now a principal at advisory firm GT and Company, said he expects Canada to follow the U.S. and European Union lead in taking protective measures against Chinese auto imports.
“Getting out of alignment with the U.S. would create significant distortions in these markets and would create a backdoor for Chinese products to enter the North American market,” he said. “That could well lead to new restrictions on imports from Canada.”
He said such a move risked the strong possibility of Chinese retaliation. “But maintaining a complementary approach with our largest trading partner, in a highly important sector, should be given much stronger weight than the possibility China may respond in some way.”
The U.S. industry has called the threat from Chinese EVs “an extinction-level event.”
The “China shock” of de-industrialization that changed liberal trade attitudes and pushed politicians toward industrial policy and protectionism is deeply ingrained.
Successive Made in China plans have targeted sectors such as solar panels, flooding global markets to knock out competitors.
Now it is the turn of the auto sector, which has been revolutionized in recent years. Last year China exported five million autos, overtaking Japan as the world’s leading vehicle exporter.
Chinese auto companies have benefitted from economies of scale in supplying their own domestic market, now the world’s largest, where 22 million cars were sold in 2022. A Canadian government press release highlighted the disparity in labour and environmental standards with China. An autoworker in China earns about the same in a year as a Canadian autoworker earns in a month.
Chinese producers have also been helped by central government planning aimed at maximizing market share through use of subsidies.
The Chinese government has disregarded trading rules by bankrolling its companies using cheap loans, equity injections and consumer financing. China also controls 70 per cent of the world’s lithium-ion battery market and has underwritten battery production to the tune of US$4,000 a car, by one estimate.
Still, nobody’s hands are entirely clean when it comes to government interference in the auto sector: the Americans have used public money to push domestic production of EVs through the Inflation Reduction Act and Canada has spent billions of dollars in taxpayers’ money to lure battery production plants. Punitive sanctions hardly qualify as fair trading, and China’s ministry of commerce has indicated that it will look at whether the electric vehicle tariffs create barriers to free trade.
As the world decarbonizes, it remains to be seen whether anything can stop the relentless rise of China’s EVs.
In many markets in Latin America, around one in five cars is Chinese. BYD, which has overtaken Tesla as the world’s biggest EV marker, trades on the slogan “electric cheaper than gas” and its cars sell for around half the price of other electric vehicles, thanks in part to an estimated $4.3 billion in government help between 2015 and 2022.
Chinese EVs are not yet in North America but BYD has applied to federal regulators to enter the Canadian market — hence the disquieting noises from government and industry.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said the Chinese would face certification and servicing challenges. But we could see BYD cars on sale for the 2027 model year.
While there are different safety standards at play, the idea that Chinese cars are substandard is nonsense.
Having rented an SUV by another Chinese brand, Chery, and taken it on the harrowing drive to Monteverde Cloud Forest in Costa Rica, I can testify to its performance and capability in harsh terrain.
The reality is that Chinese cars are coming, even with the imposition of tariffs, and even if it takes some time to set up servicing operations.
Volpe said Canada has to meet the Chinese threat with strong industrial policy. “If the Americans have moved to protect their market and 80 per cent of the cars made here are sold to America, we damned well better do the same as them,” he said. “I’m confident that Canada is going to do something that will be materially equal to America’s tariff response.”
Politically unpopular it may be, but an alternative course to more surtaxes and incentives would be to let the market do its work.
Allowing cheaper electric vehicles to enter the country would speed up the transition to net-zero and free up money for consumers to spend on other things.
If the Chinese government is willing to use its taxpayers’ money to subsidize that transition and Canadian consumers, we should let them.
Twitter.com/IvisonJ
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