Canada had to impose the same 100% tariff barrier on Chinese electric cars as the Americans. You don’t choose your geography and past political decisions are setting a path that is difficult to leave.
In theory, it is quite simple to choose the right cocktail of measures to combat global warming. In practice, it is devilishly complicated to link it to industrial and commercial policies and, moreover, to win the next elections.
The case of electric vehicles (EVs) illustrates this well. Our automotive industry has been integrated with that of the United States since the 1965 Auto Pact. The 2019 Canada-United States-Mexico Agreement (CUSMA), negotiated under Donald Trump, allows vehicles to circulate in the three countries on a free trade basis, without customs tariffs, if they have 75% North American content.
China is the world leader in electric cars. Thanks to generous subsidies, it produces high-quality vehicles on a massive scale at rock-bottom prices, but often at a loss.
More than 50% of cars purchased in China are now electric. Half are Chinese brands, half are Western brands that operate factories in the country.
Relying on their large production capacities, Chinese manufacturers have set out to conquer the world, but the Americans want to stop them on their shores.
China’s BYD has started exporting hybrid pickup trucks to Mexico and wants to build a factory there. However, the Mexican government is under strong pressure from the US to refuse any subsidies, even though the Chinese promise not to export anything to the US.
There is no talk of building a Chinese factory in Canada, although BYD was considering exporting vehicles there before the tariff was announced. Last year, before the 100% import tax, 13% of EVs imported into Canada came from China, mostly Tesla 3 and Y models assembled in Shanghai. Tesla is now arguing for a lower tariff, like those imposed by Europe. My electric Volvo comes from Belgium, but the Swedish company, which is owned by China’s Geely, also sells models assembled in China.
PHOTO JOSIE DESMARAIS, LA PRESSE ARCHIVES
A Montreal taxi from the Chinese manufacturer BYD
Europe is approaching the challenge in a more nuanced way, as Germany fears losing access to the Chinese market for its cars. The customs tariff varies from 10% to 48% depending on the degree of subsidy of each manufacturer. The red carpet is also being rolled out for BYD, which wants to build a second factory in Europe after the one in Hungary.
In the United States, President Biden has quadrupled the tariff, justifying it by the unfair competition of Chinese state subsidies and by security concerns. His government also very generously subsidizes battery and EV factories.
If the Americans, in rivalry with China, are adopting this muscular strategy, it is because they have bet everything on subsidies to decarbonize their economy, unlike Europe (and Canada to a lesser extent). Congress has blocked attempts to guide consumption and investment decisions through a carbon tax, yet the most powerful and least costly tool.
The North American automobile industry is seriously lagging behind China and fears consumer hesitation over the high price of EVs, the fear of breaking down and an insufficient charging network outside Quebec.
These problems will fade, but in the meantime, battery and EV producers need protection, according to the classic nascent industry argument. Reasonable, but it doesn’t provide an incentive to lower prices and could drag on forever.
The still scarce supply of affordable vehicles for the middle class, but less profitable for industry, is slowing down the adoption of zero-emission vehicles, while it should be accelerated to combat global warming.
The federal, Ontario and Quebec governments are subsidizing the EV production chain to the tune of $52 billion. So there is no question of wasting these public investments by opening the door wide to Chinese vehicles, despite the reprisals on canola grown in the West, where subsidies to battery factories in the East, which will replace their oil, are already hard to digest.
Canada and a dozen U.S. states are requiring manufacturers and importers to have at least 20% of their sales be all-electric or plug-in hybrid vehicles by 2026, a requirement that will reach 100% by 2035.
While much of the public remains skeptical about the climate emergency, the Democrats’ – and Canada’s – green strategy rests largely on the promise of creating millions of good-paying, unionized jobs.
International trade now has a bad reputation. The unequal distribution of wealth it has created and the simmering anger of less-skilled workers over technological change have fueled the rise of populism and protectionism.
We see it in Canada as in the United States, it is difficult for elected officials to reconcile social peace and the fight against global warming.
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