Particularly complex, the Chinese puzzle is a three-dimensional game which consists of fitting together different pieces of wood in a tortuous shape to arrive at the solution.
The Trudeau government is facing this kind of multidimensional challenge, as Chinese electric vehicles, which sell for just $15,000 in the Middle Kingdom, threaten to drown the Canadian industry in which governments have just invested billions.
The solution unveiled by Ottawa yesterday is not very elegant. Like the United States, Canada will impose 100% customs duties on Chinese electric vehicles, as Conservative leader Pierre Poilievre has been demanding.
Prime Minister Justin Trudeau stressed the importance of protecting “Canadian businesses and values” so that they are not penalized by China, which “does not play by the same rules.”
Except that protectionism is a dangerous game.
Generally speaking, imposing customs duties is counterproductive for the country that applies them. By wanting to protect jobs in a specific sector, which can be politically profitable, we increase prices for all consumers, who do not benefit from international competition.
This is without taking into account that the targeted country will impose reprisals, which will lead to a trade war harmful to all.
Today, Canadian exporters, particularly in the food sector, are in China’s crosshairs, which “will take the necessary measures to protect the rights and interests of Chinese companies,” insisted the Chinese ambassador to Canada, Wang Di, during an editorial meeting with The PressMonday morning.
When we asked him to be more specific, he only replied: “Be patient,” in a tone that left little doubt.
“Since when is it a sin to make a quality product at a low cost?” asks the ambassador, who arrived in his post three months ago. On the contrary, he praises Chinese innovation, which has made green vehicles accessible to a large number of households.
In North America, the high price of electric vehicles is putting off drivers, so demand is lower than expected. Manufacturers are backtracking. For example, Ford announced in mid-July that it will produce F-Series trucks at its Oakville, Ontario, plant, where it had intended to build electric vehicles. The picture is striking.
Despite the tempting prices, there are still legitimate reasons to be concerned about Chinese electric vehicle exports.
First, there are serious allegations that forced Uighur labor is entering China’s aluminum supply chain, according to Human Rights Watch.
Second, there are concerns that the environmental standards of Chinese factories are not as high as ours.
And third, there is a risk to privacy, as Chinese cars collect information from drivers, without sufficient transparency about how the data is used.
PHOTO GILLES SABRIE, THE NEW YORK TIMES ARCHIVES
Electric car factory in Ningbo, China
However, these concerns could have been allayed in ways other than the imposition of customs duties.
But the biggest challenge is overcapacity in China, which is raising concerns about dumping. By 2025, Chinese factories could produce four times more batteries than the entire planet’s projected demand, according to a recent Bloomberg NEF report.
Canada is crying foul, which is rather ironic. Yes, China has subsidized its industry. But the United States has announced a plan of more than US$800 billion in 2022 to boost its green industry. And Canada has released US$80 billion in its 2023 budget.
Still, China is ahead, with 70% of the world market. Excessive concentration of production in a single country can allow that nation to manipulate production to achieve national strategic objectives or geopolitical ambitions. In short, it poses a national security risk.
But tariffs are a tool to be handled with care, to avoid the harmful side effects of protectionism. Europe has chosen a more nuanced approach, imposing tariffs of up to 38%, in order to rebalance the market, without banning Chinese products.
But Canada did not have the luxury of displeasing the United States, our largest trading partner by far. In the auto sector, our production chains are fully integrated. And the risks of retaliation from the United States can be serious, as former President Donald Trump has already proven.
Ottawa has chosen to please its neighbor and protect its auto industry. But North American protectionism will keep the price of electric vehicles high and discourage motorists from going green… which is the basic goal.
To decarbonize transportation, Canada still has a big puzzle to solve.