Now that Conservative Leader Pierre Poilievre and his party have joined the chorus calling for more action against Chinese imports, a key decision facing Finance Minister Chrystia Freeland this month just got a little easier.
Cross-party consensus on the wisdom of lining up with the Biden administration’s incoming tariffs on made-in-China electric vehicles provides the government with more political cover. But there’s still a risk of incoming flak.
To understand how complicated this gets, consider how then-president Donald Trump’s earlier campaign against Chinese state-sponsored overproduction played out for the United States and its trading partners in what was then NAFTA, now the Canada-United States-Mexico Agreement (CUSMA). That policy debate got very confusing for voters who like to slot politicians on a predictable left-right axis.
U.S. Republicans — previously champions of global trade liberalization and low taxes — suddenly had a president whose throngs of supporters embraced tariffs as the ultimate economic weapon to protect American jobs.
But the businesses and consumers paying Trump’s tariffs on Chinese goods were American.
Tariffs are taxes. When they’re applied to commodity goods that are essential inputs for manufacturing (steel and aluminum, for example), they trigger inflation.
That doesn’t always matter to lobbyists working for powerful industries. For example, softwood lumber duties on Canadian 2x4s have driven up the cost of housing construction in the U.S. for years. They’re still in place and are a major cross-border trade irritant.
Been there, got the t-shirt
Fed up with Trump slogans that violated basic economic logic, a trade policy analyst with the Cato Institute tried to counter those arguments back in 2018 by selling t-shirts with a wordy but accurate slogan: “Tariffs not only impose immense economic costs, but also fail to achieve their primary policy aims and foster political dysfunction along the way.”
Fellow free traders railed against Trump’s economic self-harm in classrooms, at think tanks and on social and mainstream media. Their arguments failed to carry the day.
Seeking concessions to make trade more “fair,” America-first protectionists in the Trump administration slapped tariffs on a long list of products from other countries — from China and from NAFTA partners like Canada as well. Multiple rounds of retaliation and negotiation eventually ended the tariffs on Canadian steel and aluminum, subject to conditions and lingering allegations of backdoor transshipping that continue to aggravate the cross-border relationship.
Chinese imports never stopped coming into North America. North American industries lack the capacity to produce everything North Americans need at affordable prices, and even with government assistance there’s no prospect of self-sufficiency for certain products in the near future.
Through artful lobbying, powerful players in the U.S. continue to get the imports they need by securing bespoke exemptions to tariffs. (At one point in 2019, Chinese products got more exemptions than Canadian ones — a real geopolitical head scratcher.)
Over time, a cross-partisan consensus took over American politics. These days, hardly anyone in the U.S. speaks up to disagree with the claim that domestic workers and strategic industries deserve special protection.
When President Joe Biden took office, he appointed a trade representative with deep expertise in the aggressive trade strategies of Chinese state-owned enterprises to continue the fight started by Trump’s Republicans.
Canada slow to line up
Fast-forward to the spring of 2024 and the latest wave of U.S. tariffs on Chinese electric vehicles, semiconductors, solar panels, steel, aluminum and other strategic imports.
Keen to avoid a sequel of past dramas, Mexico checked the prevailing political winds and stopped offering incentives to Chinese carmakers.
Canada was slower to move. The federal government didn’t launch its consultation on potential action against Chinese EVs until late June and it didn’t conclude until July 31. Freeland’s office has promised it will have “more to say soon” on tariffs.
President and CEO of the Canadian Steel Producers Association Catherine Cobden says the Canadian steel and aluminum industry faces an existential threat from Chinese suppliers flooding the Canadian market. She’s calling for urgent government action, including increasing tariffs, and says the current measures are insufficient.
Canada’s steel and aluminum sectors survived the last time they were targeted by U.S. protectionism; they’re wary of facing another round. Although steel and aluminum companies sometimes compete with one another, their representatives called a joint press conference last week in Ottawa to sound an alarm.
“Our metal is like water — seeking the path of least resistance to reap the highest price,” said Jean Simard, president and CEO of the Aluminum Association of Canada. He and his steel sector counterpart stood side by side to implore the Trudeau government to build more trade barriers of its own and ensure Chinese shipments facing steep tariffs in the U.S. don’t end up dumped in or shipped through Canada instead.
Freeland’s office didn’t explicitly mention tariffs on steel and aluminum as options in her summer consultation, although her call for submissions included general language about EV supply chains. Her spokesperson points out she’s been meeting with industry representatives over the summer to understand their concerns about cheap Chinese imports displacing products from Canadian mills.
What will Freeland do?
The finance minister has a range of tools at her disposal. She could — as Poilievre suggested last Friday — end consumer rebates for made-in-China EVs. Companies that manufacture and assemble EVs in Canada want the federal government to stop subsidizing their competitor, Tesla, which assembles vehicles for the Canadian market in Shanghai.
Climate activists may disagree. Sticker price is an important factor for drivers considering a switch to lower or zero emission vehicles, regardless of where vehicles are assembled.
Freeland could, as the European Union has done, launch a trade investigation into unfair subsidization by the Chinese and calculate an appropriate tariff based on its findings. But that kind of process wouldn’t move fast enough to have tariffs in place to match the U.S. this fall. Earlier this month, China brought a complaint to the World Trade Organization over the EU’s 37.6 per cent tariff.
Freeland’s most expedient option is to simply use her authority as minister to levy surtaxes to match the American tariffs.
Consistency across the CUSMA zone would be a plus. It also could expose Canada to more claims by Beijing that Ottawa doesn’t make its own sovereign trade policy but simply does whatever the U.S. wants.
The expedient option could also trigger another complaint from China at the World Trade Organization. Canada still preaches the virtues of the rules-based trading system to other countries, so being accused of acting arbitrarily for political expediency isn’t a good look.
Poilievre the protectionist?
Before last Friday — when Poilievre made his call for tariffs before a crowd of steelworkers in Hamilton — what we knew of his ideology might have pegged him as the sort of guy who would have worn an anti-tariff t-shirt back in 2018. The Conservative leader tells his partisan crowds he opposes taxes as a matter of principle and promises that as prime minister he’d axe them, not raise them.
But protectionism makes for better politics when you’re standing before a crowd of steelworkers in a city with several tight seats in play. Unionized workers know what they want to hear from politicians of every stripe on this issue. And they’re key swing voters right now.
Poilievre’s calculation here seems to be that the cause of battling the Chinese Communist Party justifies suiting up and calling for the same tariffs Americans will soon pay.
“He’s looking for a political angle because that’s all he does,” Prime Minister Justin Trudeau said Monday. He accused Poilievre of trying to jump in front of this parade even though — according to the Liberals — a Conservative government would cut the investments the federal government has made to help these industries compete.
Poilievre might prefer that Freeland be the one who slaps on the tariffs before an election is called. That way, he wouldn’t have to wear a decision that risks increasing the prices Canadian households pay on imported goods — and not just EVs.
But new tariffs are still new taxes. In this fight against Chinese imports, Poilievre has set aside free market principles to embrace a potentially inflationary form of protectionism.
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