12th September 2024 – (Beijing) Deputy Prime Minister Chrystia Freeland has announced a 30-day public consultation on proposed tariffs targeting Chinese batteries, semiconductors, critical minerals, and solar products. This latest salvo in the escalating trade tensions between Ottawa and Beijing comes hot on the heels of Canada’s decision to impose 100% tariffs on Chinese electric vehicles, set to take effect on 1st October.
The announcement, made against the backdrop of the Liberal Party’s caucus retreat in Nanaimo, British Columbia, represents a significant hardening of Canada’s stance towards its second-largest trading partner. Freeland’s office didn’t mince words, accusing China of “unfair competition” that “threatens Canadian workers and businesses”. This rhetoric marks a departure from Canada’s traditionally cautious approach to trade disputes with China, reflecting a growing alignment with Washington’s more confrontational posture.
The proposed measures, if implemented, would touch on some of the most critical sectors of the modern economy. Batteries and semiconductors are the lifeblood of the digital age, powering everything from smartphones to electric vehicles. Critical minerals are essential for advanced manufacturing and green technologies, while solar products are at the forefront of the renewable energy transition. By targeting these sectors, Canada is not just picking a trade fight; it’s staking a claim in the global race for technological and industrial supremacy.
However, this aggressive stance is not without risks. China, the world’s second-largest economy and a manufacturing powerhouse, has already signalled its displeasure. The Chinese Ministry of Commerce swiftly condemned Canada’s move, accusing Ottawa of “blindly following certain country to take unilateral suppression measures against China”. This thinly veiled reference to the United States underscores Beijing’s view that Canada is acting as a proxy in America’s broader strategic competition with China.
The timing of Canada’s announcement is particularly noteworthy. It comes just days after China requested consultations with Canada at the World Trade Organisation (WTO) over the planned tariffs on Chinese EVs, steel, and aluminium. By pressing ahead with consultations on additional tariffs, Canada is effectively doubling down on its confrontational approach, despite the risk of further escalation.
This move has not gone unnoticed by trade experts and industry observers. He Weiwen, a senior fellow at the Centre for China and Globalisation, predicts that Canada will likely impose the additional tariffs after the 30-day review, albeit with potentially adjusted rates. This assessment reflects a growing consensus that Ottawa is committed to a fundamental realignment of its trade relationship with Beijing, even at the cost of potential retaliation.
The broader context of this trade dispute is crucial to understanding its implications. Canada’s actions are part of a wider trend of Western democracies reassessing their economic ties with China. Concerns over national security, intellectual property theft, and unfair trade practices have led to a growing push for “decoupling” or at least reducing dependence on Chinese supply chains.
However, Canada’s approach stands out for its breadth and intensity. While the United States has twice delayed announcing final determinations on additional tariffs on Chinese products, Canada has moved swiftly and decisively. This eagerness to act has raised eyebrows, with some observers suggesting that Ottawa is seeking to demonstrate its loyalty to Washington.
Indeed, the timing of Canada’s announcement, coming just a day after US National Security Advisor Jake Sullivan met with Canadian Prime Minister Justin Trudeau, has fueled speculation about coordinated action. Sullivan had previously expressed hope that Canada and other US allies would take a coordinated approach to limiting the sale of Chinese EVs, indicating a level of strategic alignment between Washington and Ottawa.
Yet, this alignment comes with significant risks for Canada. China remains a crucial market for Canadian exports, particularly in sectors like agriculture and natural resources. The potential for Chinese retaliation could have far-reaching consequences for Canadian businesses and consumers. Already, trade between China and Canada has shown signs of strain, with bilateral trade dropping by 0.5% year-on-year in the first eight months of 2024, reversing earlier growth trends.
Moreover, there are concerns about the impact of these measures on Canadian consumers and businesses. David Dienesch, CEO of Allianz Trade in Canada, warns that while tariffs may not necessarily lead to shortages, they will likely result in higher prices for consumers. This is particularly true in sectors like semiconductors, where China is a dominant global producer. The automotive and telecom industries could face significant supply chain disruptions in the short term as manufacturers adjust to new pricing and potentially seek alternative sources.
The electric vehicle sector, already grappling with a global semiconductor shortage, could be particularly hard hit. Robert Khachatryan, CEO of Freight Right Global Logistics, predicts longer production delays and higher costs for the North American EV industry. This could have knock-on effects for Canada’s ambitious climate goals, which rely heavily on the rapid adoption of electric vehicles.
Perhaps most concerning is the potential impact on Canada’s nascent battery and critical minerals industries. Erik Johnson, senior economist at BMO Capital Markets, notes that Canada’s supply chain in these sectors is still in its infancy. By imposing tariffs on Chinese imports, Canada risks hindering its own efforts to develop domestic capabilities in these crucial industries.
The Canadian government argues that these measures are necessary to protect Canadian workers and businesses from unfair competition. However, critics contend that Ottawa’s approach is short-sighted and potentially self-defeating. Li Haidong, a professor at the China Foreign Affairs University, warns that Canada is “gradually losing its strategic autonomy” by aligning so closely with US policy.
This loss of autonomy could have long-term consequences for Canada’s economic interests. As a middle power with a trade-dependent economy, Canada has historically benefited from maintaining a degree of independence in its foreign and trade policies. By taking such a confrontational stance towards China, Ottawa risks limiting its options and potentially isolating itself from one of the world’s largest and fastest-growing markets.
Furthermore, there are concerns that Canada’s actions could contribute to the further fragmentation of the global trading system. The WTO, already under strain from years of US-China trade tensions, could be further weakened if middle powers like Canada begin to regularly circumvent its dispute resolution mechanisms in favor of unilateral action.
Supporters of the government’s approach argue that these risks are outweighed by the need to protect Canadian industries and values. They point to China’s own protectionist policies and alleged unfair trade practices as justification for reciprocal action. However, this tit-for-tat approach risks escalating into a full-blown trade war, with potentially devastating consequences for both economies.
As Canada moves forward with its consultations, it will need to carefully weigh the potential benefits of these measures against their risks. The government must consider not only the immediate impact on targeted sectors but also the broader implications for Canada’s economic strategy and global positioning.
One potential path forward could involve a more nuanced approach that combines targeted measures to address specific unfair practices with continued engagement and dialogue with Beijing. This could include working through multilateral institutions like the WTO to address systemic issues in the global trading system, while also investing in domestic capabilities to reduce dependence on Chinese imports in critical sectors.
Canada could also seek to diversify its trade relationships, building stronger ties with other Asian economies and like-minded partners in Europe and elsewhere. This approach would allow Ottawa to reduce its exposure to China without completely severing ties with the world’s second-largest economy.
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English (US) ·