Jordan: It’s a big, round number. It sounds tough. And if you’re a federal government clinging to power with a year before an election, tough on China isn’t the worst thing to add to your resume.
Clip: Prime Minister Justin Trudeau: We’re listening to automakers. We’re listening to workers. Shortly. We will be introducing a 100 percent tariff on Chinese made electric vehicles.
Jordan: Tariffs on Chinese electric vehicles had been rumored for months, so it’s not a surprise that the Prime Minister announced them at the Liberal cabinet retreat this past week. What may be a surprise is the number, or perhaps that electric vehicles weren’t the only Chinese product hit with tariffs.
The million, or, in this case, billions, as that’s what the Liberals have recently invested in Canadian EV production, dollar question, is this. Will it work? The answer depends on what you think work means in this case. Will it work to give a polling boost to a flagging government? Will it work to protect Canadian jobs in electric vehicle production?
Will it work to get Canada on track to meet our ambitious EV target that is now just over a decade away? The answers to all of those questions are different.
I’m Jordan Heath-Rawlings. This has been is the big story. Moshe Lander is a senior lecturer in economics at Concordia University in Montreal. Hey Moshe. Hello. Why don’t you just start by explaining what the federal government came out and did this past week on tariffs in general before we get to the specifics.
Moshe Lander: So tariffs in general are often used in trade policy. To try and limit imports. There’s two effective ways to do it. Tariffs being one of them, quotas being the other. Uh, a quota is merely just a restriction on the quantity. A tariff is a price adjustment. So quotas and tariffs have the potential to have the same economic impact.
Uh, most governments these days prefer uh, tariffs because at least it generates some revenue for them. Where quotas don’t necessarily generate revenue for them. And so the Canadian government, uh, this week announced that they wanted to put a 100 percent tariff on imports of Chinese electric vehicles.
And they added additional tariffs on a variety of Chinese imports, including steel and aluminum being the major ones.
Jordan: We can maybe talk about stealing aluminum a little bit later. But first, I know the EV tariff is the one grabbing all the headlines. Um, how typical is a 100% tariff, obviously, to a lay person? It seems like a lot.
Moshe Lander: It, it is. Um, you could conceivably have tariffs that are bigger than a hundred percent. Uh, but the whole idea is that if you’re going to put a tariff, you need it to be punitive, right? So a 5% tariff or a 10% tariff. It is almost yawn worthy. It doesn’t grab headlines. It doesn’t make people sit up and take notice.
Uh, and if you’re going to poke the bear that is China, then you want to make sure that they notice it as well. And so 100%. It is kind of one of those headline grabbing figures that does have an impact, and so I think that’s why they chose it. Uh, and of course, you know, why 100 as opposed to 102 or 97 is because clean numbers, of course, are also very much headline grabbing and make political sense, even if it’s not necessarily the economic number that would be optimal.
Jordan: Explain exactly how this tariff will work practically, like at what point, uh, does the tariff come into effect, who pays it, and where do those costs get passed on, um, so like, as an example, you know, we reported, uh, a couple of months ago now, right when, uh, These tariffs were kind of becoming a rumor about cheap Chinese electric vehicles, some of which sell for about 12, 000 or the equivalent.
Can you walk us through what would happen to a 12, 000 Chinese electric vehicle if they were available in Canada under this tariff?
Moshe Lander: Sure. So the way that a tariff is applied is on the price. If it’s 100%, then conceptually would be 12, 000, which would increase it to 24, 000. If you want to buy an electric vehicle purchase in China.
Now, the thing is that if there’s an electric vehicle that is produced in Canada, a Canadian producer would be foolish not to increase the price of their product to at least 24, 000 themselves. You could argue that there’s no tariff on Canadian products and there can’t be tariffs have to be on imported goods.
Uh, but as a business, why would you not take advantage of the fact that the price of your competitors has gone up for a Canadian producer? This is effectively pure profit that they could now have, or at least if it’s not profit, then it’s lost minimizing, uh, because they can now get more money. And so the, the phrase that I would use is that it allows Canadian producers to hide behind the tariff and increase their prices to capitalize on China’s damage.
Uh, the tariffs effectively come into effect right away. And the amount of it that’s passed on to the consumer in the case of a small economy, which is what Canada technically is. Is effectively the full a hundred percent. Uh, you’re not going to see China absorb any of it. Those types of things where you have kind of the Trumpian, I’m going to build a wall and get Mexico to pay for it type strategy can only work when you’re talking about a large economy.
And while Canada is vast geographically, and while we do have a large GDP, In terms of GDP per person within the global context, we’re, we’re a small economy, so we don’t have that ability to make China pay for their, the tariffs that we’re putting on them.
Jordan: It’s interesting that you just mentioned, uh, Trump, because I want to ask you about, uh, how tariffs are deployed politically in response to Trump’s, uh, Bluster, or maybe not bluster, about all these tariffs that he will enact.
Uh, the Harris campaign has responded by calling it a Trump tax, and I’ve heard a lot of people refer to tariffs as a tax. How accurate is that? Maybe how accurate is that technically, but also then practically?
Moshe Lander: It’s 100 percent accurate. A tariff is nothing more than a tax on imports. So in Canada, we have taxes anywhere and everywhere that we are.
We have sales taxes at the provincial level, sales taxes at the federal level, uh, we have income taxes, uh, with property taxes, corporate taxes. So this is just a tax that’s specifically applied to imports. Trump’s view is And what the Harris potential policy would be is that when you’re a large economy, uh, you do have the ability to shovel some of the tariff onto the foreign country or onto the foreign producer so that they in effect end up paying a portion of it.
But when you’re a small economy. Almost none of it can be passed on to the foreign country or to the foreign business. And so that tariff then effectively gets paid for by domestic consumers. That is welfare damaging. Uh, so the, the long term strategy then of what Canada is going to accomplish is merely just passing this tax on to Canadian consumers.
But if the exercise is that we want to discourage Canadian consumers from buying Chinese EVs, There are much more effective ways to do it than taxing Chinese imports and allowing Canadian producers to increase their prices in response.
Jordan: One thing I would say to that, and I’d be interested to hear your thoughts on it, is that, you know, when we talk about a 12, 000 car going to 24, 000, um, in that situation, like, it is still much cheaper than buying an EV made in Canada, which the average price of which is, you know, somewhere in the 30s or 40, 000.
Um, will this tariff effectively protect. All the investments that Canada has made recently into our own domestic EV production. I mean, that’s the point of it, right?
Moshe Lander: Is that the point of it? I’m not sure that I, I think that that’s really what the objective is here. I think it’s a government that’s in trouble.
It needs every vote that it can, and recognizes that anybody who hopes to form a majority government in this country has to win lots of seats in Ontario. It’s the most populous province, the most seats are there, uh, and the 401 corridor is going to be critical. And so because there’s so many auto manufacturers up and down the 401, putting a tariff on things that would cause direct harm to them is good politics.
I don’t think that at any point. There’s, uh, a thought of this would be good for Canadian consumers, or this would be good for, uh, the Canadian EV industry, it’s not, it’s not going to save it, but I think that optically it looks good in that you’re trying to protect Canadian jobs, and if you can win a few ridings out of that, I think that’s totally the objective of this policy, I, I just, I don’t see, uh, that there’s a strong economics logic in anything that the government’s trying to achieve here, it just smacks of politics.
Jordan: Speaking of, uh, politics, they’re also at play just in terms of the comparison between the two countries, right? So beyond protecting our domestic market or, or appearing to at least protect our domestic market, um, there’s also human rights concerns, right? Canada shouldn’t want Canadian citizens, uh, giving their money to China, who has a long history of human rights abuses, particularly when it comes to, like, mass production, right?
Moshe Lander: Right, so here too is the tariff, the way to accomplish that. So I’m a big believer from an economic standpoint that if that’s the objective, then inform the Canadian consumer. So let’s say that I have two EVs that are selling for the same price in Canada. One is made in Canada, one is made in China. All I need to do then is inform the Canadian consumer that, hey, the one in Canada was Uh, produced in an ethical way with respect for workers rights or whatever it is that you want to establish as being the key distinguishing feature between the two.
What should happen then, just simple supply and demand, right, is that if consumers in Canada actually care about that, and maybe they do, maybe they don’t, uh, then the ones that would buy Canadian would drive up the price of that car. And the ones who don’t buy China, uh, EVs would drive down the price, right?
Just supply and demand. You want to buy lots of Doritos, price of Doritos goes up. Nobody wants to buy Taylor Swift tickets. The price goes down, right? But what would happen then is that you would now have a price gap between the two EVs. At some point, the price gap gets so big that Canadians are going to say, I don’t care all that much about human rights in China.
Right. Look at how cheap that car is. But when you reach that tipping point, that’s how much we’re prepared to pay to respect human rights around the world. And so, We don’t need to have a tariff, we just need to inform the Canadian consumer that, hey, that car was not necessarily made in an environmentally sustainable way, using human rights, using adult, not child labor, whatever it is that the issue is.
But I think that that’s a much more effective strategy than putting a lump tariff on things because That’s the type of thing that once it’s there, it’s really difficult to remove, uh, and it just becomes a cost of doing business now.
Jordan: Well, since we just talked about, uh, the human rights issue, I’ll ask you just about China more generally. And obviously it is not always China that sees tariffs, uh, applied by Canada, but I mean, uh, we’ve been doing this podcast for six and a bit years now, and it sure seems like it is mostly China. Why is that?
Moshe Lander: Yeah. So they’re, they’re not a market economy. They’re not governed by Adam Smith’s invisible hand of, uh, supply and demand negotiating in the market. Uh, it’s, it’s state controlled, right? Uh, and in a lot of cases, China’s industry is deeply connected to the government. And to the military and itself, the government and military is essentially one in the same thing anyway, right?
So, uh, when you’re doing business with China, you’re essentially not doing commerce to commerce. You’re doing commerce to government. And so governments don’t necessarily have to follow the same basic rules that businesses do. Businesses have to compete for business. Their objective is to maximize profits, maximize shareholder value.
And when you’re in the game of competition, if I can do it more efficiently than you, uh, then I deserve to have the lion’s share of the market. But if the government is competing within that marketplace, the government doesn’t have to worry about profits and losses and shareholders. And now when you’re dealing with a government that doesn’t even have to deal with democracy.
Then you’ve effectively tilted the playing field in a way that companies are going to say, wait, we’re not playing the same game here. Uh, and the, the game is kind of stacked against those that operate within a capitalist market driven system. So, uh, there needs to be some sort of accounting for that to, to compensate.
And again, that, that’s similar to what softwood lumber. Where they say, Hey, we’re using frown land to manufacture softwood lumber where Americans have to do it on private land. And so they’re saying we’re not playing the same game and therefore Canada’s advantage. Might be, um, ill gotten and that’s why they’re always looking to put tariffs on us.
But you’re right that China has additional factors that do seem to complicate the competition within the marketplace.
Jordan: Will we see retaliation from them? And, um, if so, do we have any idea of what form that would take if it’s tariffs? Uh, what they could place tariffs on that would hurt us?
Moshe Lander: Yeah, I mean, they could put tariffs on anything.
They will retaliate. I can’t imagine they’re just going to say, thank you, sir. May I have another right? That’s that’s not China’s way, especially when it’s trying to establish its economic bona fides, right? They could say, kidnap a couple of Canadian nationals and throw them in. Wait, they’ve done that.
They could make things difficult for Canadian businesses that are operating in China. You can create. All kinds of, uh, rules and legislation and, uh, product requirements or safety concerns, uh, and make it really, really tough for Canada to operate in China. You know, tariffs, I guess you could retaliate. You start targeting say maple syrup and things like that, or areas where Canada might have a strong market presence and make it very difficult for them.
And of course, you can just make diplomatic relations difficult. There’s lots of ways that they can do it. And China has never been known to just stand around when their economic well being is at stake, but also when their pride is at stake as well.
Jordan: I mentioned that we discussed electric vehicles in Canada a couple of months ago, and we did that with an auto expert, sort of talking about specifically, um, you know, the quality of cars and the price points and stuff like that.
But I would be interested, uh, in your opinion, especially since you’re, you’re saying tariffs are not necessary. necessarily the way to go about this. We have some really, assuming the government stays in power, aggressive targets to reach total EV saturation by 2035. If these tariffs aren’t the way to go about it, what is the best way to encourage electric vehicle uptake while also blocking the cheap ones from this country?
Moshe Lander: Well, as far as encouraging uptake, one way to do it is to make sure that the price of gas powered vehicles are priced properly, and we don’t have that in this country. If I say carbon tax, 50 percent of Canadians become infuriated at the thought of, uh, it’s our resource, why are we having to pay a tax on it?
The purpose of a carbon tax is to try and acknowledge that wherever it is you are in Canada, whether it’s 1. or 2 a litre, that’s not the proper price of gasoline, that’s not taking into account all of the real economic costs of using gas powered vehicles. So if the government wanted to try and encourage EV uptake, Uh, price gas vehicles as they truly are.
Price of gas should be, say, 5 a litre. Watch how fast people say, well, if that’s what I’m going to have to pay now, uh, you know what? EVs don’t look so bad by comparison and you would have much faster uptake. There’s no tax or tariff per se there. It’s just merely you’re paying the proper price. Rather than getting a subsidy that we’ve been getting for half a century.
Jordan: Right.
Moshe Lander: Uh, as far as trying to avoid buying cheap knockoff EVs, that’s product information. I can’t watch a sporting event without seeing auto ads on TV. They tell me things like fuel efficiency, safety features, uh, various interior size, and you can fit 10 dogs, and 7 children, and 3 wives, and, uh, all with still space to go, right?
So, why not tell me then that, hey, this electric vehicle is made in Canada, and if you have a nationalist sense, then, uh, you should be buying Canadian, or if you don’t want to buy in a country that has questionable environmental standards, Maybe you should be looking a little more carefully as to where you’re buying your EV from.
So, there’s ways that they can achieve that target, but again, from a political standpoint, if you’re going to make gas 5 a liter, that’s the end of your political career, and this way is maybe a little more effective in trying to accomplish that.
Jordan: Just briefly about the other tariffs, how common are these, uh, lesser figures going back and forth from Canada to China or, or other countries?
Like, it certainly doesn’t seem to have grabbed the headlines. Obviously, you know, 100 percent is the big number, but how much do or don’t these matter?
Moshe Lander: They do matter. Uh, steel and aluminum, among some of the other things that were, were slapped with tariffs, are intermediate goods. And so part of the reason why they don’t grab headlines is because you and I don’t go to a steel store.
Right. You and I might go to an EV dealership, but you and I are not in the market for buying steel or aluminum. Uh, you know, my aluminum Purchasing is essentially limited to aluminum foil. Does that get hit with the tariff? I don’t think so. I don’t think that you have to stock up now, uh, like a COVID hoarder or anything like that with a toilet paper and aluminum foil, but you know, I think that that’s probably the reason why it doesn’t necessarily grab the headlines.
But if you realize that those are intermediate goods in the process, when they’re 25 percent tariff, uh, that raises the intermediate cost, uh, of production. And if you have a markup over top of that, then you’re going to mark up on not just the price, but also on the 25 percent tariff. So by the time you’re done through the supply chain, this could very easily be a hundred percent, if not more than a hundred percent where the a hundred percent tariff was on the sticker price.
Uh, this could very easily sneak its way through with, with the same amount of price increase for consumers.
Jordan: The last thing I want to ask you, and you know, you might’ve already mentioned it, um, but I’ve learned a lot during the course of this conversation. What is one thing that you don’t think is understood about tariffs like these as well as it should be, uh, when, you know, an announcement like, uh, this past week’s get made and we have a big national conversation about it.
Moshe Lander: So tariffs are what we would call welfare destructive. So welfare, in this case, meaning the well being of Canadian society. That’s made up of businesses, it’s made up of consumers, it’s made up of the government. And so if you were to try and find a way to aggregate their, their well being, you’d find that we are worse off with the tariff than without.
There are certain groups that benefit from it, say Canadian producers of EVs, but there are certain groups that lose from it, which is essentially any Canadian consumer of an EV, uh, is going to be damaged here. The government benefits a little bit in that they get tariff revenue from this, uh, but overall the gains are not greater than the losses and that’s a problem then.
The best tariff policy is no tariff. The market works well, uh, if allowed to work. And so. I’ve already indicated that education, information are ways to address particular concerns about countries. Uh, but also recognize as well that countries don’t stand still when tariffs are applied to them. Businesses don’t stand still when tariffs are applied to them.
So where we think that we’ve maybe pulled one on China, uh, or at least that’s what we want the voter to think. What do you think that these businesses are going to do? They can’t retaliate themselves. Tariffs have to come from a government. But these businesses might say, all right, um, you want to put tariffs on Chinese EVs, then guess what?
We’re moving to Vietnam. We’re moving to Cambodia. Uh, we might even move to Canada. Uh, and if you think about along the 401, back in the day, it used to all be Ford and Chrysler and GM. Now it’s multinational companies that are operating inside Canada. Well, that’s because we were putting tariffs. On imports of foreign automobiles.
And they just said, that’s fine. We will come inside. You could argue that, Hey, it creates jobs, but that’s not necessarily a good thing because it’s creating jobs in this industry, uh, merely because we throttled any other industry from being able to absorb those workers. So overall tariffs are very, very bad from an economic standpoint, but they’re very popular politically.
And when you have a government that’s desperate, tariffs tend to be a very good way to grab the headlines, to sell people that we’re doing something. And then when the damage really shows up, you just blame it back on China again.
Jordan: Moshe, thank you for this. Any time. Moshe Lander of Concordia University.
That was The Big Story. For more from us, you can head to thebigstorypodcast. ca. And I know, every time we talk about this government or thebigstorypodcast. ca. or electric vehicles, and in this case, all three, we get some feedback. So please, let us know what you think about this episode, about Moshe’s opinion, or analysis, or anything else about this podcast, whether you like it or you hate it.
We read and listen to everything. Emails can go to hello at thebigstorypodcast. ca, and phone calls, in which you can leave a voicemail, can go to 416 935 5935. Joe Fish is the lead producer of The Big Story, Robyn Simon also produces this show, Mat Keselman handles our sound design, Stefanie Phillips is our showrunner, Diana Keay is our manager of business development, Mary Jubran is our audience development lead, I’m Jordan Heath-Rawlings, your host and your executive producer.
I hope you have a wonderful Labor Day weekend. We’ll have a blast from the past for you on Sunday. On Monday, as we do almost every holiday, Joe and I will read and listen to some of your feedback. We’ll And we’ll be back with a fresh big story on Tuesday. We’ll talk then.
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