Published in the Financial Post.
With the recent wrap-up of Ottawa’s month-long public consultation on levying tariffs on electrical vehicles (EVs) made in China, let’s paraphrase a story Nobel Prize-winner Paul Krugman once used to explain the often under-appreciated benefits of free trade:
Consider a Canadian entrepreneur who starts a new business that uses secret technology to transform Canadian lumber and canola into affordable EVs. She is lauded as a champion of industry for her innovative spirit and commitment to Net Zero. But a suspicious reporter discovers that what she is really doing is exporting Canadian-made lumber and canola and using the proceeds to purchase Chinese-made EVs. Sentiment turns sharply against her. On social media she is widely denounced as a fraud who is destroying Canadian jobs and threatening national security. Parliament passes a unanimous resolution condemning her.
This story underscores a critical dilemma that should have been central in the ongoing public consultations.
Those opposing tariffs argue that trade is a potent yet undervalued tool in our fight against climate change: It provides Canada access to low-emissions technologies at increasingly affordable prices, which is essential for transitioning society away from carbon-intensive energy sources. In contrast, those in favour are concerned about supply security, fearing excessive reliance on our biggest geopolitical rival for low-emissions technologies. They warn against swapping the West’s age-old energy insecurity in oil for insecurity in the supply of critical minerals and EV batteries.
My recent report for the C. D. Howe Institute looks at some of the national security issues that have surfaced in the discussion surrounding supply chains for low-emissions energy technologies like EV batteries. After examining the various de-risking policies governments have implemented, including their downsides and unintended consequences, I conclude Ottawa probably should develop de-risking policies. But it needs to apply them judiciously, prudently and rarely. And it needs to justify them with credible, detailed evidence regarding concerns about supply security and whether domestic industry really would be able to compete if market conditions were fairer. This will be important in upholding Canada’s reputation as a leading proponent of the rule-based multilateral system.
