Friendly rivals: with EV tensions in past, Canada poised to compete with biggest ally

WASHINGTON — Friends, partners, allies — and rivals.

With cross-border auto tensions now in the rear-view mirror, Prime Minister Justin Trudeau is talking about Canada's next big bilateral challenge: head-to-head economic competition with the United States.

From a Canadian perspective, the first two years of President Joe Biden's term were all about countering a persistent bout of U.S. protectionism by preaching the virtues of trade between like-minded partners. 

Something sank in. Biden's panic-inducing plan to energize electric-vehicle sales brought Canada and Mexico into the tent at the 11th hour. And Treasury Secretary Janet Yellen even coined a new term — “friend-shoring” — to placate America's anxious allies. 

But to hear Trudeau tell it, none of that means Canada is about to pull its punches in the coming battle for sustainable growth, higher-paying jobs, foreign investment and international talent.

“Competitiveness with the U.S. has always been a challenge for us — it was a challenge under Trump, it was a challenge under every previous administration,” he said in a year-end interview with The Canadian Press.

“We'll always figure out ways to make sure that the Canadian advantages” — plenty of room for growth, he said, along with a reliable, diverse and well-educated workforce that comes with built-in health care — make Canada “an extremely attractive place to invest.”

Trudeau mentioned two specific examples. 

Steel giant ArcelorMittal Dofasco is converting its plant in Hamilton to make it less carbon-intensive, using electric arc furnaces instead of coal-burning blast furnaces to slash annual carbon emissions by as much as 60 per cent. 

The project, funded in part by the federal and Ontario governments, will make it the first major steelmaking facility in North America to make the switch, coming on line in the next four years.

And GM Canada announced last month that its assembly facility in Ingersoll, Ont., would become the country's first to produce nothing but electric vehicles, with a target of 50,000 vans and trucks a year by 2025.

“We didn't beg them for that,” Trudeau said. “They just realized, 'Oh, the market's there, and the quality is there, the Canadian workers are delivered — we're going to be more ambitious.'” 

Just because two countries are allies doesn't mean they can't also be economic rivals, said Michael Harvey, vice-president, policy and international with the Canadian Chamber of Commerce. 

“We both co-operate with the United States, our closest ally, and we compete in the economic arena. So we do both,” Harvey said. “It's in Canada's interest to co-operate as much as we can, but where we need to compete, we do so.” 

That includes the Inflation Reduction Act, the marquee climate, tax and health-care package that abandoned Biden's original Buy American EV tax credits in favour of incentives that included Canadian-made vehicles.

As much as Biden's signature on that bill was a stay of execution for Canada's auto sector and a boon to an emerging critical minerals industry, it was also a stark declaration of U.S. ambitions, Harvey added.

“If you look at the Inflation Reduction Act, what you've got is a major industrial policy spend. That means that Canada needs to step up and be able to compete with that, or else we can get left behind.”

Critical minerals, the battery building-blocks so integral to 21st-century transportation and technology, are central to that effort. 

Canada jumped three spots to second place in BloombergNEF's annual ranking of players in the global lithium-ion battery supply chain, thanks to a healthy supply, growing North American demand and robust upstream clean energy. 

The federal government has committed $3.8 billion this year alone to foster mining and processing efforts, as well as component manufacturing and EV production. Chrysler parent Stellantis has partnered with LG on a $4-billion EV plant in Windsor, while Volkswagen and Tesla are also kicking Canada's tires. 

The country ranks second only to China, the world leader in battery metals refining, which is home to 75 per cent of all battery manufacturing capacity worldwide, as well as virtually all of planet's anode and electrolyte production. 

The U.S. remains third, BloombergNEF said in its November report, in part because “it will still be reliant on raw material imports for batteries, especially from its free-trade partners.”

That includes Canada, although the U.S. doesn't tend to mention it by name. 

“Friend-shoring is a rebuttal to those who argue that economic security can be achieved only through protectionism,” Yellen wrote in a Project Syndicate essay last week. 

“We don't seek to produce everything ourselves. Nor do we seek to limit trade to a small group of countries. That would substantially harm the efficiency gains of trade and hurt U.S. competitiveness and innovation.”

To ensure Canada remains both a valued ally to the U.S. and in the same weight class, it needs to focus on “trade-enhancing infrastructure,” including expanded port facilities, to keep supply chains strong, as well as ensuring more Canadians can take part in the labour force, Harvey said.   

“Being right next to the United States, the most important economy in the world, is always going to be one of Canada's greatest economic advantages,” he said. 

“We need to make these investments in things that can really beef up our trade.”

This report by The Canadian Press was first published Dec. 18, 2022.

James McCarten, The Canadian Press