December 18, 2024

Our focus has been on Canadian trade with the USA. Specific attention has been paid to major resource exports from Canada (and not just to the USA):

• fertilizer (potash)
• oil
• natural gas
• uranium
• Aluminum
• Steel
• grain and pulses
• nickel
• forestry products

All of these have played in the discussions around responses to USA imposing tariffs on goods.

What is less clear is the response to the threat of tariffs. The threat affects investment in production in Canada and does not result in an opportunity to discuss retaliation.

In the constant threat of tariffs scenario, we just have declining investment.

China, on the other hand, has been facing real tariff wars with the USA. There continue to be calls for newer and higher tariffs by American capital.

The most recent call is from the graphite producers in America. Most of these are start-up companies.

China has 92% of the market for high-grade graphite used in battery production (Oxford Economics, North American Graphite Alliance).

Graphite is the main material used in anodes, which makes up 10% of the cost of a battery cell.

American graphite producers are demanding

• 920% duties on imports of Chinese graphite

For some context, 900% increases in tariffs would double the cost of a battery cell.

If you think that this is not possible to do, just look to gallium and germanium. Gallium has more than doubled in price on China export curbs, never mind tariffs.

The USA imports 91,000+ tons of graphite a year with 70,000 coming from China.

To replace this supply, the Department of Energy has been supersizing its subsidies to American capital. A $755 million loan to fund the construction of a production facility in Chattanooga to produce synthetic graphite annually for the batteries of 325,000 EVs.

The current Novonix Tennessee plant will have a capacity of 10,000 next year. It plans to expand it further to 70,000 tons depending on demand.

However, that demand will not be there unless it cuts off Chinese graphite.

Why is any of this important? This focus affects Tesla which imports graphite from China for it vehicles and has repeatedly called for an exemption. Just for itself, of course.

To follow the process that the USA uses to justify its trade restriction, we move from graphite to semiconductors.

First, there is a "trade investigation" launched into Chinese production. Most recently: semiconductors.

That report concludes that since Chinese production is done cheaper than in the USA, China-based companies must be cheating through subsidies.

The President then uses a "Section 301", which allows the US to impose restrictions on countries with unfair trade practices.

This is done after the "issue" has been found however making the entire exercise a bit silly.

The White House has already announced it will increase tariffs on Chinese legacy semiconductors from the current 25% rate to 50% by 2025.

Biden used the same authority Trump employed to levy more than $300 billion in tariffs on Chinese goods during his first term.

The USA does not really need cover to impose tariffs, but it does so anyway just so it can claim, as a nation, moral authority to punish countries who try to do the same thing.

They call this "national security." We call this imperialism.

Either way, from the start of the threat to the announcement of the planned tariff, to the investigation that justifies the tariff, to the massive subsidy to build endemic capacity and introduction of the trade restrictions, the impact on investment is immediate.

This is the real threat to Canada's economy.

Something very much related to trade, but talked about in different circles is the militarization of the Canada-USA border. This increased militarization naturally extends to our water borders as well.

Artificial intelligence, imaging tools (cameras and drones), and new canine teams will now be deployed across the border.

Announced yesterday will be an "aerial intelligence task force" that will use surveillance technology long wished for by the security, intelligence, and police forces in Canada.

The entire program may slow the illegal fentanyl trade, but one assumes the real outcome will just be a massive advancement in the intelligence and data collection capacity of the RCMP and Communications Security Establishment. Both agencies are involved in new "effort."

Added to this massive expansion of the surveillance state will, of course, be an increase information sharing between Canadian and USA.

All this to eliminate the very small movement of this drug across the border instead of dealing the root causes of addiction.