Call it a case of Singh-ful thinking.
While it may sound like a good idea in principle, NDP leader Jagmeet Singh’s proposal to exempt cars from the GST is just another example of wishful thinking, like most of his economically idealistic and ideologically simplistic flights of fancy.
Singh, speaking in Windsor, Ontario on Thursday, vowed to shield Canadian automakers from US president Donald Trump’s looming 25% tariffs on foreign cars.
His plan includes removing the federal goods and services tax on vehicles built in Canada and ensuring that government agencies, such as the RCMP and Canada Post, purchase only domestically made automobiles.
He also pledged to prevent car manufacturing equipment, funded through public investment, from being relocated to other countries.
It’s predicated on the faint hope that Trump’s tariffs could accelerate a shift in Canadian auto investment away from the US market, but that doesn’t mean Canada can simply build cars for itself. The industry thrives on economies of scale and cutting off US access would be an economic disaster.
Though Singh’s promise to waive the GST on Canadian-made vehicles might sound like a lifeline for the country’s auto sector, the proposal overlooks the deep complexities of the industry and how difficult it is to actually build a 100% Canadian-made car.
Project Arrow, a high-tech Canadian concept car built to showcase Canada’s ability to produce electric vehicles, was featured at the 2023 Canadian International AutoShow. The long and short is that it reached about 97% Canadian components and only one-third of the 50 or so parts suppliers had a Canadian presence.
Most of the rest were from the US.
The point is, Singh’s vision of a robust, self-sufficient Canadian auto industry faces a harsh economic reality— one that Australia has already experienced. Canada simply does not have a big enough market to support a standalone car industry.
For decades, Australia protected its domestic auto sector with tariffs and subsidies. However, this protection ultimately led to the collapse of the sector because it couldn’t sustain itself without access to larger export markets.
Despite decades of government intervention, global competition eventually forced major automakers, such as Toyota and General Motors’ Australian subsidiary Holden, to shut down operations entirely by 2017.
The same risks apply to Canada. While Singh’s GST exemption may temporarily lower costs for domestic buyers, it doesn’t address the larger problem of the GST itself.
That’s because Trump’s tariff strategy is essentially a broader attack on value-added taxes (VAT) in general, and the auto sector is one of the most glaring examples of how VAT impacts trade. By declaring war on Canadian cars, Trump has signalled that he views Canada’s GST as just another tariff in disguise.
Unlike the US, which relies on a single-stage sales tax, over 170 countries use VAT systems that tax goods at every stage of production. When an American-made car is exported to Europe, it is hit with VAT, while European automakers receive VAT refunds when exporting to the US.
Trump argues that this creates a “double whammy” for American manufacturers, as imports face additional taxes while foreign competitors benefit from rebates.
The GST, introduced in 1991, has long been a US irritation, but previous administrations never escalated it to a trade dispute.
While Singh’s plan may be politically appealing in an election, the idea of insulating the Canadian market from external forces through GST exemptions ignores the sheer scale of US trade influence.
Removing it for Canadian-assembled cars — not ‘made’ cars (because the parts can’t be ‘made’ in Canada) — all but confirms a protectionist stance against Canada’s other trading partners that also happen to make automobiles, like Germany and Japan. Charging GST on a BMW or Toyota sold in Canada, but not the domestic derivative of the same model with all other things being equal, only bolsters Trump’s argument that the playing field is inherently unfair to begin with.
While experts debate whether VAT systems genuinely distort trade, Trump’s stance has paved the way for retaliatory tariffs targeting other countries which employ similar tax structures. Which is why he’s pressing the case.
If he can do it to Canada, he can surely do it to the EU, Asia or anyone else.
Despite Singh’s best intentions, his proposal fails to address the underlying threats facing Canada’s auto sector and the broader economy.
With an integrated North American market, government procurement policies, and tax exemptions, the reality remains that Canadian factories rely heavily on exports, particularly to the United States. Singh’s plan, while well-intentioned, overlooks the larger forces at play.
If Canada attempts to shield its auto sector without a strategy for global competitiveness, it risks following Australia’s path, where car production has ceased entirely.
Furthermore, Singh’s plan acknowledges the reality that Trump’s auto tariffs are precisely what they are — an assault on the GST and the very foundations of the Canadian economy. Removing GST on cars isn’t a retaliatory measure but rather a capitulation.
One that by even the NDP’s wildest standards, he could support.
Removing GST on cars isn’t a retaliatory measure but rather a capitulation. One that by even the NDP’s wildest standards, he could support.
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