With sights set on China, Japan to make deal with Canada on EV supply chains

As political tensions with India remain at an all-time high, the Trudeau government is preparing to make some incremental progress with a key ally in its Indo-Pacific strategy — Japan.

Japan’s minister of economy, trade and industry will be in Ottawa Thursday to sign a memorandum of cooperation on electric vehicle supply chains.

Yasutoshi Nishimura will be accompanied by a delegation of Japanese businesspeople representing its battery supply chain association (BASC) and corporations like Panasonic Energy, Asahi-Kasei, Mitsubishi, Mitsui and Sumitomo.

Japanese media reports previewing the trip over the past week suggested that in return for financial, scientific and technical help, the Canadian government intends to offer subsidies for new Japanese investments in this sector — similar to other electric vehicle battery deals struck in collaboration with the provincial governments of Ontario and Quebec.

While no contracts or specific funding will be finalized on this trip, the Japanese business representatives are expected to sign memoranda of understanding with Canadian companies with whom they intend to share technology and business intelligence.

Innovation Minister François-Philippe Champagne, Trade Minister Mary Ng and Natural Resources Minister Jonathan Wilkinson will all meet separately with the Japanese delegation before their morning ceremony, then host a working lunch.

Both countries chasing China’s EV dominance

Thursday’s event will mark the first visit of a Japanese economic minister in a decade.

Earlier in Justin Trudeau’s tenure as prime minister, trade relations with Japan soured during a politically rocky push to implement the Trans-Pacific Partnership — the Pacific Rim trade deal now known as the CPTPP — after then-U.S. president Donald Trump withdrew in 2017. Champagne was trade minister at the time; he now helms this latest push for foreign investment in Canada’s electric vehicle industry as industry minister.

When Japanese Prime Minister Fumio Kishida visited Canada last winter, he called China a “central challenge” for both countries.

On the heels of that visit, a trade mission was promised to further collaboration between Canada and Japan in the electric vehicle sector. Both countries are trying to catch up to and compete with China’s global dominance in critical minerals mining and processing and battery manufacturing.

Japan is working to diversify its trade to rely less on China and Russia and more on democratic G7 partners like Canada. The CPTPP, which Japan championed as its largest member economy after the American pullout, remains central to that strategy.

Automotive trade liberalized in 2018

Automotive trade between Canada and Japan was liberalized when the CPTPP took hold in 2018. Canada agreed to cut its tariffs on Japanese imports but a last-minute side letter was required to clarify some elements of the deal, including the interpretation of regulatory standards.

At the time, it was unclear how well Canadian companies would be able to straddle competing rules and priorities once Canada had liberalized automotive trade with the European Union (under CETA, its Comprehensive Economic and Trade Agreement), Japan (under the CPTPP) and South Korea (under its bilateral trade agreement), while still maintaining its fundamental NAFTA (now CUSMA) supply chain relationships in the U.S. and Mexico.

With geopolitical and security tensions rising in Asia, all these democratic trading partners have a common political and economic imperative to compete with Chinese manufacturing and displace it if possible.

In order for both Canada and Japan to transition faster to zero-emission vehicles in pursuit of their respective climate change targets, they need to speed up new investments and source new components for their automotive supply chains.

Trudeau met with business leaders in Japan and South Korea during his visit to the region for the G7 last May.