How U.S. Companies are Innovating to Stay Competitive

Let us begin with the critical setting of the Inflation Reduction Act in the United States. The IRA includes up to $370 billion in new spending and tax credits to promote clean energy and accelerate the aim of decarbonization. The size of these public funds is difficult to overstate: it exceeds Ottawa's total annual budget. When other U.S. advantages are taken into account, such as lower salaries, right-to-work legislation, and the size of its domestic market, competing for electric car investments will be tough (and extremely expensive) for Canada. It may make for good one-off news conferences, but it is hardly a long-term economic strategy.It's also not clear whether the economic benefits outweigh the costs. Electric vehicle manufacturing differs from typical automobile production. Electric vehicles require less than half the labor to manufacture as traditional internal combustion engine automobiles, require far fewer parts (reducing employment by downstream suppliers such as Magna), and assembly must be physically located close to battery plants, reducing incentives for trade over long distances. According to the Economic Policy Institute in the United States, unless major investment in onshore battery plants is made, there will be massive job losses in the car business, even if traditional production is completely replaced by EV manufacturing plants.

This is precisely what the US government 

intends to achieve with the Inflation Reduction Act. The early signals are promising, with up to $210 billion in new electric vehicle investment announced as of Q3 2022.Canadian policymakers must act with care. We cannot match the public subsidies provided by the United States, and even if we could, the benefits would likely be insufficient. Consider Statistics Canada figures, which reveal that even before the move to electric vehicles, the number of jobs in Canada's auto manufacturing sector has decreased significantly. Between September 2001 and September 2022, the number of workers in the sector fell by one third. The move to electric vehicles may benefit the environment, but it is unlikely to be a significant source of national jobs.There are also unresolved issues concerning the feasibility of fulfilling the policy goals established by the Canadian and American governments for electric vehicle production. The United States Environmental Protection Agency recently proposed standards that would require 67 percent of new vehicles sold by 2032 to be zero-emissions. The Canadian government has gone even farther, mandating that all new automobile sales be electric by 2035.

These aggressive projections require a large 

rise in electric vehicle supply and demand, which is not yet clear. Because the US target is more flexible in that it is based on tailpipe emissions rather than a specific preference for electric vehicles, American automakers may seek to meet it by investing in scrubbing technologies and other methods to improve the emissions output of internal combustion engines rather than completely transitioning to electric vehicles.The crucial thing here is that we should hedge and continue to invest in keeping current internal combustion engine auto plants operational. Not only will this protect (albeit declining) employment, but even if 67 percent of new cars in the United States are electric, there will still be some demand for internal combustion engines—particularly in a world where rising costs, sourcing issues, and electricity supply problems stymie progress on the electric vehicle transition. There is a strong case to be made that we should abandon the subsidy race for electric vehicle production and instead focus our policymaking efforts on other sectors of the economy where we have a comparative advantage, such as agriculture and agri-food, responsible critical mineral mining, sustainable forestry, and low-carbon oil and gas. These sectors are regionally diverse, employ people of various skill levels, and offer major export opportunities. They reflect the future of a "economic compact" capable of fulfilling the role that automobile manufacture played in the second half of the twentieth century.

It will take political and policymaking 

discipline to withdraw from the electric vehicle competition. But it is the correct option for Canada. By prioritizing the sectors of the economy where we have genuine comparative advantages, we may avoid capital destruction and distortions caused by wasteful and unproductive competition with the United States, while increasing value and employment in less glamorous but more promising industries. Are we living in a civilisation? It's a question that sprang up on the first page of Michael Bonner's recently published In Defense of Civilization1 and stuck with me long after I finished reading it. If you had asked me the question a month ago, I would have immediately responded yes; of course, we live in a civilization, albeit one in terminal collapse. Now I'm not so sure.After reading Bonner's exhilarating new book and Eleanor Parker's Winters in the World, which tracks the cycle of the Anglo-Saxon calendar as reflected in the writing, particularly poetry, of the time, my answer would be a tentative no. I believe that civilisation ebbs and flows but never completely retreats, which is why we don't feel like we live outside of civilisation. We, like the Anglo-Saxons, live in the ruins of a society larger than our own, one whose language we still understand and whose achievements continue to inspire us, but with a somber feeling of loss.