Canada’s new tariff on electric vehicles from China will reverberate through a multitude of industries and could lead to repercussions well beyond the electric vehicle market, according to analysts.
The 100 per cent tariff on imports of Chinese-made EVs (and some hybrids), including cars, buses, trucks and delivery vehicles, takes effect on Tuesday after a 30-day consultation period over the summer. A 25 per cent surtax on steel and aluminum imports from China will kick in on Oct. 15.
While the move is meant to keep cheap, well-made electric cars from China at bay in order to grow and protect Canada’s nascent EV sector, critics warn there could be a number of consequences, including to environmental goals and other Canadian sectors as a trade war looms.
“We don’t see it as very helpful,” said Andrew Bell, a director with the Electric Vehicle Association of Alberta.
Fourteen years ago, Bell bought his first plug-in hybrid and has been trying to get other drivers on board ever since. He calls the tariff an “unnecessary barrier” to importing Chinese cars to spur adoption because it would effectively double the price of EVs from China.
“Here, the Canadian government is trying to encourage Canadians into electric vehicles. Here’s a high-quality, low-cost option,” he said.
Currently, the cheapest EV on the market is the Seagull, from Chinese automaker BYD, coming in at roughly $13,000 Cdn.
While Chinese cars like this aren’t in Canada yet, manufacturers have been lobbying the federal government to slap on high tariffs to prevent them from flooding the market.
Canada is also currently engaged in a 30-day consultation related to surtaxes on Chinese batteries and critical minerals after it learned about “unfair competition from China, including pervasive subsidization, and lack of rigorous labour and environmental standards,” according to an announcement on the Department of Finance website.
‘Level the playing field’
When Prime Minister Justin Trudeau announced the EV tariff in late August amid industry pressure, he said the goal was to “level the playing field for Canadian workers.” He also blamed what he alluded to as China’s unfair state subsidization of production.
“Actors like China have chosen to give themselves an unfair advantage in the global marketplace, compromising the security of our critical industries and displacing dedicated Canadian auto and metal workers. So, we’re taking action to address that,” he said.
For months there was speculation as to how Canada would approach the issue, given that the United States, Canada’s biggest trading partner, slapped on a 100 per cent tariff earlier this year. The European Union took a more measured stance and increased its surtax on Chinese EVs from 10 per cent to 36.3 per cent.
Canada’s move was considered a win for those in the automotive sector, as well as those working in research and development.
“We want the high-quality jobs for students and all the trickle-down effects of the automotive sector,” said Olivier Trescases, an engineering professor at the University of Toronto and director of its Electric Vehicle Research Centre.
Trescases and his students conduct research into power electronic converters — which are boxes in EVs that process the energy between battery and motor and other systems — and said Ottawa has contributed a lot of money to fund innovation.
“I think it’s absolutely critical that that money is not wasted, that it creates new jobs, prosperity, economic activity for Canadians,” he said.
Finding a balance
Some industry analysts were hoping Canada would take the European Union route, including Gil Lan, an associate professor in the law and business department at the Ted Rogers School of Management at Toronto Metropolitan University.
“I sense that there must have been a strong political pressure on Canada, given that it’s an election year in the United States,” he said.
Lan said he’s concerned about adoption rates, considering that the federal government’s EV sales mandate regulations include a plan to phase out gas-powered vehicle sales by 2035 and that — compared with China — Canada’s EV industry is still in its infancy.
“There’s a lot of catching up to do,” he said.
The federal Liberal government has been injecting billions of dollars into auto investments, including a battery plant in St. Thomas, Ont., one in Windsor, Ont., and a multibillion-dollar expansion of Honda’s Alliston, Ont., plant to make EVs.
Even so, a lot hinges on these efforts, considering that China has been investing in its EV industry for the better part of the last two decades.
“This will all depend upon how well Canada’s domestic EV industry will be able to take off,” Lan said.
A new tariff on Chinese-made electric vehicles is meant to protect Canada’s emerging manufacturing industry, but there’s fear about what potentially higher-priced EVs mean for already limited competition.
EV market dominated by China
Auto investments take time, and China “totally dominates the market now,” said Frik Els, head of Adamas Inside, the news arm of Adamas Intelligence — a research and consulting firm specializing in strategic metals and minerals based in Toronto. Els said the time it takes mines to come online is measured in decades.
According to data from the firm, China is responsible for 55 per cent of the total battery power hitting roads around the globe — battery power that comes from the mining of minerals like cobalt and lithium.
Domestically, China surpassed a historic benchmark this summer — when more than half of all vehicles sold there in July were EVs and plug-in hybrids. The only other country to surpass that has been Norway, at more than 80 per cent.
In addition, Els said, there are hundreds of different EV brands to choose from and dozens of automakers. “The fact that they control the whole supply chain around EVs, it does make them a formidable competitor in this space,” he said.
Despite that, Els speculates the federal government had a tough choice to make, considering more competition would ultimately drive down prices.
“If your goal is only to electrify the vehicle car park, then don’t put in tariffs on imports,” he said, but “if you completely open the gates to China, then you will never make a dent in their dominance.”
‘Trade war brewing’
Perhaps not surprisingly, there is another consideration for Ottawa amid the economic issues surrounding the EV surge.
Shortly after the tariff announcement, China announced an anti-dumping investigation into canola imports from Canada. China is the second-largest importer of Canadian canola after the U.S., valued at $5 billion Cdn in 2023, according to the Canola Council of Canada.
China has also launched a complaint with the World Trade Organization, the same tactic it used after the EU announced its surtax on EVs made in China.
Now that the tariff is in effect, some industry watchers want a promise from the federal government that it won’t be in place indefinitely.
“It needs to be defined as a five-year or seven-year … program,” said Stephen Bieda, who is on the board of directors of the Electric Vehicle Society.
That’s echoed by Jiatong Zhong, an assistant professor of economics at the University of Alberta in Edmonton.
“A tariff is a policy tool that should be short run to medium run … to buy time for Canadian and American manufacturers to become competitive price-wise and quality-wise,” she said.
In a statement to CBC News, Global Affairs Canada said the surtax is an “exceptional response to the specific and exceptional challenges posed by China’s non-market policies and practices.” It did not respond to a question about whether it plans to phase out the tariff.
In the meantime, there is a possibility that China could escalate its actions — although some industry watchers note that it fell short of actually imposing tariffs, saying there are big financial disincentives for both sides.
“It’s a trade war brewing,” Lan, of Toronto Metropolitan University, said.
Canadian farmers may end up caught in the middle of a political dispute, after China said it was opening an anti-dumping investigation into canola imports in response to Canada imposing a 100 per cent tariff on Chinese-made electric vehicles.