Canada’s increased surtax on Chinese electric vehicles, including some hybrids, went into effect on Tuesday.
The 100 per cent tariff applies to electric and hybrid cars, busses, trucks and pick-up trucks imported from China. A 25 per cent tariff on Chinese streel and aluminum will go into effect on Oct. 15.
In June, Finance Minister Chrystia Freeland told reporters the federal government was concerned by “unfair” Chinese trade practices in the electric vehicle manufacturing sector. Freeland announced the start of a consultation process and said the changes could include a surtax on imports of Chinese EVs under Section 53 of the Customs Tariff Act.
In August, speaking at the Liberal cabinet retreat, Prime Minister Justin Trudeau announced the government was going ahead with the tariffs.
The change brings Canada in line with recent U.S. trade policy changes. President Joe Biden announced in mid-May that he was hiking tariffs on Chinese EVs to 100 per cent from 25 per cent this year.
Erik Johnson, senior economist at BMO Capital Markets, said Canada had little choice but to align with the U.S. seeing as nearly 80 per cent of the cars made in Canada are sold south of the border.
“If you were to do anything that might jeopardize your very strong market access to the U.S. economy, that would potentially be devastating to an industry,” he said.
Chinese-made EVs occupy a small segment of the Canadian market, Johnson said, however Chinese automaker BYD has been looking to expand to the North American market by way of a manufacturing facility in Mexico.
In 2020, BYD opened a new electric bus assembly plant in Newmarket, Ont., and the company indicated that it planned to expand in Canada.
“We are dedicated to partnering with municipalities across Canada, and we are passionate about our mission to create a cleaner environment here in North America and across the globe,” said BYD president Stella Li at the time.
Two of the most popular EVs in Canada, the Tesla Model Y and Tesla Model 3, are both produced by the U.S. maker in its Chinese facility.
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“That really would be the core product segment that’s going to feel the immediate impacts when these tariffs go into play,” Johnson said.
However, he said that could change if Tesla moves its facility out of China.
Moshe Lander, an economist at Concordia University, said even if Tesla moves out of China, there’s no guarantee that the company is going to move to Canada and spur manufacturing here.
“It’s not like all of a sudden Tesla are going to say, ‘Well, I guess we had better relocate to Canada now because there’s 100 per cent tariffs on China.’ We’re talking about a very large company that has its choice of anywhere to operate in the world,” he said.
Lander said a surtax of 100 per cent gives Canadian manufacturers more leeway in raising prices, which means Canadians might have to pay more for EVs.
“Canadian manufacturers now have cover to increase their prices,” he said.
“If you’re going to have to pay a 100 per cent tariff on Chinese imported EVs, then why can’t a domestic producer increase their price by 50 per cent, 75 per cent or 99 per and cent say it’s still a better deal than if you’re going to get [one] from China?”
Johnson said the federal government would hope that the tariffs would give local manufacturers time to catch up to Chinese competitors and encourage foreign players to manufacture in Canada.
However, he said Canada’s EV sector was facing its own set of issues.
In July, American auto giant Ford said it was going to continue to manufacture gas-powered trucks at its Oakville, Ont., facility, despite the provincial and federal governments pushing for more EV development and spending billions of dollars to attract electric automakers to Ontario as part of a bigger push to build those industries.
Johnson said that while EV sales might take a hit in the short term, consumers are likely to shift to other alternative fuel vehicles like hybrids.
“We’re seeing hybrid sales certainly do very well this year in both Canada and the United States,” he said.
Johnson said that given the cost-of-living crisis, the Canadian consumer could also be turning away from larger vehicles, preferring compact and subcompact cars instead of SUVs.
“One of the things that we’re seeing consumers do in the current cost of living environment is they’re trading downsize,” he said.
“I might be willing to compromise a little bit more on size if it means one saving on the price point, but also have a lower operating cost of that vehicle.”
More restrictions coming?
Canada’s EV tariff announcement has been followed by a stream of back-and-forth trade restrictions between Canada and China.
Last month, China hit Canada with anti-dumping investigations on its canola oil exports. This was followed by Freeland saying the government of Canada was “absolutely” considering following a major proposal by the United States to ban Chinese automotive technology.
This comes after the White House announced Monday a proposal to ban Chinese software and hardware in connected vehicles on American roads due to national security concerns.
When asked if Canada was considering a similar move, Freeland said, “The short answer is: absolutely.”
“A longer answer is our government has made very clear that we take really seriously intentional Chinese overcapacity and we take very seriously the security threat from China,” she added. “That’s why we acted decisively in imposing tariffs on Chinese EVs, on Chinese steel, (and) on Chinese aluminum.
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