If Canada follows U.S. lead on Chinese EV tariffs, impact could be huge

Canada faces a very difficult policy decision when it comes to Chinese EVs: professor Canada will have to decide between its target for 100 per cent ZEV sales by 2035, and following the U.S. lead on putting tariffs on Chinese EVs, says Ian Lee, management professor at the Sprott School of Business at Carleton University.

In a strategic election-year manoeuvre, U.S. President Joe Biden has introduced substantial tariff increases on various Chinese goods, aiming to strengthen domestic production in crucial sectors. This initiative, designed to shield American labour and businesses from what Biden deems unfair practices such as theft and dumping of under-priced goods, nearly quadruples tariffs on Chinese electric vehicles (EVs) and extends tariffs to semiconductors, batteries, solar cells, and critical minerals.

According to the White House, these amendments will affect approximately US$18 billion of annual imports. Biden described these tactics by China as not merely competitive but outright cheating, highlighting the detrimental impacts they've had on the American economy. The move aims to safeguard the burgeoning U.S. EV sector from competitive pressures posed by Chinese manufacturers.

“We do not have first mover advantage; the Chinese are so far ahead of everybody,” says Ian Lee, associate professor of management at the Sprott School of Business at Carleton University. “And [according to the International Energy Agency], they have 60 per cent world market share of EVs. They are so far ahead of the U.S. and Canada it's not funny.”

The Biden administration is also intensifying its scrutiny of Chinese automotive companies in Mexico as concerns grow that China may find ways to bypass the new tariffs.

The U.S. Trade Representative, Katherine Tai, indicated that the government is vigilant about Chinese efforts to establish manufacturing bases in Mexico, which could serve as a backdoor for Chinese EVs into the U.S. market.

Adding to the complexity, BYD Co., a leading Chinese EV manufacturer, this week revealed ongoing negotiations to build an EV plant in Mexico, with plans to finalize the location by year-end. This development follows the introduction of BYD's first truck in Mexico, marking a significant step in the company's expansion strategy in the region.

Could Canada and other countries follow suit?

German Chancellor Olaf Scholz and Swedish Prime Minister Ulf Kristersson have cautioned the European Union against emulating the United States' approach of imposing import duties on Chinese electric vehicles (EVs). Speaking at a joint press conference in Stockholm on Tuesday, Kristersson emphasised the importance of global trade and warned against the repercussions of a broader trade war.

“It is fundamentally a bad idea to dismantle global trade,” Kristersson said when questioned about potential EU tariffs on Chinese cars. He acknowledged the need for a level playing field and recognised the potential for disruptions in sourcing, but stressed that blocking each other’s products is not conducive for industrial nations like Germany and Sweden.

Chancellor Scholz echoed these sentiments, highlighting the collaborative efforts between Germany and Sweden in advancing energy transitions, particularly in wind and hydrogen power, and expanding their innovation partnership in defence and space.

Major impact

Ian Lee cautions that were Canada to impose similar tariffs, it would have some fairly negative repercussions. “If Canada was to follow suit and put tariffs on, it would make EVs unaffordable for most people except for perhaps the top 20 per cent of the population. And so I think that there's going to be a political blowback if they went down that road.”

The Government of Canada is aiming to phase out the sale of new combustion vehicles by 2035 – requiring zero-emission vehicles to make up all new car sales in their place. To that end, the federal government and several provincial governments have been striving to secure a share of the North American EV market for Canada. They have already pledged substantial funds to attract other manufacturers, including Honda Motor Co. and Stellantis NV, to build out their EV supply chain in this country.

Imposing tariffs, according to Mr Lee, could prevent that goal from being met. “If we want to get to 100 per cent and the Americans are blocking Chinese EVs coming in to the United States, we're going to have to import them directly from China to meet that target, or we're going to have to extent reduce the aggressiveness of that target of 100 per cent EV [sales] by 2035 to allow domestic North American industry to build up and respond ... there's some very tough trade off decisions that will have to be made.”

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