Ottawa to impose 100-per-cent tariff on Chinese-made EVs

Canada said it will impose major tariffs on Chinese-made electric vehicles and steel and aluminum products to protect a fast-growing domestic EV industry while joining forces with the United States and Europe against what Prime Minister Justin Trudeau called China’s “unfair” trade approach.

On Monday, the federal government announced a 100-per-cent tariff on Chinese-made EVs, as well as a 25-per-cent tariff on steel and aluminum products from China – both of which will come into effect in early October. The EV tariff applies to some hybrid passenger cars, trucks, buses and delivery vans, and is in addition to a pre-existing import tariff of 6.1 per cent that already applies to Chinese-made EVs coming into Canada.

The government made the announcement just a day after hearing from President Joe Biden’s national security adviser, Jake Sullivan. The U.S. official joined the federal cabinet during its Sunday evening sessions in Halifax, where he told reporters he would make the case for Canada joining Washington in its tariff program and noted that the European Union had already acted.

Mr. Trudeau cited the Sunday evening meeting when announcing the tariffs on Monday. He said the extra levies are justified because China has given itself an “unfair advantage” and Beijing’s policies have compromised critical industries and displaced Canadian auto and metal workers.

Restricting supply from China won’t come at the expense of the government’s mandate that all new vehicles sold by 2035 must be zero-emission, said Finance Minister Chrystia Freeland, who said that target is “absolutely still achievable.”

She also forcefully attacked what she described as Beijing’s electric-vehicle policy of “oversupply and overcapacity.”

“It is built on abysmal labour standards, and it is built on abysmal environmental standards,” Ms. Freeland said. “We are not going to build Canadian policy based on abuses of workers in China and based on pollution in China.”

The changes were welcomed by the Canadian Vehicle Manufacturers’ Association, which said that given how integrated the North American auto market is, alignment with U.S. policies is a must. However, the group’s president and chief executive officer, Brian Kingston, also suggested the change will have little impact on the current market.

“The tariff measures on Chinese EVs are pre-emptive as there are no Chinese manufacturers currently selling in Canada,” Mr. Kingston said.

The United States levelled an even broader set of tariffs on China in May, including solar cells, computer chips and lithium ion batteries. Canada said it was not yet ready to follow suit on all of those products because of supply chain implications. However, the federal Finance Department announced Monday that it is launching a new round of consultations to see whether tariffs on products, such as batteries and semi-conductors, are warranted.

Two senior government officials cautioned that Canadian supply chains for those products already include Chinese products, meaning tariffs in those areas could have more of an impact on the Canadian market.

The Globe and Mail is not identifying the officials as a condition of taking part in the briefing.

Later Monday, the Chinese embassy in Ottawa said the imposition of tariffs would undermine “normal” economic and trade co-operation between the two countries.

“China urges Canada to respect objective facts, abide by WTO rules, and immediately correct its ‘erroneous practices,’” the embassy said in a statement.

The new tariffs stand to have the biggest effect on Tesla TSLA-Q, which makes the bulk of the Canadian-bought, China-made electric vehicles in today’s market, according to the two officials. However, they said the company is expected to shift its Canadian-bound manufacturing to its plants outside of China. The officials noted that Tesla already does this for its U.S. market and said Ottawa has been in contact with the company about its ability to do the same for Canada.

Kent Fellows, a professor of economics at the University of Calgary’s school of public policy, said he’s not convinced by the federal government’s reasoning for the tariffs. While the move may have important political implications, he said a change in Canada’s relatively small EV market won’t make a difference to labour practices in China and the economic implications of this decision are of far greater concern.

“On the economic side, tariffs are generally always a bad idea. They generally fail to protect the workers that they’re trying to protect. And even if they do protect those jobs, it’s at a very high cost for the rest of the economy,” he said.

Werner Antweiler, associate professor at the University of British Columbia’s Sauder School of Business, said the legal basis for this tariff is coming through Section 53(2) of Canada’s Customs Tariff Act, or what he calls a “backdoor.”

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Section 53(2) lets Canada avoid standard World Trade Organization procedures, which include a chance for the other side to weigh in and enter into dispute settlement mechanisms. Canada’s tariff approach is similar to the U.S.’s in this case.

Prof. Antweiler said he had expected the federal government to follow in the footsteps of the European Union, which announced provisional countervailing duties in July after going through World Trade Organization procedures. This way, he said, the imposed tariff is more proportional and accurately reflects the level of subsidies from the Chinese government that need to be offset.

By choosing to sidestep this process, Prof. Antweiler said, Canada has opened itself up to a reaction from China that could lead to serious retaliation. “This is basically such a blunt instrument that the reaction from Beijing will be to impose some kind of countermeasures on industries from Canada,” he said.

Joanna Kyriazis, director of public affairs at Clean Energy Canada, said the federal government’s steep tariff could beleaguer plans to address climate change and cut emissions from traditional, internal combustion engine vehicles.

She said her organization called for a 90-day grace period on any tariff to help companies such as Tesla and Volvo make plans to supply the Canadian EV market with products from elsewhere, but no such period was announced.

“Unfortunately, Canada made a decision today that will result in fewer affordable electric vehicles for Canadians, less competition, and more climate pollution,” she said in a written statement on Monday.

Prof. Fellows said if further tariffs are announced on products such as batteries or semi-conductors, smaller manufacturers could be negatively affected, which would also hinder Canada’s productivity.

“Chances are, if you’re one of those small manufacturers and you’re buying input goods from China, you’re doing it because that’s the cheapest place you can source them, and so any substitute is going to be more expensive than that,” he said.

The 100-per-cent tariff of Chinese-made EVs will come into effect on Oct. 1 and the secondary 25-per-cent tariff on aluminum and steel products will come into effect on Oct. 15 – neither of which will apply to Chinese goods that are in transit on the day they come into force.

For the average consumer, Keith Head, professor at the Sauder School of Business, said owning an EV simply isn’t going to become more attainable any time soon.

“An era of cheap EVs is not in the cards,” he said.