Why U.S. tariffs on Chinese EVs could be a ‘tightrope’ walk for Canada

Click to play video: 'U.S. tariffs on Chinese EVs a ‘tightrope’ for Canada?'
U.S. tariffs on Chinese EVs a ‘tightrope’ for Canada?
WATCH ABOVE: U.S. tariffs on Chinese EVs a 'tightrope' for Canada? – May 28, 2024

With the Joe Biden administration imposing massive new tariffs on Chinese-made electric vehicles, some experts argue that a American-style tariff may not make sense for Canada.

The U.S. move to quadruple import tariffs on Chinese-made EVs to 100 per cent came on May 14, amid a major push by North American manufacturers and governments to boost the electric vehicle supply chain for the coming decades.

U.S. President Joe Biden had cited unfair subsidies from the Chinese government to Chinese EV makers in announcing the import tariffs, which Prime Minister Justin Trudeau has said his government is “watching very closely.”

Click to play video: 'Fears of trade war escalating as Honda unveils home of new EV supply chain plant'
Fears of trade war escalating as Honda unveils home of new EV supply chain plant

Canada currently imposes a six per cent tariff on Chinese-made vehicles, but the cars can qualify for up to $5,000 in federal rebates for EV purchases.

Story continues below advertisement

Trudeau along with Industry Minister François-Philippe Champagne and Trade Minister Mary Ng haven’t ruled out the possibility of similar tariffs, but none of them committed to following suit. The decision, economists said, is a complex one.

Moshe Lander, economics professor at Concordia University, told Global News, “If Canada wants to put tariffs on China, that’s within their control. They don’t have to do it just because the Americans are doing it.”

“In a lot of cases, we’ve been treating countries differently than the Americans because we see their strategic threat to us as different than the Americans,” Lander said.

Erik Johnson, senior economist at BMO Capital Markets, said Canada’s context is very different from a large economy like the United States.

He said China is Canada’s second largest trade partner and a back-and-forth over EV tariffs could hurt Canada in other sectors, like agriculture where China could impose retaliatory tariffs, and has done so in the past.

“Canada certainly could stand to lose a fair bit in that back and forth with China over electric vehicle tariffs. So we do have to approach the conversation a little bit differently than maybe a big country like the United States that doesn’t rely necessarily on external markets to the same degree,” Johnson said.

A recent Scotiabank report said North American manufacturers were falling behind in the global race to build more EVs. In the last quarter of 2023, Chinese auto giant BYD dethroned Tesla as the leading manufacturer of EVs in the world.

Story continues below advertisement

“North American policymakers need to ratchet up regional collaboration. Erecting barriers might buy time, but not necessarily edge as the Europeans are learning the hard way,” the Scotiabank report said.

Click to play video: 'Ontario nets new electric vehicle investment, this time in Niagara Region'
Ontario nets new electric vehicle investment, this time in Niagara Region

Should Canada align with U.S. markets?

Experts say while Canada should consider its unique context, it cannot afford to deviate too far from the U.S. economy.

Story continues below advertisement

“I think that’s the difficult tightrope you have to walk there,” Johnson said. “Canada really does need to stay in line with the United States for the main reason that almost every car we make ourselves is not necessarily being sold domestically. Roughly 80 per cent of the vehicles we assemble in this country are going south of the border.”

Lander said, “In Canada, you really can’t get to scale with 40 million consumers the way you can with an integrated North American market that has over 500 million consumers.”

While Chinese-made EVs accounts for a very small portion of the North American EV market, Johnson said it could change very quickly.

“Five years ago, (almost) no Chinese-made EVs were being sold in Europe. And today… about 15 per cent of overall vehicle imports to the EU are coming from China. And all of those are electric vehicles,” he said.

While allowing Chinese-made EVs into the market may mean the price drops dramatically for Canadian consumers, both Lander and Johnson said that would mean Ottawa would have to contend with potential national security concerns over Chinese companies.

Click to play video: '$1.6B lithium-ion battery plant to be built in Ontario'
$1.6B lithium-ion battery plant to be built in Ontario

Johnson said by not following Washington, Ottawa risks inviting U.S. tariffs on Canada: in particular, if “the U.S. thinks that they need to impose some differential tariffs on us, because maybe we’re allowing a little bit too much infiltration into our market from electric vehicles from China.”

Story continues below advertisement

In addition to U.S. fears of China using Canada as a backdoor market for their goods, the upcoming presidential election also raises questions.

Lander said Canadian should be wary of protectionist sentiments creeping back into American politics ahead of the November election. He said Canada’s competition may not come from China, but from U.S. states with looser labour laws.

“It’s the southern U.S. states like Tennessee and Alabama that have much weaker labour laws and can produce cars for the North American market within the NAFTA agreement, where Canada is not going to be able to compete,” he said.

Click to play video: 'Can Canada be a leader in mining critical minerals for EV battery supply chains?'
Can Canada be a leader in mining critical minerals for EV battery supply chains?

What about Canadian jobs?

Last month, it was announced that Japanese automaker Honda is putting $15 billion into their Ontario operations with a new electric vehicle manufacturing plant in Alliston, Ont. with a joint $5 billion coming from the federal and Ontario governments.

Story continues below advertisement

Johnson said, “That facility is going to add an additional thousand jobs. Just from a dollars-to-jobs point of view, you’re looking at roughly $5 million per job. So, certainly an expensive way to create new jobs in this country relative to other options.”

In the long term, he said the Canadian economy could if new jobs come from retrofitting infrastructure and spending public money on light rail development, subway development and public transportation subsidies.

Johnson said that despite being behind most major players, Canada can still cash in on the global EV boom using its abundance of critical minerals.

“Canada does have a lot of the endowments that can make it a very important player in this space,” he said. “If you want to make a battery today, most of those minerals are predominantly coming from China. It does certainly give us an avenue to create a supply chain that will find a global audience.”

Sponsored content