The Canadian government is launching a consultation process on how to tackle the “oversupply” of Chinese-made electric vehicles – including potential tariffs — in the global market, Finance Minister Chrystia Freeland said on Monday.
Freeland said the 30-day consultation process will begin on July 2. While tariffs and a surtax on Chinese-made EVs are likely to be the focus after the U.S imposed tariffs on the vehicles, Freeland said they are considering a range of policy options.
“The potential policy actions we are consulting on include a surtax on imports of Chinese EVs under section 53 of the Customs Tariff Act, changes to which cars are eligible for the existing federal incentives for Zero Emissions Vehicle Program, and potentially broader investment restrictions in Canada,” Freeland said.
Freeland said the measures were necessary because of what she termed unfair trade practices.
“Chinese producers are quite intentionally generating a global oversupply that undermines EV producers around the world, including here in Canada,” she said.
In 2021, almost 80 per cent of all lithium-ion batteries for electric vehicles globally came out of China and the International Energy Agency says almost 60 per cent of global EV sales are now Chinese-made.
The announcement follows U.S. President Joe Biden’s announcement in mid-May that he is hiking tariffs on Chinese EVs from 25 per cent to 100 per cent this year though there is only one Chinese EV currently available in the U.S.
Freeland said Canada needs to act in tandem with its allies and major trade partners, particularly the United States.
“Our supply chains are deeply integrated with the United States, thanks to our robust and hard-won free trade agreements. Acting in partnership to support the deeply integrated North American auto sector is essential,” she said.
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.
Currently, the only Chinese-made EVs imported into Canada are Teslas made at the U.S. tech giant’s Shanghai factory.
China is a bigger player in Canada when it comes to batteries and battery components for EVs, industries Canada has invested heavily in over the last four years.
Some experts believe Canada cannot afford a full-blown trade war with China and must walk a tightrope. Trade Minister Mary Ng said Canada will defend its interests while respecting its international trade obligations.
“We’re going to collaborate with our partners to respect our international trade commitments while ensuring that there is a level playing field for Canadian businesses and our workers so that we can compete fairly and that we can indeed thrive,” she said.
The Conservatives said that while they support action that prevents the “dumping of cheap Chinese products into our Country,” they said Prime Minister Justin Trudeau was to blame for weaking Canada’s manufacturing capacity.
“Trudeau has failed to protect Canadian auto workers as evidenced by the fact that he has spent tens of billions of dollars subsidizing jobs for foreign replacement workers at EV battery plants, while securing no guarantees for Canadian union workers,” Conservative international trade critic Kyle Seeback said.
Greig Mordue, associate professor at Booth School of Engineering Practice and Technology, said Canada is likely to lean towards tariffs at the end of the consultation process.
“I think you can be pretty confident that we’re going to come out of this with pretty substantive tariffs or protectionist measures at the conclusion of this study,” he said.
He added that Canada should expect worsening trade ties with China going forward.
“What comes next is potential frictions with China. We don’t want frictions with China, but we’re going down that road,” he said.
Experts say Canada may have little choice but to follow U.S. policy.
“I think that’s the difficult tightrope you have to walk there,” Erik Johnson, senior economist with BMO Capital Markets, told Global News before the announcement.
He 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.”
Chinese officials are also working to get the European Union to back down on their impending tariffs on Chinese EVs.
Beijing wants the EU to scrap plans to impose preliminary tariffs on Chinese electric vehicle imports by July 4, China’s state-controlled Global Times reported, after both sides agreed to negotiate a possible compromise.
Provisional European Union duties of up to 38.1% on imported Chinese-made EVs are set to kick in by July 4 while the bloc investigates what it says are excessive and unfair subsidies.
The European Commission said it would host technical talks with Chinese officials in Brussels this week.
“The EU side has emphasised that any negotiated outcome of the investigation must be effective in addressing the injurious subsidisation,” a Commission spokesperson said.
–with files from Canadian Press and Reuters
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