In June, Finance Minister Chrystia Freeland told reporters that the federal government was concerned by “unfair” Chinese trade practices in the electric vehicle manufacturing sector. Freeland announced the start of a consultation process, which ends on Thursday.
While it is unclear when the results of the consultation will be made public, some experts say one outcome is most likely: increased tariffs on Chinese-made electric vehicles.
The consultation began on July 2 and is scheduled to end Thursday. 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 at the time.
Freeland said the measures were necessary because of what she termed unfair trade practices.
The announcement followed U.S. President Joe Biden’s announcement in mid-May that he was 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.
Erik Johnson, senior economist at BMO Capital Markets, told Global News that he was looking for two major announcements in the coming days.
The first is an added surtax on Chinese-made EVs imported into Canada, at least on par with the European Union. This would raise tariffs on Chinese EVs from six per cent to 50 per cent.
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He said he would also look out for restrictions to which vehicles are eligible for the rebates on zero-emission vehicles. Johnson said the scope of the rebate could be limited to cars made in North America, with possible exceptions for manufacturers from Japan, South Korea and Europe.
Currently, the only Chinese-made EVs imported into Canada are Teslas made at the U.S. tech giant’s Shanghai factory.
Johnson said this could hurt Tesla sales in Canada.
“With demand slowing for Tesla models this year, it was already going to be a year of transition for battery electric vehicles in North America, where they comprise the bulk of sales. Sales should still end up higher than last year, though growth just won’t be as impressive,” he said.
Johnson said some consumers are looking to downgrade to smaller, cheaper vehicles like subcompact and compact SUVs amid the cost-of-living crisis. However, the smaller vehicle segment doesn’t have that many EV options, he said.
“One scenario would see domestic producers start to fill that gap over the next couple of years as more models come to market,” Johnson said.
Moshe Lander, economist at Concordia University, said if Canada does choose to go ahead and impose tariffs, it would be a political move, rather than an economic one.
“Canada has invested a lot in the industry, and they’re not yet seeing the results. I think that’s probably because of overinvestment. But you need some way to cover yourself. So rather than say we made a mistake, it’s almost easier to just point to China,” he said.
In July, American auto giant Ford said it was going to manufacture gas-powered trucks at its Oakville, Ont., facility, despite the provincial and federal governments having spent billions of dollars to attract electric automakers to Ontario as part of a bigger push to build those industries.
Meanwhile, Chinese automaker BYD said it was planning an EV manufacturing facility in Mexico.
Some experts worry that this might prove to be a backdoor into the American and Canadian markets.
“Another possible scenario would be a further delay by domestic producers in bringing more models to market, but that could risk them being caught off guard if Chinese automakers like BYD open North American facilities and start selling into the North American market tariff-free,” Johnson said.
Lander said while Canada cannot deviate much from American trade policy, it can also not afford a trade war with China and that given that most of the vehicles produced in Canada are sold in the United States, it would be hard for the auto industry — both electric and gas-powered — to achieve scale in Canada.
“The entire auto industry, EV or otherwise, is doomed for a massive scale back,” he said.
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