Ottawa is imposing higher tariffs on electric vehicles made in China, along with a higher tariff on Chinese steel and aluminum. Some experts are warning that in the short term, buying an EV could get costlier for some Canadians.
Speaking at the Liberal cabinet retreat, Trudeau said, “Shortly, we will be introducing a 100 per cent tariff on Chinese-made electric vehicles and a 25 per cent tariff on Chinese steel and aluminum.”
He said this was being done to spur EV manufacturing in Canada.
The announcement brings Canada in line with recent U.S. trade policy changes. President Joe Biden announced in mid-May that he was hiking tariffs on Chinese EVs from 25 per cent to 100 per cent this year.
Erik Johnson, senior economist at BMO Capital Markets, said Canada had little choice but to align with the U.S. seeing as nearly 80 per cent of the cars made in Canada are sold south of the border.
“If you were to do anything that might jeopardize your very strong market access to the U.S. economy, that would potentially be devastating to an industry,” he said.
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.
Freeland in her June announcement had indicated what the restrictions might look like.
“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.
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Chinese-made EVs occupy a very small segment of the Canadian market, Johnson said, however Chinese automaker BYD has been looking to expand to the North American market by way of a manufacturing facility in Mexico.
Two of the most popular EVs in Canada -Tesla Model Y and Tesla Model 3 – are both produced by the U.S. maker in its Chinese facility.
“That really would be the core product segment that’s going to feel the immediate impacts when these tariffs go into play,” he said.
However, he said that could change if Tesla moves its facility out of China.
Moshe Lander, an economist at Concordia University, said even if Tesla moves out of China, there’s no guarantee that the company is going to move to Canada and spur manufacturing here.
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“It’s not like all of a sudden Tesla are going to say, well, I guess we better relocate to Canada now because there’s 100 per cent tariffs on China. We’re talking about a very large company that has its choice of anywhere to operate in the world,” he said.
Lander said a surtax of 100 per cent gives Canadian manufacturers more leeway in raising prices.
“Canadian manufacturers now have cover to increase their prices,” he said.
Johnson said the federal government would hope that the tariffs would give local manufacturers time to catch up to Chinese competitors and encourage foreign players to manufacture in Canada. BYD already has an electric bus manufacturing facility in Newmarket, Ont.
However, he said Canada’s EVs sector was facing its own set of issues.
In July, American auto giant Ford said it was going to continue to manufacture gas-powered trucks at its Oakville, Ont., facility, despite the provincial and federal governments pushing for more EV development and spending billions of dollars to attract electric automakers to Ontario as part of a bigger push to build those industries.
Johnson said while EV sales might take a hit in the short term, consumers are like to shift to other alternative fuel vehicles like hybrids.
“We’re seeing hybrid sales certainly do very well this year in both Canada and the United States,” he said.
Johnson said given the cost of living crisis, the Canadian consumer could also be turning away from larger vehicles, preferring compact and subcompact cars instead of SUVs.
“One of the things that we’re seeing consumers do in the current cost of living environment is they’re trading down size,” he said.
“I might be willing to compromise a little bit more on size if it means one saving on the price point, but also have a lower operating cost of that vehicle.”
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