June 24: Canada has accused China of undermining global trade rules by flooding the market with electric vehicles (EVs), prompting Finance Minister Chrystia Freeland to initiate the process to impose new import taxes on Chinese-made EVs. This follows similar moves by the United States and the European Commission, who have also imposed tariffs on Chinese EVs, citing unfair subsidies designed to outcompete more expensive vehicles from Europe and North America.
During an event at an auto parts manufacturing plant in Vaughan, Ontario, Freeland announced a 30-day consultation starting July 2 to investigate China’s market practices related to EVs. Freeland asserted that China has been creating an overcapacity and oversupply of EVs and exporting them to other countries, which she described as a violation of global trade rules that Canada will not tolerate.
In recent years, Canada has invested heavily in its auto sector, aiming to become a leader in the EV supply chain. Since October 2020, investments of $46 billion have been pledged for various EV plants and related facilities, with Canada and its provinces offering up to $53 billion in support through tax credits, subsidies, and capital investments. This has helped Canada rank first in Bloomberg NEF’s annual evaluation of countries’ potential in the lithium-ion battery supply chain, surpassing China for the first time.
The tariff investigation, launched under section 53 of the Customs Tariff Act, allows Canada to impose a surtax on imported goods to protect its industry from harmful practices. This section was previously used in 2018 to impose a surtax on U.S. aluminum and steel imports after then-President Donald Trump imposed tariffs on Canadian aluminum and steel.
Freeland mentioned that the response might include expanding the surtax to other components of the EV supply chain, such as batteries and precursor materials. The consultation will also consider economic harm, national security risks, and standards related to the environment, labor, and human rights.
Currently, the only Chinese-made EVs imported into Canada are from Tesla’s Shanghai factory, subject to a six percent import tariff and eligible for a $5,000 federal rebate. Canadian automakers and unions have raised concerns about the potential impact of low-cost Chinese EVs on the domestic market. Unifor President Lana Payne and David Adams, President of Global Automakers of Canada, both expressed support for the government’s move, emphasizing the need for a level playing field and the protection of Canadian manufacturing jobs.
Conservative trade critic Kyle Seeback highlighted the importance of safeguarding Canadian jobs and expressed concerns about foreign workers displacing Canadians in EV battery plants. With 70 percent of EV batteries and 60 percent of EVs now produced in China, the European Commission and the U.S. have also taken measures to address China’s dominance in the EV market.
The European Commission’s anti-subsidy investigation into Chinese EVs led to a planned surtax of 17 to 38 percent on Chinese imports, in addition to the existing 10 percent import tariff, starting July 4. However, negotiations between Europe and China may alter this plan. Meanwhile, U.S. President Joe Biden announced significant increases in import taxes on Chinese EVs and EV batteries, set to take effect in August.
