Canada considers tariffs on Chinese electric vehicles following US decision, but does not commit to it

OTTAWA — Canada is reviewing massive new U.S. tariffs on Chinese-made electric vehicles imposed by President Joe Biden earlier this month, but is not committing to following suit north of the border.

Chinese brands are not a major player in the Canadian electric vehicle market at the moment, but imports from China have exploded over the past year as Tesla has shifted its Canadian sales to its US factory. of manufacturing in Shanghai.

And the Canadian Vehicle Manufacturers’ Association says Chinese electric vehicle makers have already made big inroads in Europe and are turning their attention to North America next.

“It’s potentially on the horizon,” CVMA president Brian Kingston said in an interview with The Canadian Press.

He does not advocate that Canada specifically align on tariffs, highlighting the risk of Chinese retaliation. But he added that Canada cannot stray too far from the United States.

“We always have to align our policy,” Kingston said.

President Joe Biden decided on May 14 to quadruple US customs duties on imports of electric vehicles manufactured in China, to bring them to 100%. He cited the Chinese government’s unfair subsidies to Chinese electric vehicle manufacturers. It also increases tariffs on a long list of other Chinese products, including solar cells, computer chips, medical equipment and lithium-ion batteries.

Canada currently imposes a 6% tariff on vehicles made in China, but cars are eligible for federal rebates of up to $5,000 for the purchase of electric vehicles.

Prime Minister Justin Trudeau, Industry Minister François-Philippe Champagne and Trade Minister Mary Ng have all pushed the notion of tariffs since the United States made this decision, but none between them has not committed to follow suit.

“We are watching very closely what the Americans are doing,” Trudeau said in Philadelphia on May 21, shortly after meeting with US Vice President Kamala Harris on the sidelines of the Service Employees International Union convention.

Economic ties and supply chains are a key part of this conversation, according to Trudeau’s staff. Canada and the United States have aligned their EV industries in recent years, including essential minerals, batteries and EV manufacturing itself.

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And Canada has invested heavily in the electric vehicle industry, with $30 billion spent in the last two years alone on the battery and electric vehicle manufacturing sites of Stellantis, Volkswagen and Honda.

The effort is largely aimed at preventing China from making a dent in the famed North American auto industry. The sector represents nearly five percent of the U.S. economy and more than two percent in Canada.

Nearly 10 million Americans and 500,000 Canadians work directly or indirectly in the automobile industry.

In the future, electric vehicles will become an increasingly important part of this sector, with Canada requiring one-fifth of all sales to be electric vehicles by 2026, three-fifths by 2030 and 100% d by 2035.

Fully electric and plug-in hybrid vehicles accounted for nearly 11 percent of total new vehicle registrations in 2023 in Canada, compared to 8 percent in 2022.

The United States wants about a third of its new vehicle sales to be electric by 2032, but unlike Canada, it has not made it mandatory.

Kingston said that currently Canada’s industrial policy is out of alignment with the United States on a number of fronts, including the electric vehicle sales mandate, which he wants to see ended. But he said Canada’s industrial strategy at the moment doesn’t care where electric vehicles are manufactured.

“It’s a problem,” Kingston said.

Although Chinese automakers currently do not sell their products in North America, the lower price of comparable electric vehicles has significantly increased their market share in Europe.

In Germany, a Chinese MG4 electric vehicle starts at around CA$42,000, compared to a similar Volkswagen ID3 electric vehicle, which starts at almost CA$60,000.

Chinese car brands accounted for 4% of Europe’s electric vehicle market share in 2022, up from less than 0.5% in 2019. Analysis by European advocacy group Transport & Environment suggests they will reach 11% share. market in Europe this year. year and 20 percent by 2027.

Last October, European Commission President Ursula von der Leyen launched an investigation into Chinese subsidies for electric vehicles with a view to imposing import tariffs.

“Fair competition is good,” von der Leyen said in March.

“What we don’t like is when China floods our market with massively subsidized electric cars. And we have to tackle that, we have to protect our industry.”

Kingston said Canada should consider its own anti-dumping investigation into China’s electric vehicle subsidy practices before Chinese electric vehicles arrive in the Canadian market.

Canada doesn’t need to align with U.S. tariffs immediately, but it should be prepared to do so if things change, Kingston said.

“We absolutely must be prepared for a surge in Chinese electric vehicles,” he said. “We need to make sure we have a lever to pull in case we have to increase tariffs.”

Before 2023, electric vehicles made in China represented a very small portion of the Canadian market, with $84 million in imports from China in 2022, or 1.2 percent of the total value of all electric vehicle imports .

However, in 2023, as Tesla moved its vehicles produced for Canada from California to China, this amount increased to $2.2 billion. Tesla currently represents nearly a third of the Canadian electric vehicle market share.

This places China second behind the United States with $2.8 billion in imports.

Tesla made this change because it needed to shift most of its U.S. sales to its U.S. factories to ensure they qualify for a lucrative tax credit that is only available to electric vehicles made in America North.

This report by The Canadian Press was first published May 26, 2024.

Mia Rabson, The Canadian Press