Following the United States and European Union’s footsteps, Canada will now apply a 100% tariff on Chinese electric vehicle imports and a 25% duty on Chinese steel and aluminium imports.
All electric vehicles (EVs) shipped from China are subject to taxes, including Tesla models, according to a Canadian government spokesman. The most valuable carmaker in the world’s stock finished 3.2% down.
Car imports into Canada from China into Vancouver, the country’s busiest port, increased by 46% annually to 44,356 in 2023 when Tesla began delivering electric vehicles (EVs) built in Shanghai.
According to Prime Minister Justin Trudeau, China’s deliberate, state-directed policy of overcapacity is the reason Ottawa is taking action.
He told reporters, “I think we all know that China is not playing by the same rules. What is essential about this is we’re doing it in sync and in conjunction with other economies across the world.”
China Decries, While Tesla Mulls Options
The decision by Canada, according to a spokesman for China’s Commerce Ministry, “Would upset the stability of global industry and supply networks and gravely jeopardise the norms governing trade and economics worldwide.”
“The Canadian side announces that it will adopt unilateral tariff measures, which is typical trade protectionism. It flagrantly violates WTO rules, blindly follows individual countries, and claims to support free trade and the multilateral trading system based on World Trade Organisation (WTO) rules,” Beijing stated.
The Xi Jinping government even went further to say that the action hurts the interests of businesses in both nations, apart from affecting the economic relations between the countries.
Though it lags well behind the United States in terms of trade, China is Canada’s second-largest trading partner. When it comes to what Tesla exports from the world’s second largest economy to Ottawa, car identifying codes have revealed Canada receives Model Y crossovers and Model 3 small sedans.
Canadian Deputy Prime Minister Chrystia Freeland has said that her country will act in concert with its allies in the United States and the European Union as North America has an integrated auto sector.
Freeland has said her government would ensure Canada doesn’t become a dumping ground for Chinese oversupply.
US President Joe Biden has said Chinese government subsidies for electric vehicles and other consumer goods ensure that Chinese companies don’t have to turn a profit, giving them an unfair advantage in global trade.
Chinese firms can sell EVs for as little as USD 12,000. China’s solar cell plants and steel and aluminium mills have enough capacity to meet much of the world’s demand, with Chinese officials arguing their production keeps prices low and would aid a transition to the green economy.
According to Automotive News Canada, Tesla sold 36,900 EVs in Canada in 2023, compared with 24,400 in 2022. The company is now supplying Canada with its EVs made in Shanghai but it can avoid the new tariffs by switching to supplying Canada from factories in Germany or the United States.
Liu Chunsheng, an associate professor at the Beijing-based Central University of Finance and Economics, told the China News Agency that Canada’s EV tariffs will not hurt Chinese firms directly but could force Tesla to reduce production in China.
“The major destinations of Chinese EVs are not the US and Canada, but Southeast Asia, Eastern Europe and some Belt and Road countries. Canada’s tariffs will not hurt the exports of Chinese EVs,” Liu remarked.
”However, we must beware that the US is now encouraging its allies to reduce or block the imports of Chinese EVs. Canada’s tariffs will become a showcase and affect other countries’ decisions. Besides, Tesla may be forced to reduce its production in China,” he added.
Tesla said in March 2024 that it had reduced its car production in China due to slow demand and strong competition in the market. Reuters then reported, in May, that Tesla’s Model Y production in Shanghai was 49,498 units in March and 36,610 units in April, down 17.7% and 33% year-on-year, respectively.
The Shanghai factory is Tesla’s largest production facility in the world with an annual capacity of about one million vehicles.
Seth Goldstein, an equity strategist at Morningstar, said, “I would anticipate Tesla to adjust its logistics and maybe export automobiles to Canada from the US in response to the tariffs.”
When the EU levied tariffs on Chinese-imported electric vehicles this month, it loosened its position toward Tesla and charged a duty of 9% for the company, which was less than the 36.3 % it had levied on other Chinese EV imports.
Additional Actions
According to Trudeau, Ottawa will keep cooperating with the United States and other allies to make sure that the non-market policies of nations like China do not unfairly penalise consumers worldwide.
Without providing further information, Trudeau stated that Ottawa is considering additional punitive measures, including tariffs on semiconductors and solar cells.
Chinese customs data indicates that 2023’s top imports from Canada were approximately USD 14 billion in non-monetary gold, USD 3.5 billion in rapeseed, USD 4 billion in petroleum, and slightly over USD 2 billion in iron ore.
The biggest importer of agricultural products in the world also purchased significant amounts of various other commodities and crops, providing Beijing with options if it chose to react, as it has done with the EU.
Not one of the top 10 export destinations for Chinese aluminium and steel is Canada.
To protect American companies from Chinese excess production, Biden announced in May that he would double tariffs on semiconductors and solar cells to 50%, quadruple duties on Chinese electric vehicles to 100%, and impose new 25% tariffs on steel, lithium-ion batteries, and other strategic goods.
Ottawa is under pressure from the home sector to take action against China and is attempting to establish Canada as a vital link in the global electric vehicle supply chain.
Canada has signed billion-dollar agreements with leading European manufacturers across the whole EV supply chain.
“We feel inspired and justified. Let us now focus on safeguarding our market using the most innovative and determined Canadians have to offer,” said Automotive Parts Manufacturers’ Association President Flavio Volpe in an email interview with Reuters.
September 2024 is now the new date for the US tariffs to go into effect, and this week could see a softening of the scheduled charges.
Is The Move Good Or Bad?
Zhou Rongyao, director of the Canadian Studies Centre at the Academy of Social Sciences, told the Global Times that the imposition of tariffs is simply a way for Canada to demonstrate loyalty to Washington, “As it follows in the footsteps of the United States, cheering on American decisions along the way.”
Li Haidong, a professor at the China Foreign Affairs University, took a similar line as he stated that Canada displayed its typical lack of policy independence (through the tariff episode). When it comes to its foreign and security policies toward China, Canada almost blindly follows Washington.
In an op-ed entitled “The US protectionist craze hasn’t done it’s economy any favours,” David Dodwell, CEO of the trade policy and international relations consultancy Strategic Access, pointed out that the American tariffs on China have not only cost the US economy dearly, but have failed in its overall objective to reduce the trade deficit with Beijing.
“Currently, the US Trade Representative’s office has received over 1,100 public comments, with many US manufacturers expressing opposition to imposing tariffs on Chinese imports, indicating that the US tariff measures are not popular,” Dodwell wrote.
Liu Dan, a researcher at the Centre for Regional Country Studies at Guangdong University of Foreign Studies, told the Global Times that there were already voices of doubt within Canada when discussions began on whether to impose tariffs on China. This move is also inconsistent with Canada’s long-standing advocacy for proactive climate governance. Undoubtedly, the latest move would increase burdens for Canadian businesses and consumers.
Clean Energy Canada, a Canadian clean energy think tank, has criticised Ottawa’s decision, stating that Canada’s tariffs on Chinese EVs undermine affordability and the country’s climate goals.
However, Erik Johnson, senior economist at BMO Capital Markets, said Canada had little choice but to align with the US seeing as nearly 80% of the cars made in Canada are sold south of the border.
“If you were to do anything that might jeopardise your very strong market access to the US economy, that would potentially be devastating to an industry,” he said.
“Chinese-made EVs occupy a very small segment of the Canadian market,” Johnson said, while adding, “However Chinese automaker BYD has been looking to expand to the North American market by way of a manufacturing facility in Mexico.”
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 in the nation.
He also said that a surtax of 100% gives Canadian manufacturers more leeway in raising prices.
“If you’re going to have to pay a 100% tariff on Chinese imported EVs, then why can’t a domestic producer increase their price by 50%, 75% or 99% and cent say it’s still a better deal than if you’re going to get [one] from China?,” Lander concluded.