Canada will impose a 100 per cent surtax on nearly all Chinese-made electric vehicles, including certain hybrids as well as trucks and buses, in a bid to create a protective barrier around the country’s auto industry.

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Trudeau announces 100% tariff on Chinese EVs, signals more measures coming Back to video

Prime Minister Justin Trudeau announced the measures on Monday while in Halifax where he had gathered his cabinet for a three-day retreat.

“We are transforming Canada’s auto sector into a global leader in building the vehicles of tomorrow,” Trudeau said at a press conference, “but actors like China have chosen to give themselves an unfair advantage in the global marketplace.”

A government press release cast Chinese EV producers as an “extraordinary threat” to Canada’s auto and metal workers — sectors that it said support roughly 255,000 jobs — citing China’s non-market economy, and what it described as “poor” environmental and labour standards.

Trudeau also announced a 25 per cent surtax on imports of steel and aluminum coming from China, effective Oct. 15, and signalled his government could enact similar measures aimed at solar panels and semiconductors in the future.

The measures had been telegraphed earlier this summer by Deputy Prime Minister Chrystia Freeland, who also accused China of violating international trade rules by deliberately overproducing EVs in order to cheaply export them abroad. She launched a 30-day consultation on the matter in early July.

The tariffs follow a May announcement by U.S. President Joe Biden of 100 per cent tariffs on Chinese-made EVs.

Trudeau said on Sunday night that he had discussed China and other national geopolitical issues with U.S. national security advisor Jake Sullivan.

The federal and provincial governments, particularly Ontario and Quebec, have pledged tens of billions of dollars to automakers and battery producers since 2020 in the form of tax credits, loans and direct investment to entice them to build an electric vehicle supply chain in Canada. Now, fears are growing that China, which has a more mature EV industry that is already producing at scale, could undermine those investments by selling cheaper EVs in North America.

In a sign that trade tensions with China could continue to heat up, the federal government also announced it will launch a 30-day consultation on whether it needs to take actions to protect what it described as “sectors critical to Canada’s future prosperity” — including batteries and battery parts, semiconductors, solar products and critical minerals.

Ottawa also intends to limit its incentive program for electric vehicles — up to $5,000 off the price — to EVs produced in countries that have negotiated free trade agreements with Canada.

The policies were widely applauded by auto and metals industries, which have been lobbying for trade barriers on China for months, and years even in some cases.

“What they’ve done today … is to buy time for the North American auto investments to bear fruit,” said Flavio Volpe, president of the Automotive Parts Manufacturers Association in Toronto.

Volpe said he had travelled to both Ottawa and Washington, D.C., during the past year to push the idea that China is not following international trade rules, and compared the situation to allowing a wolf inside the chicken coop.

“We’ve told them the eggs are for us, please respect the chickens,” he said, “And then when he eats them, we say maybe he didn’t mean it, and we talk about the wolf’s rights. I say he knew exactly what he was doing and maybe he was hungry.”

The Canadian Vehicle Manufacturers Association of Canada also applauded the barriers.

Brian Kingston, president of the CVMA, said that it is especially important because Canada will meet with representatives from the U.S. and Mexico in 2026 to review the North American free trade agreement.

“There is simply too much at stake for the automotive industry and broader economy if Canada is misaligned,” he wrote via email.

Notably, the restrictions in Canada are timed to take effect in October — aligning closely with the U.S. government’s plans.

For now, Chinese automakers do not have a significant presence in Canada but its share of EV imports grew markedly last year: In 2023, the value of Chinese-made EVs grew to $2.2 billion up from $84 million in 2022. Meanwhile, China’s BYD Co. Ltd. has been meeting with federal government officials about selling its vehicles here.

Overall, China’s EV exports have been growing rapidly, and reached $47.2 billion in 2023, up from $0.2 billion in 2018, according to the Department of Finance. Last year, it also emerged as the largest manufacturer and exporter of EVs of any country in the world.

There have been voices speaking out against tariffs, too, for various reasons, including some who see them as unnecessary.

Jeff Mahon, a director at International Business and Geopolitical Advisory at StrategyCorp Inc., a business consulting firm, said he understands the rationale for the tariffs — that China’s EV sector may be receiving unfair subsidies.

But Mahon criticized the federal government for framing it as unfair business practice, rather than framing it as an attempt to protect a nascent industry, which he contends would be less confrontational. Given that Chinese EVs are not yet being exported to Canada in significant numbers, he argues the subtler approach makes more sense.

“We’re kicking sand in China’s eyes,” said Mahon, adding, “We’re inviting unnecessary risks to some actual export in the agricultural commodities.”

Specifically, in the past, China has blocked Canadian canola and pork exports in response to rising geopolitical tensions. It’s easy to raise health or safety concerns about those products that gives China legal cover, and makes them easy targets for retaliatory measures, he said.

If that happens again, Mahon said he thinks it would enflame tensions between agricultural producers in western Canada and auto industry, which is largely centred in Ontario, and to a lesser extent Quebec.

Some environmentalists also take issue with the tariffs, which could delay the EV transition by blocking more affordable EVs from China.

“We’re disappointed that Canada decided to take more of a blunt hammer approach to this issue by applying 100 per cent tariffs, when we clearly had the opp to take a more elegant approach,” said Joanna Kyriazis, director of public affairs at Clean Energy Canada in Ottawa, a think-tank.

Kyriazis noted that the European Union conducted an investigation and applied countervailing duties that differed for each automaker based on the level of subsidies received but were far lower than 100 per cent.

That will result in more affordable EVs in the EU market, she said.

Still, David Wolfe, a professor of political science at University of Toronto who studies the energy transition, said that he sees tariffs as a more of an opening measure for the U.S. and Canada to buy time for its emerging EV supply chain to emerge.

Right now, EV charging infrastructure is still being built out and automakers have not yet achieved production at scale, which makes the domestic EV industry fragile, he said.

Trade barriers such as tariffs may be a “stop gap” measure to prevent Chinese EV’s from flooding into the market, he said, adding that the industry likely is overproducing.

But Wolfe said he sees China and the U.S. as too intertwined to completely decouple their economies.

“I think a key challenge … is going to be how not just to respond to China, but to engage with China,” he said. “I am hopeful that this is not a final negotiation move but an opening move.”

• Email: gfriedman@postmedia.com

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