Liberals will be forced to act on EV tariffs despite the considerable downsides

This opinion was written by Kelly Cryderman and was published in the Globe & Mail on June 24, 2024.

Even if it slows their climate goals, the Liberals can’t let the country look like a backdoor for Chinese-made imports

Doug Ford’s call last week for Ottawa to immediately match or exceed new U.S. import taxes on “artificially cheap electric vehicles” from China was inevitable, as is the fact the federal government will have to heed the Ontario Premier’s advice.

This will happen despite the considerable downsides. New tariffs on Chinese EV imports could impede the federal Liberals’ climate-focused plans for 100-percent, zero-emission vehicle sales by 2035, and – keenly for all of Canada – open a precipitous new front in trade-wrangling with China.

But at stake are consequential items, like the more than $50-billion of federal and provincial funds poured into building a supply chain, and the dream of turning central Canada into an electric-vehicle-industry middle power. And yes, Canada’s relationship with its still-largest trading partner.

Chinese automakers lead global production of EVs and now churn out more than half the world’s supply. In May, U.S. President Joe Biden – eager to protect and bolster a U.S.-focused EV supply chain, and arguing that China is flooding the world with artificially low-priced exports – announced steep tariff increases on an array of Chinese imports, including lithium-ion EV batteries, and battery components such as natural graphite and permanent magnets. Most notably, his administration quadrupled duties on actual EVs to more than 100 per cent.

That compares to a tariff of 6.1 per cent on Chinese EVs here in Canada.

Chinese brands aren’t really a part of Canada’s EV market right now. But, according to Bloomberg, Canada is seeing a significant surge in imports of Chinesemade EVs, particularly Tesla Inc. models made in Shanghai. The number of cars arriving from China at the port of Vancouver rose more than fivefold last year, to 44,400.

And Canadians get a $5,000 point-of-sale rebate on these models, to boot.

This is a problem. No matter what, Canada needs to avoid looking like a backdoor to Chinese EVs and EV parts.

Already, the U.S. has grown increasingly concerned about Mexico becoming a hub for Chinese goods to skirt U.S. tariffs, and U.S. Trade Representative Katherine Tai has told reporters to “stay tuned” on what it might do to counter that.

There will be a cost if Canada adds a tariff to Chinese imports, of course. Europe is already grappling with this. China has opened an anti-dumping investigation – an early step to setting its own tariffs – into imported pork and byproducts from the European Union, in response to curbs on its EV exports.

But to put into perspective what side Canada will come down on: Ontario’s total two-way trade with the U.S. in 2023 was valued at around $500-billion, whereas its trade with China is about onetenth that.

Also in question is the $52.5billion in government money given to 13 EV supply chain projects in Ontario and Quebec. This month, the Office of the Parliamentary Budget Officer estimated that federal support is $31.4billion and provincial contributions are $21.1-billion. The government funding exceeds the private-sector commitment by a cool $6-billion, according to the PBO. But governments are betting on planting the seeds for a much broader industry to flourish.

Many Canadians would like to own an EV. And the federal Liberals certainly want to encourage this, even bringing in a heavyhanded ban on the sale of vehicles with tailpipe emissions by 2035. This is one of the climate-focused government’s signature policies.

Without guardrails, this policy is also a gift to Chinese manufacturing, with all of its warts. Mr. Ford came armed with an environmental, social and governance (ESG) argument about why it might be a good idea to slow down Chinese exports. In his statement, he noted China is “taking every advantage of low labour standards and dirty energy” – the latter a reference to its copious use of coal.

Still, the state of household finances is Canadians’ biggest concern right now, and will remain so for several years. If Chinese automakers start selling reasonably priced EVs in Canada that Canadians want to buy – rather than the smaller, more basic models sold domestically in China – it could help speed up EV adoption, Robert Karwel, a senior manager at J.D. Power’s Toronto office, told The Globe. But it would be “potentially devastating” for Canada’s fledging EV and battery industry.

Therein lies the conflict.

Prime Minister Justin Trudeau said last week that his government is “watching closely what the Americans and other allies have done,” and said he had “significant” discussions with other G7 leaders on the topic at their summit in Italy earlier this month.

But Canada would be wise to move beyond these platitudes, and well before the U.S. presidential election in November. No matter who wins that race, American protectionism will rule the day, and thereby rule Canada’s trade moves.