This article was written by Steven Chase and Mark Rendell, and was published in the Globe & Mail on June 25, 2024.
Freeland says Beijing’s state-directed policy of overcapacity is undermining Canada’s EV sector
The Canadian government is signalling it might impose a surtax on imports of Chinese-made electric vehicles, which the Deputy Prime Minister says are being overproduced and flooding global markets.
Chrystia Freeland’s update Monday suggests Canada will follow the United States and Europe on protectionist trade measures aimed at stopping low-cost Chinese EVs from undercutting domestic auto manufacturers.
Speaking at an event in Vaughan, Ont., Ms. Freeland said Ottawa will hold 30 days of consultations on tariffs and other measures to protect Canada’s auto sector, adding the government is also considering changing which cars are eligible for a federally financed consumer incentive program.
This suggests Canada is also looking at barring Chinese EVs from this program.
Canada is “facing unfair competition from China’s intentional, state-directed policy of overcapacity that is undermining Canada’s EV sector’s ability to compete in domestic and global markets,” Ms. Freeland alleged Monday.
Ottawa is determined to ensure this country “does not become a dumping ground” for a glut of Chinese-made EVs, she said, adding that “that is actually not playing by the global trade rules. And Canada will not stand for that.”
Western countries are becoming increasingly concerned that their own car manufacturers cannot compete on price with Chinese EV makers such as BYD Company Ltd., which are gaining ground in most markets where their vehicles are sold at much lower prices than domestic or other international brands.
Chinese competition could put domestic manufacturing jobs at risk, and undercut the hundreds of billions of dollars the U.S., Europe, Canada and others are spending to encourage companies to set up EV and battery manufacturing plants.
But the Chinese embassy in Canada said accusations that China has built up an overcapacity in the EV industry “is completely groundless,” warning in an e-mail that “imposing tariffs on Chinese EVs seriously violates World Trade Organization rules and will harm China-Canada bilateral economic and trade cooperation.”
It said this would also “hurt Canada’s green and low-carbon transition,” and that, if tariffs are unilaterally imposed, “China will take resolute actions to defend its legitimate rights and interests.”
The U.S.-based Center for Strategic and International Studies last week released analysis estimating that China’s EV industry has benefitted from more than US$230-billion in government support over 15 years.
Canada has also begun heavily subsidizing its EV industry. Over the past few years, Ottawa, alongside the governments of Ontario and Quebec, have promised some $50-billion in subsidies to encourage foreign auto makers, including Volkswagen, Stellantis and Honda, to build EV and battery manufacturing plants in the country.
To address Chinese competition, U.S. President Joe Biden in May quadrupled his country’s tariff on Chinese-made EVs to 100 per cent. The European Union has said it will provisionally increase tariffs on Chinese EVs by up to 38 per cent, starting in early July, while an EU investigation continues that could lead to more permanent tariffs in November. The EU and China on Monday agreed to launch negotiations on a possible compromise.
Ms. Freeland said the government could take this action under Section 53 of the Customs Tariff Act, which allows Ottawa to respond to “acts, policies or practices of the government of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.”
Chinese-made electric vehicles make up a small but growing portion of the Canadian EV market. Imports amounted to $2.2billion in 2023, up from $84-million in 2022, according to Statistics Canada. So far, most of these vehicles are from U.S. auto maker Tesla, which has a factory in Shanghai, rather than from Chinese companies.
Shanghai-based advisory firm Automobility has estimated that China has excess auto capacity of about 10 million vehicles a year, the equivalent of two-thirds of all North American output in 2022.
Higher tariffs do raise prices for consumers, creating tradeoffs between the goal of protecting domestic workers and encouraging the mass adoption of EVs. The government has set a goal of 100-per-cent new car sales being EVs by 2035, but they currently only constitute around 10 per cent. A report from Bank of Nova Scotia, published last summer, suggested EV prices would need to drop by around one-third before they became affordable for the average family.
Ms. Freeland was asked whether she is concerned that restricting imports of lower-price Chinese electric vehicles will make it tougher for Canadian consumers to buy emissions-free automobiles. She replied that China’s EV production is based on low environmental standards.
Nate Wallace, program manager for clean transportation at the environmental group, Environmental Defence, said in an e-mail that “the important thing to remember is that the Canadian electric vehicle industry isn’t just competing with China – it is also competing with gasoline cars.”
He said “Canada’s tariff plan should come with accompanying policy measures to ensure that auto makers actually take this extra time given to catch up to China and introduce their own budget EV models, rather than use this as an opportunity to slow down the transition from gasoline cars.”
Brian Kingston, president and chief executive of the Canadian Vehicle Manufacturers’ Association, argued that the Canadian government’s industrial policy and environmental policies are at odds with each other.
Ottawa has spent tens of billions to support its own EV sector but is still funding consumer incentives to buy Chinese-made EVs that help enrich China’s makers, noted Mr. Kingston, whose organization includes the membership of Ford, General Motors and Stellantis.
Canadian international trade lawyer Lawrence Herman said he’s unclear why the government needs to take a further 30 days when they’ve been consulting industry on this for months.
He said Canada’s investigation can draw upon the already-under way European Union probe which has produced “sufficient evidence to show that China is breaching international trade obligations by subsidizing EVs and EV components.”
Global Automakers of Canada chief executive officer David Adams, whose organization represents auto makers outside of the Big Three, said in a statement that his 15 members support Ms. Freeland’s announcement.
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