China is dominating the market — and that means trouble no matter how Ottawa responds
This article was written by Alex Ballingall and was published in the Toronto Star on June 9, 2024.
Ever since the United States said it will slap steep tariffs on Chinese electric vehicles last month, attention has turned to whether the Trudeau government will follow suit.
It’s a question experts and insiders say is fraught. One move either way could trigger costly trade tensions with economic superpowers in the U.S. or China. And the very issue itself pits the desire to protect Canada’s own heavily subsidized electric vehicle (EV) industry against the pressure of the climate crisis to get more clean cars on the roads as fast as possible.
“Something has got to give,” said Ian Lee, an associate professor at Carleton University’s Sprott School of Business. “We are between the proverbial very-hard rock and very-hard place.”
That might explain why Prime Minister Justin Trudeau’s Liberal government is still weighing its options almost a month after U.S. President Joe Biden’s decision to impose the tariffs.
“We’re looking at it very seriously,” International Trade Minister Mary Ng said this past week on Parliament Hill, when asked about the government’s thinking on matching those tariffs. Referring to how tens billions of dollars in subsidies from Ottawa and provincial governments in Quebec and Ontario have helped attract automakers who are setting up EV battery and car factories in Canada, Ng suggested protecting that nascent industry is the key focus.
“We intend to build these automobiles in Canada,” she said.
The crux of the situation is that, as countries try to confront the climate crisis, many — including Canada — are offering incentives to buyers and setting sales targets to ensure more vehicles on their roads are not belching pollution that causes global warming. Many more — also including Canada — are looking to supply those clean cars and generate jobs and revenues through the creation of their own EV industries.
But experts say there’s one huge challenge. China is already dominating the global EV industry, thanks to an industrial policy directed from Beijing that has used the heft of the authoritarian state — along with advantages of a large domestic market, lower labour costs, and supplies of raw materials — to seed an array of EV companies that are now cranking out electric cars that are cheaper to buy than those built in Europe and the U.S.
Sixty per cent of new electric cars sold globally in 2023 were registered in China, according to the International Energy Agency. Chinese companies already dominate the global market for plug-in hybrids, and Shenzhen-based BYD has a growing international presence and is threatening Tesla for the biggest share of the global market in battery-operated electric vehicles, according to a February report from TrendForce, a market research firm.
“China is so far ahead of everyone else it’s not even funny,” Lee said.
But other countries are trying to catch up. The U.S. has devoted hundreds of billions of dollars to support manufacturing in green industries like EV manufacturing. And part of the industrial strategy is to prevent cheaper Chinese-made EVs from undercutting the market for those built in the U.S. On May 14, the White House announced it would increase its existing tariffs on Chinese EVs from 25 per cent to 100 per cent, and also crank up import taxes on a suite of EV-related products sent from China, including EV batteries and some critical minerals used to make them.
Similar considerations are reportedly afoot in the European Union, home to a deeply rooted auto sector in countries like Germany.
Canada currently has a six per-cent tariff on Chinese EVs, but gives people who buy them — like purchasers of Teslas made in Shanghai for the Canadian market — a $5,000 rebate.
Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, told the Star he knows the Prime Minister’s Office is grappling with this issue, too. He expects the Liberals to make a decision “soon” to effectively match the American tariffs, since he believes Washington will expect Canada to make a “reciprocal arrangement” to try and slow China’s growing EV dominance over the North American auto sector.
“The U.S. decided waking up late is better than never waking up,” Volpe said. “China hasn’t won yet, but if we keep going the same way, they will.”
A senior government source, who spoke to the Star about internal policy deliberations on condition they aren’t named, said it’s too early to say what Ottawa will do on the tariffs question. “We are legitimately looking at things now,” they said.
The big consideration, the source explained, is the interpretation of risks. Slapping tariffs on China could cause Beijing to respond in kind. “We are a smaller country and a smaller economy than the United States,” the source said. “(China) has tried to make examples of us before.”
In 2019, for instance, Beijing imposed tariffs on billions of dollars worth of Canadian canola, pork and soybeans after relations collapsed over the arrest of a Chinese telecom executive on a U.S. warrant in Vancouver, following by Beijing’s infamous jailing of the “two Michaels.”
But there’s also the risk of angering the Americans if they become wary that almost-assembled Chinese EVs can get finished in Canada and skirt the new tariff wall into the U.S. market, unless Canada matches with import taxes of its own. The government source said Ottawa isn’t expecting an influx of Chinese-made EVs right now, but the Liberals expect it could happen in the future.
Volpe predicted trade tensions with China will dominate the scheduled renegotiation of the North American trade agreement in 2026. “It would be imprudent to fumble this one,” he said.
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