Canada plans to tax more electric vehicles imported from China

Canada plans to tax more electric vehicles imported from China
Canada plans to tax more electric vehicles imported from China

OTTAWA — Canada is reviewing massive new tariffs on Chinese-made electric vehicles imposed by President Joe Biden earlier this month, but is not committing to following suit north of the border.

Chinese brands are not a major player in the Canadian electric vehicle market at the moment, but imports from China have exploded over the past year, as Tesla exited its American factories in favor of its factory in manufacturing in Shanghai for its Canadian sales.

And the Canadian Vehicle Manufacturers’ Association (CVA) says Chinese electric vehicle makers have already made big inroads in Europe and are now looking to North America.

“It’s potentially on the horizon,” said CVMA president Brian Kingston in an interview with The Canadian Press.

He does not advocate that Canada specifically align on tariffs, highlighting the risk of Chinese retaliation. But he clarified that Canada could not stray too far from the United States.

“We always have to align our policy,” Mr Kingston said.

President Joe Biden decided on May 14 to quadruple US customs duties on imports of electric vehicles manufactured in China, to bring them to 100%. He cited the Chinese government’s unfair subsidies to Chinese electric vehicle manufacturers. It also increases tariffs on a long list of other Chinese products, including solar cells, computer chips, medical equipment and lithium-ion batteries.

Canada currently imposes a 6% tariff on vehicles made in China, but cars are eligible for federal rebates of up to $5,000 for the purchase of electric vehicles.

Prime Minister Justin Trudeau, Industry Minister François-Philippe Champagne and Trade Minister Mary Ng have all opened the door to the notion of tariffs since the United States made this decision, but none between them has not committed to follow suit.

“We are watching very closely what the Americans are doing,” Mr. Trudeau said in Philadelphia on May 21, shortly after meeting American Vice President Kamala Harris on the sidelines of the Service Employees International Union convention.

Stopping China from making a dent in North America

Economic ties and supply chains are a key part of this conversation, according to Justin Trudeau’s staff. Canada and the United States have aligned their electric vehicle industries in recent years, including essential minerals, batteries and electric vehicle manufacturing itself.

And Canada has invested heavily in the electric vehicle industry, with $30 billion spent in the last two years alone on the battery and electric vehicle manufacturing sites of Stellantis, Volkswagen and Honda.

The effort is largely aimed at preventing China from making a dent in the famed North American auto industry. The sector represents nearly 5% of the American economy and more than 2% in Canada.

Nearly 10 million Americans and 500,000 Canadians work directly or indirectly in the automobile industry.

Race for market share

In the future, electric vehicles will become an increasingly important part of this sector, with Canada requiring one-fifth of all sales to be electric vehicles by 2026, three-fifths by 2030 and 100% d by 2035.

Fully electric and plug-in hybrid vehicles represented nearly 11% of total new vehicle registrations in 2023 in Canada, compared to 8% in 2022.

The United States wants about a third of its new vehicle sales to be electric by 2032, but unlike Canada, it has not made it mandatory.

Brian Kingston explained that currently Canada’s industrial policy is not in line with that of the United States on a number of fronts, including the electric vehicle sales mandate, which he wants to see ended. But he highlighted the fact that Canada’s industrial strategy, for the moment, does not care about where electric vehicles are manufactured. “It’s a problem,” he argued.

Although Chinese automakers currently do not sell their products in North America, the lower price of comparable electric vehicles has significantly increased their market share in Europe.

In Germany, a Chinese MG4 electric vehicle has a base price of around $42,000, compared to a similar Volkswagen ID3 electric vehicle, which has a base price of almost $60,000.

Chinese car brands accounted for 4% of Europe’s electric vehicle market share in 2022, up from less than 0.5% in 2019. Analysis by European advocacy group Transport & Environment suggests they will reach 11% share. market in Europe this year and 20% by 2027.

Last October, European Commission President Ursula von der Leyen launched an investigation into Chinese subsidies for electric vehicles with a view to imposing import tariffs.

“Fair competition is good,” von der Leyen said in March. What we don’t like is when China floods our market with massively subsidized electric cars. And we have to tackle this, we have to protect our industry.”

Mr. Kingston suggested that Canada should consider its own anti-dumping investigation into Chinese electric vehicle subsidy practices before Chinese electric vehicles arrive on the Canadian market.

Canada does not need to immediately align with U.S. tariffs, but it should be prepared to do so if things change, he said.

“We absolutely must be prepared to face a rise in Chinese electric vehicles,” he said. We need to make sure we have a lever to pull in case we have to increase tariffs.”

Before 2023, electric vehicles made in China represented a very small part of the Canadian market, with $84 million in imports from China in 2022, or 1.2% of the total value of all electric vehicle imports.

However, in 2023, as Tesla moved its vehicles produced for Canada from California to China, this amount increased to $2.2 billion. Tesla currently represents nearly a third of the Canadian electric vehicle market share.

This places China second behind the United States, with $2.8 billion in imports.

Tesla made this change because the company needed to shift most of its U.S. sales to its U.S. factories to ensure they qualified for a lucrative tax credit, which is only available to electric vehicles manufactured in North America.

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