In August, the Canadian government announced plans to impose a
100% tariff on battery-electric vehicle (BEV) imports from mainland
China, as well as a 25% import tariff on Chinese steel and
aluminum. The tariffs are set to be implemented in October
2024.
The Canadian government sees several products as “critical to
Canada’s future prosperity, including batteries and battery parts,
semiconductors, solar products, and critical minerals,” according
to a government statement. Along with imposing the tariff, Canada
will revise its zero-emission incentive programs for BEVs and limit
eligibility to vehicles produced in countries with which Canada has
free-trade agreements. Today, those vehicles could be eligible.
Products from mainland China are already subject to a
Most-Favored-Nation 6.1% tariff, so the new BEV import duty will
actually be 106.1%. The tariff on steel and aluminum imports from
China will have a lower impact on the auto industry than the BEV
tariff.
A government statement on the tariff said: “Canadian auto
workers and the auto sector currently face unfair competition from
Chinese producers, who benefit from unfair, non-market policies and
practices. China’s intentional, state-directed policy of
overcapacity and lack of rigorous labor and environmental standards
threaten workers and businesses in the EV industry around the world
and undermine Canada’s long term economic prosperity. Recent
consultations with stakeholders have confirmed that exceptional
measures are required to address this extraordinary threat.”
Data reported by Bloomberg from national statistical agency
Statistics Canada indicates that the value of imported mainland
Chinese electric vehicles increased to C$2.2 billion in 2023, from
less than C$100 million in 2022. Most of the increase was the
result of US EV manufacturer Tesla’s exports of the Model Y from
its plant in Shanghai, China, to Canada.
With no indication Tesla would receive an exemption, Tesla may
choose to supply Canada from its US or German production plants. In
July, reports surfaced that Chinese automaker BYD wants to discuss
its plans to enter the Canadian market with the country’s lawmakers
and officials.
Canada’s imposition of tariffs on BEV imports from China echoes
similar moves made by the EU and the
US, as well as some other countries. These reflect concerns
from automakers around the world about mainland China’s ability to
export relatively low-cost BEVs and undercut automakers operating
under different cost structures. These tariffs are being set as a
defensive mechanism.
Chinese automakers have more aggressively entered the markets of
Europe, Asia and South America and have not yet tackled entry into
the US and Canadian markets. However, there are indications that
mainland Chinese auto brands would like to enter the US and
Canadian markets. Automakers in mainland China also have excess
production capacity, providing further reason to begin exporting
their vehicles. The question isn’t really “if” they will enter
these attractive markets, but “when.”
The US had announced its tariffs would be imposed starting
August 1, 2024, however as of September 13 they are still not in
force and the government has not released an update following
stakeholder input. The EU’s plans for tariffs on Chinese BEVs have
been revised, and talks with China’s authorities continue. China’s
government has also registered complaints with the World Trade
Organization over tariff plans from several countries, has
continued negotiations, and has indicated plans for imposing
retaliatory tariffs.
While the stance of the Canadian government is strong and echoed
in other markets, the slow progress for US tariff implementation
and the changes the EU has made underscores that getting these
tariffs into place is just not as simple as it might sound.
At this stage, there has been no indication if Canada would
allow accommodation for mainland Chinese automakers if they chose
to begin production in Canada, which has a free-trade agreement
with the US and Mexico. There has been concern that mainland China
automakers will build plants in Mexico meant to serve the US and
Canada. However, Canada’s production costs today are somewhat
higher than those in Mexico, including labor costs, so the
likelihood is that it would be more cost efficient for mainland
Chinese automakers to build plants in Mexico, as BYD is
considering, rather than Canada.
Compared with the US and the EU, Canada’s light-vehicle market
is dependent on imports, though most of those imports are from the
US or Mexico. According to S&P Global Mobility data, only about
10% of Canada’s light-vehicle sales are of units produced in the
country; about 16% are imported from Mexico and about 47% are from
the US. We estimate about 25,000 units will be imported from
mainland China and sold in Canada in 2024, accounting for about
1.3% of all vehicles sold in Canada this year.
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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.
