We have more to lose than the United States in a head-on battle with the world’s second biggest economy
“I understand a lot about electric vehicles and buses,” he said. “But until we were in Shenzhen and … you look around and just about everything is electric, it’s funny how you can know a thing and not really know it.”
If the EV transition in Canada has so far been characterized by early adopters such as Safrata, who saw EVs as a means to step away from fossil fuels and combat climate change, then the next phase of the transition is being propelled by other forces.
On Aug. 1, the federal government will close a month-long consultation on whether to apply tariffs to Chinese EVs, exclude them from federal incentive programs and how to respond to privacy and other concerns raised by internet-connected modern vehicles.
“I expect a package that looks materially like what the Americans did and probably comes down within a month after the consultation closes,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, who flanked Freeland at the press conference when she announced the consultation back in July.
A spokesperson for Freeland said only that consultations about tariffs remain ongoing.
But the very idea that Canada could invoke Section 53 tariffs has alarmed some trade experts who fear that it would signal a new deterioration in rules-based trade.
“It’s really a choice that will set us on a particular path for years, if not decades,” said Nicolas Lamp, an associate professor of law at Queen’s University who previously worked as a dispute settlement lawyer at the World Trade Organization (WTO).
Invoking Section 53 tariffs would not be considered compliant with WTO rules, they say.
“We’re a trading nation; we have more to lose than the U.S.,” Alschner said. “It signals that Canada is aligning with the U.S. and that we don’t really care about the rules. We’re going after China rather than going after the subsidization.”
Still, raising tariffs that show Canada is aligned with the U.S. on trade policy and intent on keeping Chinese EVs out of the market is the point many people want to make.
In recent years, Canada has sought to match the level of operational and capital subsidies that automakers would receive to produce batteries and vehicles in the U.S. under the Inflation Reduction Act.
The value of Chinese EV imports to Canada have been growing — to 25.2 per cent of all EV imports in 2023 from 1.2 per cent in 2022 — although experts attribute that rise in large part to Tesla shifting some of its production from Texas to a Shanghai factory rather than a rise in imports of Chinese-brand EVs.
“It’s my view that the die was cast on which way Canada would go when we started to implement a dollar-for-dollar matching to the Inflation Reduction Act,” said Meredith Lilly, a professor at Carleton University who was an international trade adviser to Stephen Harper’s government.
“By investing large amounts of Canadian dollars into trying to build a domestic EV supply chain here, we now have to protect that investment, and part of protecting that investment is making it difficult for competitors to enter our market, frankly.”
She said the biggest risk of invoking more severe tariffs against Chinese EV makers is that the country is our second-biggest trading partner and could retaliate by blocking imports of canola or pork products, as it has in the past.
Freeland has said in speeches that rules-based trade has not always worked out well for western democracies in the past two decades.
“We opened our economies to our former adversaries and committed ourselves to building a rules-based system of global free trade,” she said in an October 2022 speech at the Brookings Institution in Washington, D.C. “The problem is that many of the world’s dictators have been guided by entirely different principles from our own.”
Auto industry executives such as Volpe have also been vocal about the differing labour standards in China.
“We thought naively that (China) would end up raising their wealth and their per-capita income and those people would want to embrace western values,” he said. “But they said, ‘We don’t need to be a democracy,’ and they used a lot of advantages … to suppress the cost of labour, and even used forced labour in some cases … cynically, to sell what they call green products abroad.”
Many, though not all, automakers are now pushing her to craft aggressive tariffs against Chinese EVs, saying it is imperative to align with the U.S. Although China is Canada’s second-largest trading partner, the U.S. is still far and away the biggest. In particular, they’re expecting that Canadian trade representatives will meet with their U.S. and Mexican counterparts in 2026 and update free trade agreements and want to go in aligned on auto
“It would be very hard to explain to the Americans why we’re not taking the same approach,” said Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, a lobbying group for automakers such as Ford Motor Co., General Motors Co. and Stellantis NV.
“The way we would look at it is that the government needs to ensure it has done its due diligence and make sure any action they take is going to ideally be WTO complaint,” said David Adams, president of the Global Automakers of Canada, a lobbying group that represents VW and other automakers. “Because if it’s offsides of being WTO compliant, that creates its own challenges.”
If China retaliates by placing tariffs on agricultural producers, that could lead to internal political divisions because most of Canada’s financial contributions to the EV sector have been focused on Ontario and Quebec so far.
That alone has created divisions in the country, and some industry lobbying groups, such as the Business Council of Canada, have abstained from participating in the tariff debate in part because their members may have different perspectives.
One other problem for policymakers is the increasing signs that the EV sector is beginning to hit speed bumps. Some automakers have reported slowdowns in the pace of EV sales growth, which may be affecting the growth of Canada’s EV supply chain.
But politicians and policymakers who support the EV transition have long said that they expect ups and downs.
“The idea is to keep them out of the market,” Eric Miller, president of Rideau Potomac Strategy Group LLC, which deals with U.S.-Canada trade issues, said about Chinese EVs.