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This photo taken on March 25, 2024 shows assembly lines at a plant of Xiaomi in Beijing, capital of China. [Photo/Xinhua]
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By Yang Shuiqing
On August 26, the Canadian government announced that it would impose steep tariffs on electric vehicles, steel, and aluminum imported from China. Starting October 1, Canada will apply a 100 percent surtax on all Chinese-made electric vehicles (EVs), including electric and certain hybrid passenger automobiles, trucks, buses, and delivery vans. In addition, from October 15, Canada intends to apply a 25 percent surtax on imports of steel and aluminum products from China.
Who's behind the scenes?
Canada's move means it is aligning closely with the United States on the issue of tariffs against China. In May this year, U.S. President Joe Biden announced a 100 percent tariff on Chinese-made electric vehicles. Coincidentally, Canadian Prime Minister Justin Trudeau met with U.S. National Security Advisor Jake Sullivan on August 25, and the very next day, Canada announced its decision to impose high tariffs on Chinese imports.
According to the Associated Press, Sullivan "encouraged" the Trudeau government to make this decision during their meeting. "The U.S. does believe that a united front, a coordinated approach on these issues (tariffs against China) benefits all of us," Sullivan said. Trudeau responded, "We're doing it in alignment, in parallel, with other economies around the world that recognize that this is a challenge that we are all facing. Unless we all want to get to a race to the bottom, we have to stand up."
Canada's Deputy Prime Minister and Finance Minister Chrystia Freeland also reiterated this position: "China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industry. We simply will not allow that to happen to our EV sector, which has shown such promise."
Canada claims to pursue an "independent trade policy," but in reality it is playing up to the U.S. under the guise of "fairness." China's auto industry has been charging ahead in recent years. Official data shows that in 2023, China sold 9.495 million new-energy vehicles (NEVs), making up over 60 percent of global NEV sales. The rapid growth of China's electric vehicle industry has made it a key target for U.S. containment efforts.
The U.S. has thus been busy rallying its "loyal sidekicks" including the EU, Canada, Japan, and South Korea to form an alliance, aiming to create a "China-free" EV supply chain. Before Canada's tariff announcement, the European Commission, despite opposition from political and business communities, had already declared in July that it would impose provisional countervailing duties on Chinese EVs.
Canada is no exception, happily acting as a pioneer in America's anti-China efforts. On the one hand, the Trudeau government, lacking strategic independence, attempts to trade loyalty to the U.S. for political, economic and security benefits. As former Canadian Ambassador to China Guy Saint-Jacques bluntly put it, "Canada had to go with the U.S. position, when you think about the economic integration that we have with the U.S. More than 75 percent of our exports go to the U.S."
On the other hand, Canada's approach to China has become increasingly ideological, with anti-China sentiment morphing into a form of political correctness. Against this backdrop, it's hardly surprising that the Trudeau government is dancing to the U.S. tune in slapping on steep tariffs and containing China's EV industry.
Beyond tariffs on China, Canada, in recent years, has been trailing the U.S. in other international affairs as well. Back in 2018, amid the U.S. technological standoff with China, Canada played accomplice to the U.S. by detaining Huawei CFO Meng Wanzhou during her layover in Vancouver, sending China-Canada relations into a tailspin.
Canada is also a member of the so-called "Five Eyes" alliance with the U.S., UK, Australia, and New Zealand, essentially serving as America's global intelligence-gathering crew. Yves Engler, a fellow at the Canadian Foreign Policy Institute, points out that while Canada likes to tout a "rules-based international order," in reality, it just marches to the U.S. drumbeat and applies double standards in international affairs.
Who's the real winner?
Looking at the absolute trade volumes, Canada's high tariffs on China are more of a nuisance than a real blow. Canada is not a major market for Chinese EVs. According to China's General Administration of Customs, in 2023, China's EV exports were worth around $41.812 billion, with less than 4 percent of that going to Canada.
But for Canada, imposing high tariffs on Chinese EVs is like shooting itself in the foot. The Canadian government has pledged that by 2030, at least 60 percent of new vehicle sales will be zero-emission, aiming for 100 percent by 2035. However, according to Canadian statistics, as of 2023, only 11 percent of newly registered vehicles in Canada were zero-emission. This means demand has to go up significantly in Canada's EV market in order for the country to meet its emission targets.
With domestic automakers unable to fill the gap, slapping a 100 percent tariff on affordable, high-quality Chinese electric vehicles is just hiking up the cost for Canadian consumers. To keep buyers interested, the government will likely have to dish out hefty subsidies. In the end, the tariff costs will not really hit Chinese exporters, nor will they fully land on Canadian consumers; instead, it is the Canadian government that is left holding the bill.
Plus, as the world is pushing for a green transition, Canada's tariffs throw a wrench into global climate efforts.
The Canadian government might think it is pulling a clever move by following the U.S. lead and slapping tariffs on Chinese electric vehicles, hoping to snag some of China's global market share. But what it does not realize is that it is just dressing the U.S. up for the party.
According to estimates by the International Energy Agency in 2023, the global market share of U.S. NEVs, as a result of its efforts in reshaping supply chains, is projected to reach 16.29 percent in 2025 and 21.03 percent in 2030, up from the 2022 levels by 6.58 percent and 11.32 percent respectively. Meanwhile, China's share is expected to drop by 10.52 percent and 18.27 percent over the same periods.
Here is the kicker: the projected increases in the global market share of EVs made in the U.S. and other regions, at 10.6 percent and 17.7 percent, are nearly identical to the share losses of Chinese EV manufacturers. In other words, most of the market share that China loses will be taken up by the U.S., while Canada gets nothing but crumbs.
People view a new energy vehicle on display at the 26th China Beijing International High-tech Expo in Beijing, capital of China, July 13, 2024. [Photo/Xinhua]
The auto industry is one of Canada's most important manufacturing sectors. The Trudeau government hopes to emulate U.S. tactics to boost the development of its domestic EV industry. While this tariff policy may succeed in keeping some Chinese automakers out of the Canadian market, the reality is that Canada's current production capacity cannot compete with the U.S. Essentially, Canada's stance against Chinese EVs is like doing all the legwork for its American boss, only to sit back and watch the U.S. cash in on the profits.
Who's playing by the rules?
If Canada truly wants to develop its EV industry, it needs fair competition and a technological edge – the very ingredients behind the growth of Chinese automakers. Innovation, robust supply chains, and full market competition – basically, a masterclass in leveraging comparative advantages and market forces – is what is behind the rise of China's EV sector. It is not a result of subsidies as the West hypes.
In terms of tech innovation, a report entitled Greening Europe: Report on Development of Chinese NEV Manufacturers in Europe, co-authored by the China Chamber of Commerce to the EU (CCCEU) and the China Economic Information Service (CEIS), reveals that in 2023, Chinese companies filed nearly 70 percent of all global patent applications for new-energy vehicles.
Years of heavy R&D investment have put China at the forefront in areas like batteries, motors, electronic controls, and smart technologies, giving Chinese EVs a solid technological foundation. Thanks to these innovations, BYD ATTO 3 was given the Electric Car of the Year in 2023 award in the UK. In other words, it is the quality that is driving the global popularity of Chinese EVs.
As for the supply chain, China is the only country in the world that possesses all the industrial categories in the United Nations industrial classification, holding the top spot in manufacturing scale for over a decade.
In the new energy sector, China's supply chain spans from materials R&D, engineering design, manufacturing management to final assembly and integration. Take Changzhou in Jiangsu Province for example. According to the local government, Changzhou hosts 31 of the 32 key segments in the power battery supply chain. That is nearly 97 percent of all segments in the entire supply chain. This kind of supply chain integration and clustering brings down costs and provides strong support for the growth of China's NEV industry.
In terms of market rules, China has stayed committed to keeping its markets open and promoting fair competition under pressure from the U.S.-led Western countries. After joining the World Trade Organization in 2001, China slashed its auto import tariffs to 25 percent within five years and cut them further in 2018, bringing the average tariff on imported vehicles down to 13.8 percent and on parts to just 6 percent.
China's opening-up has drawn an increasing number of foreign carmakers to double down on their investments in China: Tesla's Shanghai Gigafactory has become one of its major global export hubs; Volkswagen set up its largest R&D center outside of Germany in China; and both Mercedes-Benz and BMW launched joint ventures in Beijing.
Despite Western pressure, China remains committed to fair competition and is further opening its markets to the world. With their increased investments, the world's leading automakers are casting their votes of confidence in the Chinese market.
Chinese NEVs are not just offering global consumers more choices; they are also helping countries worldwide in achieving green transition and sustainable development. Former UN Under-Secretary-General Erik Solheim believes that China is the indispensable nation for the green transition and a strong promoter of renewable energy.
In contrast, some Western countries often pursue political gains under the guise of "fair trade." So, who is really playing by the rules?
The author Yang Shuiqing is a research fellow at the Economic Studies Department of the Institute of American Studies, Chinese Academy of Social Sciences.
