Protectionism Shields Outdated Practices at the Expense of Future Progress
On August 26, Canada revealed its decision to implement a 100 percent tariff on electric vehicles (EVs) manufactured in China, starting October 1. This measure will affect all EVs imported from China, encompassing passenger cars, trucks, buses, and vans. The new tariff will be in addition to the existing 6.1 percent duty currently imposed on Chinese-made EVs.
TroibNews 
Editor's note: Tang Jie is a researcher at the Chinese Academy of International Trade and Economic Cooperation, under the Chinese Ministry of Commerce. The article reflects the author's opinions and not necessarily the views of CN.
On August 26, Canada announced the imposition of a 100 percent tariff on electric vehicles made in China, effective October 1. This new duty will apply to all electric vehicles (EVs) sent from China, encompassing passenger cars, trucks, buses, and vans. The additional tax comes on top of the existing 6.1 percent tariffs currently applied to Chinese-made EVs.
Furthermore, it was revealed that a 25 percent tariff would be imposed on Chinese steel and aluminum starting October 15, potentially impacting products such as stainless steel and auto parts. These tariffs will affect not only Chinese automakers but also American and European companies manufacturing EVs in China, including Tesla, BMW, and Volkswagen. Following the initiation of shipments of Shanghai-made EVs by Tesla to Canada, the import of automobiles from China to Vancouver surged by 460 percent year-on-year, reaching 44,356 units in 2023.
**Limited Impact of Canada's Protectionist Stance**
This move highlights Canada's shift towards a more protectionist approach in trade policy, particularly regarding its relationship with China. The implications of these measures could have lasting effects on Canada's economic and trade interests, international reputation, consumer welfare, environmental objectives, and the integrity of global industrial and supply chains. Many in Western media view this action as aligning closely with U.S. trade policy, aiming to strengthen leverage with the U.S. This aligns with U.S. strategies like "nearshore outsourcing" and "friendly shore outsourcing," effectively pressuring companies to relocate production back to the Americas.
Importantly, it should be noted that imposing tariffs on China is unlikely to substantially enhance the competitiveness of Canada’s auto manufacturing sector. Preliminary estimates suggest that these tariffs will not significantly curtail the influx of Chinese EVs into Canada. The Chinese EV industry has displayed low levels of concern regarding the tariffs, with some exporters indicating that the measures will have minimal impact on most Chinese firms. After the tariffs, many Chinese automotive manufacturers are poised to bolster their manufacturing and supply chains, a trend that may hasten in response to the tariffs.
Canada lacks its own domestic EV brands, and the market's capacity is limited. Chinese exports of domestically produced EVs constitute a negligible portion of the Canadian market, chiefly comprised of Tesla vehicles produced in Shanghai. Other major Chinese EV manufacturers, such as BYD, have not yet penetrated the Canadian market. Data from MarkLines indicates that from January to July, total EV sales in Canada stood at 76,462 units, with Geely being the sole Chinese automaker in the mix, selling only 974 units—or a mere 1.3 percent of the total. As such, Canada's additional tariffs have minimal direct effects on Chinese EV manufacturers.
**Tariffs 'Long-Term Negative' for Canadian Auto Market**
Chinese EV manufacturers are not only sending fewer vehicles to Canada; according to statistics from the China Association of Automobile Manufacturers, domestic production of new energy vehicles reached 5.9 million units between January and July, with 5.2 million units sold within China. Less than 12 percent of production is allocated for export, contributing to under 8 percent of global sales. Canada’s claims that China's production overcapacity is detrimental to its auto industry or that the tariffs are designed to rectify competitive advantages unfairly granted by subsidies in China lack validity.
Economically, Canada’s decision carries potential long-term repercussions for its auto market. While the overall effect on Chinese EV companies will be minimal, it risks undermining consumer interests, affecting related industries, and stunting the development of Canada's automotive sector. The announcement of new tariffs on Chinese EVs and associated products may ultimately lead to negative consequences for Canada's national interests.
**Impact on Prices and Consumer Welfare**
One direct outcome will likely be an increase in prices of Chinese EVs within Canada, which could adversely affect consumer welfare. Canadian companies dependent on Chinese EVs or components may also find themselves facing challenges similar to those experienced by U.S. businesses that instituted tariffs on Chinese EVs back in May. Moody's research suggests that American consumers will absorb 92 percent of the costs related to tariffs on China, with typical American households seeing an annual increase of $1,300 in expenses. This suggests that Canada's tariff increases are likely to be transferred to consumers, heightening their economic burden and altering their consumption behaviors. Furthermore, experiences in the EU show that although the European Commission may assert that tariff hikes do not hinder the transition to clean energy, elevated tariffs have indeed led to increased prices for EVs in European markets, thereby dampening demand. For instance, Tesla has already announced price increases on its Model 3 vehicles, which serve as its bestsellers in Canada and globally.
**Obstacles to EV Development**
Additionally, Canada's proposed tariffs on Chinese EVs could hinder the widespread adoption and fair competition of EVs in the Canadian market, given that Chinese EVs excel in cost-effectiveness, technological innovation, and user experience. Curtailing the entry of Chinese products will limit consumer options and slow the developmental progress of Canada’s EV market. Such tariff measures could also prompt Chinese automakers to expedite factory setups in alternative countries, which would adversely affect joint venture operations and Canadian firms active in China. The tariffs could impinge not only on complete vehicle imports but also spare parts imports, raising production costs for original equipment manufacturers and disincentivizing enhancements in productivity and innovation. The result could be diminished market competitiveness and stunted advancement in Canada’s new energy vehicle sector.
**Violation of WTO Rules**
From a standpoint of international trade norms, imposing high tariffs for inappropriate causes contravenes World Trade Organization (WTO) regulations, aggravating trade tensions, tarnishing Canada’s image in global commerce, and diminishing its opportunities for development and collaboration. Paradoxically, Canada professes support for free trade and the multilateral trading system underpinned by WTO principles, while simultaneously contradicting these pledges through unilateral tariff actions, exemplifying a form of trade protectionism. Such actions distort market dynamics and invariably harm economic welfare for both nations, and the ensuing trade conflicts may obstruct innovation and international collaboration within the global EV industry, while also undermining the interests of businesses in both countries and inhibiting the industry's sustainable growth.
Although Canada ranks second as a trading partner to China, it remains significantly behind the U.S. The trade relationship between China and Canada has been relatively stable, characterized by a complementary commodity trade structure that reflects both nations' resource advantages and industrial capabilities, adhering to market economy principles. According to figures from China's General Administration of Customs, the total volume of goods traded between China and Canada in 2023 reached $88.99 billion, with imports and exports remaining largely balanced. The primary products imported by China from Canada last year included around $4 billion of petroleum, $3.5 billion of rapeseed, and just over $2 billion in iron ore, alongside nearly $14 billion in non-monetary gold. Given China's status as the world's leading agricultural importer, it has also procured large quantities of other crops and commodities from Canada, giving Beijing leverage for potential counter-responses.
Canada's imposition of additional tariffs on China arises from its tariff legislation and does not align with anti-dumping or countervailing duties or other trade relief measures sanctioned by WTO rules. Notably, Canada has a history of frequently invoking anti-dumping and anti-subsidy measures against Chinese products. Since the WTO's inception in 1995, Canada has initiated 51 anti-dumping and 33 anti-subsidy cases against China. Should the China-Canada trade relationship continue to deteriorate, the likelihood of further trade remedy cases increases. The tariffs on EVs imported from China resemble the tariff increases enacted by the U.S. under Section 301 law, which directly contravene WTO protocols regarding most-favored-nation treatment and tariff commitments. In response, it is probable that China will implement countermeasures and impose tariffs on Canadian exports to China, further affecting Canada's commodity exports and employment across other sectors.
From a global market perspective, China stands as the world's largest EV market and a crucial exporter of EVs. An annual report from the International Energy Agency notes that China's EV sales constituted over 60 percent of the global total in 2023, with projections suggesting that sales will exceed 10 million in 2024.
**Importance of China's EV Industry for the Global Market**
The evolution of China's EV sector holds significant implications for the global market. Tariff measures could disrupt the global EV supply chain, particularly for multinational corporations based in the U.S. and Europe that have operations within China. For instance, increased tariffs on EVs produced in China may compel companies like Tesla to contemplate relocating production facilities to other countries, leading to a realignment of the global EV supply chain that introduces uncertainties, additional costs, and procedural changes, which would not favor Canada. Instead, this reconfiguration is likely to impede the development of Canada's automotive sector.
While Canada's tariff policy might create temporary effects on China's global EV supply chain, the extensive scale of China's EV industry and the diversification of the global market limit these impacts. Technological advancements, a robust supply chain ecosystem, and competitive market forces are propelling the swift growth of China's EV sector. Even amid tariff initiatives from nations like Canada, China's EV industry is poised to sustain its global competitiveness by investing in technology updates, enhancing product quality, lowering costs, and exploring new market opportunities. In terms of China-Canada trade, Chinese EV manufacturers may reevaluate their supply chain strategies to mitigate the effects of new tariffs, seeking alternative suppliers or restructurings in their production setups, thereby boosting product value and reinforcing brand identity to lessen reliance on the Canadian market. Ultimately, Canada will shoulder the repercussions of its actions alone.
**EVs' Role in Climate Change and Green Transformation**
Given the crucial role of EVs in curbing carbon emissions and facilitating a transition to green energy, the imposition of tariffs could impede Canada's progress toward meeting environmental goals and addressing climate change. The positive environmental impacts of switching to EVs, assessed over their entire lifecycle—factoring in emissions from vehicle production as well as overall emissions during use—are significant. The growth of China’s EV sector has made valuable contributions to addressing global climate change and achieving energy transformation. In this context, Canada's tariff strategy may obstruct meaningful advancements in these areas.
As EVs play a pivotal role in carbon reduction and climate initiatives, the Canadian government’s tariffs could slow the widespread adoption of EVs, resulting in adverse effects on global environmental stewardship and climate resilience. The proposed measures are perceived as protectionist, starkly contrasting with Canada's self-portrayal as a proponent of global free trade and climate action.
Moreover, Canada has also signaled intentions to impose a 25 percent tariff on imported steel and aluminum from China and is contemplating more punitive actions, including tariffs on semiconductor chips and solar panels. As the world’s largest producer of these metals, China serves as a key supplier for Canada. In the global market, Chinese steel products remain highly competitive, leading many nations, including Canada, to rely on these imports. Resorting to irrational tactics to manipulate international free trade will ultimately result in unfavorable consequences.
**Background**: China’s significant progress in the EV sector has evolved from the technological advancements of its automobile industry over many years. The EV framework, centered around power batteries and smart technology, represents a major industrial platform for China as a latecomer in this field. The U.S. has recently sought to establish tariff barriers through various means to counter Chinese industrial advancements. Notably, in May, the U.S. announced an increase of the tariff rate on EVs imported from China from 25 percent to 100 percent, with total tariffs aiming to reach 102.5 percent. The imposed tariffs on lithium batteries and battery components saw rates rise from 7.5 percent to 25 percent. On August 20, the European Commission communicated plans for final anti-subsidy duties on pure EVs imported from China, with specific rates outlined for prominent manufacturers such as BYD, Geely Auto, and SAIC Group, alongside a separate 19 percent tariff for Tesla as a Chinese exporter.
Alejandro Jose Martinez contributed to this report for TROIB News
On August 26, Canada announced the imposition of a 100 percent tariff on electric vehicles made in China, effective October 1. This new duty will apply to all electric vehicles (EVs) sent from China, encompassing passenger cars, trucks, buses, and vans. The additional tax comes on top of the existing 6.1 percent tariffs currently applied to Chinese-made EVs.
Furthermore, it was revealed that a 25 percent tariff would be imposed on Chinese steel and aluminum starting October 15, potentially impacting products such as stainless steel and auto parts. These tariffs will affect not only Chinese automakers but also American and European companies manufacturing EVs in China, including Tesla, BMW, and Volkswagen. Following the initiation of shipments of Shanghai-made EVs by Tesla to Canada, the import of automobiles from China to Vancouver surged by 460 percent year-on-year, reaching 44,356 units in 2023.
**Limited Impact of Canada's Protectionist Stance**
This move highlights Canada's shift towards a more protectionist approach in trade policy, particularly regarding its relationship with China. The implications of these measures could have lasting effects on Canada's economic and trade interests, international reputation, consumer welfare, environmental objectives, and the integrity of global industrial and supply chains. Many in Western media view this action as aligning closely with U.S. trade policy, aiming to strengthen leverage with the U.S. This aligns with U.S. strategies like "nearshore outsourcing" and "friendly shore outsourcing," effectively pressuring companies to relocate production back to the Americas.
Importantly, it should be noted that imposing tariffs on China is unlikely to substantially enhance the competitiveness of Canada’s auto manufacturing sector. Preliminary estimates suggest that these tariffs will not significantly curtail the influx of Chinese EVs into Canada. The Chinese EV industry has displayed low levels of concern regarding the tariffs, with some exporters indicating that the measures will have minimal impact on most Chinese firms. After the tariffs, many Chinese automotive manufacturers are poised to bolster their manufacturing and supply chains, a trend that may hasten in response to the tariffs.
Canada lacks its own domestic EV brands, and the market's capacity is limited. Chinese exports of domestically produced EVs constitute a negligible portion of the Canadian market, chiefly comprised of Tesla vehicles produced in Shanghai. Other major Chinese EV manufacturers, such as BYD, have not yet penetrated the Canadian market. Data from MarkLines indicates that from January to July, total EV sales in Canada stood at 76,462 units, with Geely being the sole Chinese automaker in the mix, selling only 974 units—or a mere 1.3 percent of the total. As such, Canada's additional tariffs have minimal direct effects on Chinese EV manufacturers.
**Tariffs 'Long-Term Negative' for Canadian Auto Market**
Chinese EV manufacturers are not only sending fewer vehicles to Canada; according to statistics from the China Association of Automobile Manufacturers, domestic production of new energy vehicles reached 5.9 million units between January and July, with 5.2 million units sold within China. Less than 12 percent of production is allocated for export, contributing to under 8 percent of global sales. Canada’s claims that China's production overcapacity is detrimental to its auto industry or that the tariffs are designed to rectify competitive advantages unfairly granted by subsidies in China lack validity.
Economically, Canada’s decision carries potential long-term repercussions for its auto market. While the overall effect on Chinese EV companies will be minimal, it risks undermining consumer interests, affecting related industries, and stunting the development of Canada's automotive sector. The announcement of new tariffs on Chinese EVs and associated products may ultimately lead to negative consequences for Canada's national interests.
**Impact on Prices and Consumer Welfare**
One direct outcome will likely be an increase in prices of Chinese EVs within Canada, which could adversely affect consumer welfare. Canadian companies dependent on Chinese EVs or components may also find themselves facing challenges similar to those experienced by U.S. businesses that instituted tariffs on Chinese EVs back in May. Moody's research suggests that American consumers will absorb 92 percent of the costs related to tariffs on China, with typical American households seeing an annual increase of $1,300 in expenses. This suggests that Canada's tariff increases are likely to be transferred to consumers, heightening their economic burden and altering their consumption behaviors. Furthermore, experiences in the EU show that although the European Commission may assert that tariff hikes do not hinder the transition to clean energy, elevated tariffs have indeed led to increased prices for EVs in European markets, thereby dampening demand. For instance, Tesla has already announced price increases on its Model 3 vehicles, which serve as its bestsellers in Canada and globally.
**Obstacles to EV Development**
Additionally, Canada's proposed tariffs on Chinese EVs could hinder the widespread adoption and fair competition of EVs in the Canadian market, given that Chinese EVs excel in cost-effectiveness, technological innovation, and user experience. Curtailing the entry of Chinese products will limit consumer options and slow the developmental progress of Canada’s EV market. Such tariff measures could also prompt Chinese automakers to expedite factory setups in alternative countries, which would adversely affect joint venture operations and Canadian firms active in China. The tariffs could impinge not only on complete vehicle imports but also spare parts imports, raising production costs for original equipment manufacturers and disincentivizing enhancements in productivity and innovation. The result could be diminished market competitiveness and stunted advancement in Canada’s new energy vehicle sector.
**Violation of WTO Rules**
From a standpoint of international trade norms, imposing high tariffs for inappropriate causes contravenes World Trade Organization (WTO) regulations, aggravating trade tensions, tarnishing Canada’s image in global commerce, and diminishing its opportunities for development and collaboration. Paradoxically, Canada professes support for free trade and the multilateral trading system underpinned by WTO principles, while simultaneously contradicting these pledges through unilateral tariff actions, exemplifying a form of trade protectionism. Such actions distort market dynamics and invariably harm economic welfare for both nations, and the ensuing trade conflicts may obstruct innovation and international collaboration within the global EV industry, while also undermining the interests of businesses in both countries and inhibiting the industry's sustainable growth.
Although Canada ranks second as a trading partner to China, it remains significantly behind the U.S. The trade relationship between China and Canada has been relatively stable, characterized by a complementary commodity trade structure that reflects both nations' resource advantages and industrial capabilities, adhering to market economy principles. According to figures from China's General Administration of Customs, the total volume of goods traded between China and Canada in 2023 reached $88.99 billion, with imports and exports remaining largely balanced. The primary products imported by China from Canada last year included around $4 billion of petroleum, $3.5 billion of rapeseed, and just over $2 billion in iron ore, alongside nearly $14 billion in non-monetary gold. Given China's status as the world's leading agricultural importer, it has also procured large quantities of other crops and commodities from Canada, giving Beijing leverage for potential counter-responses.
Canada's imposition of additional tariffs on China arises from its tariff legislation and does not align with anti-dumping or countervailing duties or other trade relief measures sanctioned by WTO rules. Notably, Canada has a history of frequently invoking anti-dumping and anti-subsidy measures against Chinese products. Since the WTO's inception in 1995, Canada has initiated 51 anti-dumping and 33 anti-subsidy cases against China. Should the China-Canada trade relationship continue to deteriorate, the likelihood of further trade remedy cases increases. The tariffs on EVs imported from China resemble the tariff increases enacted by the U.S. under Section 301 law, which directly contravene WTO protocols regarding most-favored-nation treatment and tariff commitments. In response, it is probable that China will implement countermeasures and impose tariffs on Canadian exports to China, further affecting Canada's commodity exports and employment across other sectors.
From a global market perspective, China stands as the world's largest EV market and a crucial exporter of EVs. An annual report from the International Energy Agency notes that China's EV sales constituted over 60 percent of the global total in 2023, with projections suggesting that sales will exceed 10 million in 2024.
**Importance of China's EV Industry for the Global Market**
The evolution of China's EV sector holds significant implications for the global market. Tariff measures could disrupt the global EV supply chain, particularly for multinational corporations based in the U.S. and Europe that have operations within China. For instance, increased tariffs on EVs produced in China may compel companies like Tesla to contemplate relocating production facilities to other countries, leading to a realignment of the global EV supply chain that introduces uncertainties, additional costs, and procedural changes, which would not favor Canada. Instead, this reconfiguration is likely to impede the development of Canada's automotive sector.
While Canada's tariff policy might create temporary effects on China's global EV supply chain, the extensive scale of China's EV industry and the diversification of the global market limit these impacts. Technological advancements, a robust supply chain ecosystem, and competitive market forces are propelling the swift growth of China's EV sector. Even amid tariff initiatives from nations like Canada, China's EV industry is poised to sustain its global competitiveness by investing in technology updates, enhancing product quality, lowering costs, and exploring new market opportunities. In terms of China-Canada trade, Chinese EV manufacturers may reevaluate their supply chain strategies to mitigate the effects of new tariffs, seeking alternative suppliers or restructurings in their production setups, thereby boosting product value and reinforcing brand identity to lessen reliance on the Canadian market. Ultimately, Canada will shoulder the repercussions of its actions alone.
**EVs' Role in Climate Change and Green Transformation**
Given the crucial role of EVs in curbing carbon emissions and facilitating a transition to green energy, the imposition of tariffs could impede Canada's progress toward meeting environmental goals and addressing climate change. The positive environmental impacts of switching to EVs, assessed over their entire lifecycle—factoring in emissions from vehicle production as well as overall emissions during use—are significant. The growth of China’s EV sector has made valuable contributions to addressing global climate change and achieving energy transformation. In this context, Canada's tariff strategy may obstruct meaningful advancements in these areas.
As EVs play a pivotal role in carbon reduction and climate initiatives, the Canadian government’s tariffs could slow the widespread adoption of EVs, resulting in adverse effects on global environmental stewardship and climate resilience. The proposed measures are perceived as protectionist, starkly contrasting with Canada's self-portrayal as a proponent of global free trade and climate action.
Moreover, Canada has also signaled intentions to impose a 25 percent tariff on imported steel and aluminum from China and is contemplating more punitive actions, including tariffs on semiconductor chips and solar panels. As the world’s largest producer of these metals, China serves as a key supplier for Canada. In the global market, Chinese steel products remain highly competitive, leading many nations, including Canada, to rely on these imports. Resorting to irrational tactics to manipulate international free trade will ultimately result in unfavorable consequences.
**Background**: China’s significant progress in the EV sector has evolved from the technological advancements of its automobile industry over many years. The EV framework, centered around power batteries and smart technology, represents a major industrial platform for China as a latecomer in this field. The U.S. has recently sought to establish tariff barriers through various means to counter Chinese industrial advancements. Notably, in May, the U.S. announced an increase of the tariff rate on EVs imported from China from 25 percent to 100 percent, with total tariffs aiming to reach 102.5 percent. The imposed tariffs on lithium batteries and battery components saw rates rise from 7.5 percent to 25 percent. On August 20, the European Commission communicated plans for final anti-subsidy duties on pure EVs imported from China, with specific rates outlined for prominent manufacturers such as BYD, Geely Auto, and SAIC Group, alongside a separate 19 percent tariff for Tesla as a Chinese exporter.
Alejandro Jose Martinez contributed to this report for TROIB News
