The Chinese electric vehicle industry has essentially been cut off from the North American market after Canada recently imposed a 100% import tariff on electric vehicles made in China. The move comes weeks after the European Union also imposed import tariffs of up to 38% on Chinese EVs and months after the United States also levied a 100% import tariff, basically locking China out of most of the world’s largest EV markets.
This series of import tariffs have robbed China of the one advantage that makes its electric cars more desirable: affordability. More than a decade of EV-friendly policies coupled with tens of billions of dollars’ worth of subsidies have helped Chinese EV makers significantly reduce their production costs and allowed them to sell their cars at lower price points without compromising their profitability.
As China began mass exporting these affordable electric cars to foreign markets, policymakers in the European Union and the U.S. stepped in to prevent Chinese companies from outcompeting Western carmakers in their markets. Canada has now joined the fray with a 100% tariff on all electric vehicles imported from China, robbing them of the affordability that most likely would have undercut local automakers.
Canada is also looking to levy a 25% duty on aluminum and steel from China. According to Canada and its allies in the West, China’s decade-long subsidy program propped up its automakers and gave them an unfair advantage over Western competitors. China will have an extremely hard time selling its electric cars in foreign markets now that the U.S., the EU and Canada have imposed import tariffs on its EVs.
While Western policymakers see the import tariffs as a means of protecting their auto industries and the countless people who rely on them for a living, China argues the tariffs represent “trade protectionism” and are in violation of the World Trade Organization’s policies. According to Justin Trudeau, the Canadian prime minister, some Chinese actors have conspired to gain an unfair advantage in the global EV market despite Canada’s efforts to transform its auto sector into a worldwide leader.
Canada’s 100% EV import duty will take effect on Oct. 1, 2024, while the tariffs on Chinese steel and aluminum will kick in two weeks later on Oct. 15. As expected, China isn’t happy about the tariffs, and a spokesperson from the country’s Commerce Ministry noted that the move would significantly undermine the worldwide economic system as well as trade and economic rules. Furthermore, the spokesperson called on Canada to correct its “erroneous practices” immediately.
It remains to be seen how North American EV makers such as Nikola Corporation (NASDAQ: NKLA) will position themselves to benefit from these tax policies geared at limiting the influx of electric vehicles from China.
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