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Potential Surtax on Chinese EV Trade

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On June 24, 2024, the Canadian government announced the launch of a 30-day consultation period starting July 2, 2024, to explore potential policy responses aimed at protecting Canada’s auto workers and its growing electric vehicle (“EV”) industry against unfair trade practices from China.

Background

Canada’s automotive sector currently produces over 1.5 million vehicles annually, equivalent to one vehicle every 21 seconds.  This sector supports nearly 550,000 indirect jobs, contributed $18 billion to Canada’s GDP in 2023, and ranks among the nation’s largest industries.

Since 2020, China has emerged as the world’s leading manufacturer and exporter of EVs, driven by extensive state subsidies and other non-market practices.  In 2023, China’s annual EV exports surged to $47.2 billion, up significantly from $0.2 billion in 2018.

Canada’s announcement closely follows recent actions by its trading partners, the United States and the European Union, to increase tariffs on Chinese EVs. This initiative aims to solidify Canada’s position as a global leader in the EV industry and protect its domestic supply chain, as well as “level the playing field” while addressing economic harm and national security risks posed by China’s unfair market practices, such as problematic labour and environmental standards.

Potential Consequences on Chinese EVs

Canada’s consultation marks the first step in formulating a policy response to Chinese EV trade practices. Canada is exploring various policy responses, including potentially implementing a surtax under section 53 of the Customs Tariff.

Alongside potential investment restrictions, these measures may be imposed on top of the existing Canadian tariffs on Chinese-built EVs.  

Canada’s swift response aims to ensure fair competition for Canadian auto workers by preventing potential oversupply and dumping by China into the Canadian EV market.

In a recent press conference, the Minister of Finance emphasized that all options are on the table for a potential policy response,  including the possibility of extending the surtax beyond EVs to encompass other components of the EV supply chain, such as batteries and precursor materials.

Takeaways

Given the Canadian government’s strong dedication to enhancing trade protections and staying ahead of its Chinese competition in the EV sector, importers should take notice and prepare for potential surtaxes on Chinese EVs in the near future.

Given the 100% tariff imposed by the U.S., and the countervailing duties imposed by the EU, similar Canadian trade restrictions could soon follow.

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