Conflict Alerts # 666, 29 August 2024
R Sachin Arvind In the news
On 26 August, Canada imposed a 100 per cent tariff on import of Chinese electric vehicles and a 25 per cent tariff on steel and aluminium. The duties apply to all EVs including Tesla from 1 October 2024.
On the same day, Canada’s Prime Minister Justin Trudeau stated: “I think we all know that China is not playing by the same rules” He added: “What is important about this is we’re doing it in alignment and in parallel with other economies around the world.”
On the same day, China's Ministry of Commerce spokesperson stated that Canada's move would disrupt the global industrial and supply chains by undermining the global economic system and trade rules.
Issues at large
First, the Chinese EV market in Canada and its implications. China is Canada’s second-largest trading partner. Canada is Tesla’s sixth-largest market, making it a significant concern for the company as some of its vehicles are manufactured in Shanghai. Chinese car brands are not widely popular in Canada, except BYD. The 100 per cent tariff comes as the country aligns with its automotive policy, building markets for domestic EV makers. Canada is pursuing partnerships with major European automakers, to reduce its reliance on imports from China. Canada’s automotive manufacturing companies and Unifor, the union of autoworkers, have been demanding tariffs on Chinese EVs similar to the US. It increased after a lobbying firm associated with BYD informed intentions to sell passenger cars in Canada.
Second, China’s overproduction, oversupply and unfair advantage in the EV market. China’s EV manufacturers' overproduction caused an oversupply of cheaper EVs in the global market. The oversupply of cheaper EVs became a major competition for other EV manufacturers worldwide. The European countries accuse Chinese EV automakers of undervaluing their domestic goods, flooding Western markets and undercutting competition. China’s alleged unfair advantage in the market and pressure from domestic EV producers forced the authorities to impose the tariffs.
Third, increasing global tariffs on Chinese EVs. On 14 June, the EU announced a 38 per cent tariff on imported Chinese EVs over concerns about the threat to the domestic automotive industry. On 14 May, the US announced tariff surges on Chinese imported goods including electric vehicles, steel and aluminium, computer chips and medical products. The White House stated that Trump's 2020 trade deal with China did not increase US exports nor boost the manufacturing sector.
In perspective
Canada’s move is likely to impact China-Canada economic-trade relations and harm the interests of the enterprises in both countries. However, Ottawa has taken a path similar to the EU and the US. The country is likely to continue to work with the US and other allies to ensure customers are not penalized by China’s alleged non-market practices. It would take punitive measures by imposing further tariffs. The Canadian side claims to support free trade and the multilateral trading system based on World Trade Organization rule. Meanwhile, China criticizes Canada for flagrantly violating WTO rules, carelessly following individual countries and adopting unilateral tariff measures, implying trade protectionism.