2 weeks Ago By Driving Team
Article content Much has been written about the Trump administration’s auto tariffs and the 25% surtax that Canada has imposed on imports of U.S.-made vehicles in turn.
By now, I’m sure that you are thinking that you really don’t need to read anything else about tariffs on Driving . You’d be right, except..
. Last October may now seem like such a long time ago. But, back then, Canada decided to impose a 100% surtax on imports of Chinese electric vehicles.
Our government stated that Chinese electric vehicles benefitted from subsidies, unfair labour practices, lax environmental standards, and other protectionist measures. According to Canada, unfair Chinese practices resulted in artificially low prices and a massive over-capacity of production that threatened global markets — including ours. At the same time that it implemented the EV surtax, Canada imposed tariffs on imports of steel and aluminum from China.
In response to the Canadian surtaxes, China introduced retaliatory measures of its own, most notably against imports of Canadian agricultural products. That, in turn, has raised the ire of western farmers, who believe that federal policies are being imposed to protect central and Ontarian industries at their expense. They were not the only stakeholders concerned with how such tariffs would affect domestic economies.
Much of the German auto industry actively pushed back against the introduction of EU duties on Chinese EVs, fearing that Chinese counter sanctions would undermine German brands in China. For many other global brands, China represented both a potential market and a source of lower-cost vehicles to export to markets around the world. In other words, auto-industry views on China sanctions were mixed, especially since the largest importers of Chinese vehicles to North America were U.
S. automakers including Tesla and General Motors. But we did impose tariffs, and Canada once again finds itself squeezed between the U.
S. and China, with few friends in either Beijing or Washington. Faced with that reality, Canada needs to devise a plan that allows us to plot our own course, using the power of our market to influence the next round of trade negotiations.
That moment is fast approaching if Prime Minister Carney, assuming he wins the election, sticks to his pre-election promise to deal with Mr. Trump as soon as the election is over. Significantly, when Canada implemented the EV surtax on China, the government also announced that it would review the tax a year after its implementation.
That review date is now less than six months away. This is all to say that now would seem as good a time as any to recommend a future negotiating strategy. But first, let’s recap a few important objectives.
In setting a surtax on China, Canada didn’t just intend to address the industrial threat of subsidized, low-cost EVs. In a world of increasingly connected and automated vehicles, Chinese vehicles represent a potential challenge to personal privacy and national security. A modern connected car generates millions of data points that are transmitted each day to manufacturers who monitor vehicle health and duty cycles.
In the wrong hands, that data can also be used to monitor individuals or street-level activity where vehicles are in operation. There is a fear in the West that not only can the Chinese government access a back door into that data, but that Chinese software might allow remote control of autonomous vehicles or of EVs connected to the electric grid. Tariffs may be a crude way of addressing national security, but Canada had to do something to ensure appropriate digital safeguards.
There is also no question that low-cost Chinese EVs represent formidable competition for established automakers. That said, the problem for Canadian car companies was made worse by the existence of federal and provincial mandates requiring EV sales. The situation was further exacerbated by generous consumer incentives and business-to-business ZEV credit trading that overheated the market.
It’s one thing to compete against low-cost imports, but it is quite another when the total incentive package available to an imported EV may have exceeded $20,000. To be clear, the automotive future in North America will entail very high levels of electrification even without government intervention. But by mandating their adoption by set dates — ending with 100% ZEVs in 2035 — Canada pushed the market ahead of the capacity of existing automakers to deploy technology at scale, and sooner than necessary infrastructure could be built.
Nonetheless, thanks to generous incentives and enthusiastic early-adopters, an opportunity existed for start-up electric vehicle manufacturers to gain a foothold. That was the opening that Chinese companies were poised to exploit before the imposition of those tariffs. Low-cost cars from China have always been a threat.
The same 6.1% duty rate applied whether a car had an internal combustion engine or an electric motor. But the threat was poised to become reality only because the Chinese government subsidized a previously uncompetitive industry into one that’s become highly innovative in the electric-vehicle space.
Cars are fungible commodities. If you don’t buy from one manufacturer, there are plenty of others with their own unique offerings. No car company “owns” the Canadian market.
Canada has always benefited from maintaining an open market that embraces new thinking. On the other hand, it would be the height of folly to incentivize new entrants at the cost of automakers already manufacturing cars in Canada without also extracting investment commitments from any new players, i.e.
China. To fail to get such guarantees would put Canadian jobs and our economy at risk. Our problem is that it is no longer just China that poses such a threat.
The U.S., under newly re-elected President Trump, has forcibly declared that it wants to see Canadian production relocated to the United States.
As a result, Canada now needs to pursue production guarantees as part of any renegotiated trade deal with the United States. Fortunately, the duty remission program that Canada has implemented along with the surtax on the import of U.S.
-made vehicles sets a precedent for future negotiations. If the U.S.
administration truly wants reciprocal trade, what could be fairer than allowing companies to import one vehicle for every one they manufacture in the importing country? By adapting the current, temporary rules into the next free-trade deal, Canada and the U.S. would also address the problem of some automakers circumventing USMCA content rules to gain a price advantage on the American market.
A higher, common external tariff would greatly encourage compliance with USMCA rules of origin. So, even if our national objective is to maintain a tightly integrated North American automotive sector, Canada needs to take a new approach to achieving that objective. It begins with an understanding that neither China nor the United States is invested in ensuring the health of Canadian auto manufacturing.
My approach, then, to future trade negotiations would be to lump the U.S. and China into the same category as adversaries and leverage their interests against each other to achieve a successful outcome for Canada.
Here’s the recipe: The benefit of this plan is that Canada would simultaneously negotiate from a position of strength while providing meaningful concessions for both the U.S. and China.
It is also a plan that would ensure investment and jobs in Canada’s auto sector. By contrast, the status quo is not sustainable. The U.
S. is becoming increasingly isolated from global trade. We need to offer a constructive alternative while also keeping the door open for other potential partners.
By offering Canadian manufacturers the opportunity to import from China in a controlled manner, Canadians can access new lower-cost technologies sooner and offer an incentive to both existing and future investors to build cars in Canada..
