Our auto industry leaders are still clinging on to solutions that are premised on American priorities, including the exclusion of all Chinese EVs from the Canadian market.
Manitoba Premier Wab Kinew has started an uncomfortable conversation for the Federation by calling on Ottawa to drop its 100-per-cent tariff on electric vehicles from China in exchange for the removal of Chinese duties on Canadian canola and pork.
Kinew was picking up on the Chinese ambassador to Canada’s comment in an interview with CTV News confirming Beijing’s position on the issue.
Now that China has put its cards on the table, Canada faces a difficult choice: maintaining the EV tariff will mean favouring Canadian automakers in Ontario over pork, seafood, and canola producers in other provinces. Abandoning it will expose the auto sector to formidable competition, and mark a departure from Ottawa’s alignment with the United States.
There are, of course, intermediate solutions, which makes the pressure to land on a Goldilocks option that much greater. In finding such a solution, it is important to not be distracted by four false claims.
The first is that China’s tariffs on Canadian canola, pork, and seafood are an example of economic coercion, and that reversing the EV tariffs would be “caving in” to Beijing. While the tariffs on Canadian agrifood are unfriendly, they were imposed in retaliation to the EV tariffs that came six months earlier. Those who would weaponize a tit-for-tat trade action as a “right versus might” issue are only making it more difficult for Canada to pursue a policy choice that serves the national interest.
Second, China is not pitting one part of Canada against another. Ottawa did that with the EV tariffs, which were imposed to seek favour from then-U.S. president Joe Biden’s administration, and which did not yield any benefit from the subsequent government of President Donald Trump.
Third, some reversal of the EV tariffs is not “playing off” one Canadian sector over another or creating a special “carve out” for pork, canola, and seafood. The EV tariffs, on the other hand, are a form of special protection for an automotive industry that doesn’t even produce EVs in meaningful quantities, or at prices that would appeal to most Canadian consumers.
Fourth, “overcapacity” in the Chinese automotive sector is a lazy and dishonest excuse for protectionism in North America. China’s industrial policy on EVs should be seen not just as a competitive strategy for its auto industry, but also as a deliberate effort to reduce carbon emissions. Any other country achieving that level of electrification would be lauded for its efforts, rather than vilified for being successful.
Overcapacity is normal in early-stage industries. In the nascent years of the U.S. auto industry between 1896 and 1930, there were more than 1,800 manufacturers. By the 1930s, only the “Big Three” remained. That shakeout came after a period of intense competition, experimentation, and excess investment. The fact that Chinese EV manufacturing capacity now exceeds short-term domestic demand is part of the trial-and-error process inherent to new industries.
It is also fallacious to blame Chinese EV overcapacity on state-owned enterprises. The Chinese EV landscape is dominated by private and joint-venture firms, including BYD, NIO, and Li Auto. Recognizing the diversity in Chinese auto manufacturing ownership, the European Union imposed higher tariffs on state-owned firms compared to private companies. Canada’s blanket imposition of a 100-per-cent tariff on all Chinese EVs lacks this kind of differentiation, which belies its political underpinnings.
That the Canadian automotive industry is facing its most serious threat since the advent of Japanese imports is not in doubt. But let’s be clear about where the threat is coming from. Trump has been consistent in his coveting of Canadian automotive manufacturing, and Commerce Secretary Howard Lutnick made it crystal clear that the U.S. is no longer interested in buying Canadian-made autos.
Yet, our auto industry leaders are still clinging on to solutions that are premised on American priorities, including the exclusion of all Chinese EVs from the Canadian market. They would have us believe that Canada can develop a meaningful EV industry through subservience to American priorities, and behind a North American tariff wall.
China is not the solution to Canada’s automotive industry dilemma, but it can be part of the solution. Relaxing the tariff on Chinese EVs will not only help our canola, pork, and seafood industries, but also allow a shift in thinking that introduces import competition and opens the door to investment that spurs innovation for the automobiles of the future.
Bo Chen is senior research fellow at the East Asia Institute of the National University of Singapore, and a distinguished fellow at Simon Fraser University’s Jack Austin Centre.
Yuen Pau Woo is an Independent Senator representing British Columbia, and a former president and CEO of the Asia Pacific Foundation of Canada.