This article was published by The Energy Mix on July 8, 2024.
By Christopher Bonasia
China’s affordable, well-made electric vehicles are disrupting global auto markets, prompting other countries to enact protectionist policies—even if it means slowing EV adoption rates.
For Canada, a flood of EVs from China could be seen as both a blessing and a curse: The competitively priced vehicles could help cut national transportation emissions by speeding up EV adoption for Canadians who struggle to afford domestic brands, but could also undermine commitments to autoworkers—whose job security in a clean energy future depends on a fortified homegrown EV industry.
Canada Launches Consultation
Speaking at an event in Vaughan, Ontario, in late June, Finance Minister Chrystia Freeland announced a 30-day consultation period to determine how to handle trade restrictions on Chinese EV imports. Canada is “facing unfair competition from China’s intentional, state-directed policy of overcapacity that is undermining Canada’s EV sector’s ability to compete in domestic and global markets,” she said.
The United States and the European Union have also sought to limit Chinese EV imports, with the U.S. implementing a 100% tariff on the vehicles and the EU considering one between 17% and 38%. Canada already has a 6% tariff on the cars, but must find a “sweet spot” for future actions, as a higher tariff might violate international trade law and draw retaliation from China, write Clean Energy Canada Public Affairs Director Joanna Kyriazis and Executive Director Mark Zacharias in the Toronto Star.
Though the rollout has been slower than China’s, Canada has been making a push to produce EVs domestically, facilitating agreements with auto manufacturers like Honda and Volkswagen to make EV batteries and components in Ontario. But so far, Canada’s domestic EVs can’t compete with China’s on price.
The Chinese vehicles are also “amazing quality. Just amazing,” RethinkX co-founder Tony Seba wrote, the equivalent to a Tesla Model S with “90% of Tesla’s capability—for half of the price.”
“The way that Chinese EV quality has improved over the past five years is just amazing,” he added. “No company in the West can compete with this. No company in Japan can compete with this.”
CBC reports the average price of a Canadian EV is around C$73,000, while the Seagull, produced by Chinese automaker BYD, costs around C$13,000.
The Seagull costs so little because it is manufactured to reduce costs—its small size alone means it can be produced with fewer materials and travel farther on a smaller battery. BYD has also cut down on extraneous parts; the car has only one front wiper and no rear wiper, so the company “only has to manufacture one wiper arm, one wiper motor, and one wiper blade,” explains Inside EVs. BYD is also highly vertically integrated and sources few parts from third-party suppliers.
China Decries EU Subsidy Probe
But critics say other factors are also at play, including heavy subsidies by the Chinese government and low wages for autoworkers, which together help to artificially lower prices and compete unfairly against western EV companies, NPR reports.
China said it “firmly opposes” the U.S. tariffs and will “take all necessary actions to protect its legitimate rights.” It called the EU probe into its EV subsidies “very selective” and a violation of rules set by the World Trade Organizations. Trade experts say any tariffs similarly imposed by Canada following the consultation period will “obviously…invite retaliation.”
While governments cite harms to local auto sectors, carmakers like Audi, BMW, and Volkswagen have come out against the tariffs. That’s because they’ll be caught in the crossfire if China introduces reciprocal tariffs that affect their substantial exports to the country, writes S&P Global.
“Protectionism risks starting a spiral: Tariffs lead to new tariffs, to isolation rather than cooperation,” BMW CEO Oliver Zipse said in a statement. “From the BMW Group’s point of view, protectionist measures, such as the introduction of import duties, do not contribute to successfully competing on international markets.”
Environment, Industrial Policies ‘At Odds’
But Global Automakers of Canada CEO David Adams and Brian Kingston, president and CEO of the Canadian Vehicle Manufacturers’ Association, want Ottawa to address China’s impact on the auto sector, with Adams supporting Freeland’s announcement, reports the Globe and Mail. The CVMA includes Ford, General Motors, and Stellantis as members, while the GAC speaks for 15 other companies.
Kingston said Canada’s climate and industrial policies are “at odds with each other” if the country funds consumer incentives to buy Chinese EVs but also invests billions of dollars in EV supply chains.
Still, he called for a more nuanced and restrained approach than the stiff tariff rate in the U.S.
“[The tariff] is a very blunt instrument that could be used, but there are other tools you can launch,” he said a week ahead of Freeland’s announcement, suggesting a probe into the alleged illegal subsidies. “We just need to look at the series of options available to make sure that we’re prepared for this,” he added. “And at the end of the day, it needs to be clearly communicated to our American partners that… we’re going to stand shoulder to shoulder in support of the creation of this North American electric vehicle industry.”
Other stakeholders have decried the impact of protectionist policies on the transition to clean energy, warning that trade restrictions will keep EVs out of reach for many potential car buyers when more rapid adoption is essential to cut emissions. Keeping China’s vehicles out of western markets will also reduce the incentive for domestic automakers to focus on producing more affordable EVs in Canada, the U.S., and the EU, they say.
“We need to have an approach that makes sure we’re protecting wages and jobs in Canada for the auto industry, but also doesn’t actually remove that incentive for automakers to innovate and catch up to China, which is what we ultimately want,” Nate Wallace, clean transportation program manager at Environmental Defence Canada, told Bloomberg.
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