The new tariffs will go into effect Oct. 1. A second round of tariff consultations for other Chinese imports is also launching

The Canadian government is imposing a 100 per cent tariff on imports of Chinese-made electric vehicles (EVs), aluminum and steel.

The announcement, made by Department of Finance Canada during the Liberal cabinet retreat in Halifax on Monday, follows a 30-day federal consultation period that began in July.

The move reflects the government’s growing concerns over China’s trade practices in the EV sector. It aims to address issues related to unfair competition, labour and environmental standards and national security over data.

“Canadian workers and critical sectors, including steel and aluminum…are facing an intentional, state-directed policy of overcapacity, undermining Canada’s ability to compete in domestic and global markets,” says Chrystia Freeland, deputy prime minister and minister of finance, in a statement.

“That is why our government is moving forward with decisive action to level the playing field, protect Canadian workers, and match measures taken by key trading partners.”

The tariffs will take effect on October 1.

The EV-related tarrif will apply to a range of vehicles, including electric and certain hybrid passenger vehicles, trucks, buses and delivery vans. The new surtax will be added on top of the existing 6.1 per cent Most-Favoured Nation import tariff already in place for EVs produced in China.

In addition to the tariffs on EVs, Canada is imposing a 25 per cent tariff on Chinese steel and aluminum.

The government is also taking steps to limit the eligibility of Chinese-made EVs for federal incentives, such as the Incentives for Zero-Emission Vehicles, Medium- and Heavy-Duty Zero-Emission Vehicles, and the Zero-Emission Vehicle Infrastructure Program.

Chinese-made cars in Canada

The automakers likely to face the most immediate impact from the new EV tariff are Tesla and Polestar, both of which currently sell Chinese-made EVs in Canada.

According to federal lobbyist registry documents, Tesla updated its lobbying goals in August (just days before the government’s announcement) to include efforts to “engage with government and provide guidance with regard to policy responses to China’s automotive trade practices, in an effort to protect Canada’s automotive sector, ensure electric vehicle affordability for Canadian consumers, and the achievement of Canada’s greenhouse gas reduction objectives.”

(Latest data released by Transport Canada show that Tesla is leading in iZEV rebate claims, with 4,826 in May and a total of 20,293 claims in 2024, so far.)

Another automaker that may face negative effects from the sanctions is China’s largest EV manufacturer, BYD. Earlier this month, lobbyist documents revealed BYD’s plans to enter the Canadian electric passenger vehicle market.

The new tariffs will potentially complicate the company’s expansion plans here due to increased costs associated with importing Chinese-made vehicles.

Elsewhere, BYD’s market strategy has already been influenced by tariffs.

In May, the Biden Administration imposed a 100 per cent tariff on Chinese-made EVs, as well as tariffs on advanced batteries, solar cells, steel and aluminum. BYD’s Executive Vice President and CEO of BYD Americas, Stella Li, has previously stated that the company had no plans to enter the U.S. market because of political complications.

Europe’s stance on Chinese-made EVs is similar to both Canada and U.S.

Last week, the European Commission announced new tariff rates as part of an ongoing investigation into Chinese electric car subsidies. These tariffs, ranging from nine per cent to 36.3 per cent, are slightly lower than the initially proposed range of 17.4 per cent to 38.1 per cent in June.

Mixed reactions

The announcement of the new tariffs was positively welcomed by Canada’s auto industry and labour unions.

“Given the highly integrated nature of the automotive industry across North America, alignment with the U.S. on the approach to China is fundamental to its continued success,” said Brian Kingston, president & CEO of the Canadian Vehicle Manufacturers’ Association, in a press statement.

“With an upcoming review of the Canada-United States-Mexico Agreement in 2026 there is simply too much at stake for the automotive industry and the broader economy if Canada is misaligned.”

Unifor, the largest private-sector union in Canada, also supports the tariffs, stressing the need to protect Canadian workers and build a forward-looking auto industry that provides “good union jobs” and “economic benefits.”

“Canada can and must protect auto and manufacturing jobs here in this country, which thousands of workers rely on for their livelihoods,” said Unifor National president, Lana Payne. “There is no justification to trade away high-paying, high-skilled jobs for cheap high-carbon intensive vehicles built under deplorable working conditions.

However, not all groups are in favour of tariffs. Clean Energy Canada raised concerns that the decision could lead to fewer affordable electric vehicles for Canadians, reduced competition and increased climate pollution.

“Strong EV demand depends on building and offering EVs that Canadians want — and can afford. If Canadian EV sales drop as a result of the new measures, this might be used as a justification for cancelling, delaying, or downgrading EV ambitions and, ironically, further delaying the domestic production they’re meant to protect.”

Clean Energy Canada suggests the federal government complement its trade measures with an EV affordability package, including extending the iZEV program until 2028, lowering the price cap on rebates to $50,000 to compel automakers to drop their EV prices below the cap and introducing rebates for used EVs.

More consultations coming

The federal government says it will review the tariffs on Chinese-made EVs, aluminum and steel within a year of implementation, with the possibility of extending the policy or introducing additional measures, if necessary.

The Canadian government is also concerned that China’s non-market practices are jeopardizing other key sectors within Canada’s EV supply chain, including batteries, semiconductors, solar products and critical minerals.

In 2023, China’s battery production alone was enough to meet global demand, according to BloombergNEF.

The International Energy Agency reports that China dominates the processing of critical minerals and handles over half of the world’s lithium, cobalt, graphite and rare earth elements.

Barclays projects that China’s semiconductor manufacturing capacity could more than double within five to seven years, potentially leading to market oversupply by 2026.

In response to these developments, the Government of Canada is launching a second 30-day consultation focused on the vital sectors of batteries, semiconductors, solar products and critical minerals.

The government says it will release a consultation notice in the coming days to help inform any further government action.