Canada’s trade war with the United States has some economists pondering whether the federal government should ease or lift its 100 per cent tariff on Chinese electric vehicles, a move some say could spur EV purchases and deliver a blow to Elon Musk’s Tesla.
Automakers, however, say the tariffs are critical to protecting this country’s nascent EV industry.
Canada followed the U.S. in slapping the tariffs on Chinese EVs last fall, while also putting a 25 per cent surtax on imports of steel and aluminum products from China.
That was before Donald Trump became U.S. president and hit Canada with a storm of tariffs, including on steel and aluminum used in vehicle manufacturing.
Public opinion has also soured on Trump adviser and tech billionaire Musk, whose Teslas are the top-selling EVs in Canada. Politicians have mused about targeted actions against Tesla, with NDP Leader Jagmeet Singh and former Liberal leadership candidate Chrystia Freeland both pitching 100 per cent tariffs on the vehicles.
Julian Karaguesian, an economist and lecturer at McGill University in Montreal, said it’s time to rethink the tariffs on China.
“I do think quietly, we’re thinking about easing some of those measures. And I actually think we should,” he said.
“If we wanted to have a targeted response to the Trump administration into his biggest financial supporter, we don’t have to tariff Tesla or American EVs…. We would just have to take off the tariff on the Chinese.”
Chinese automaker BYD debuted its Seagull EV last year at a starting price of about $14,600 Cdn for a 305-kilometre-range version. The cheapest options available in Canada, by contrast, start at roughly $40,000.
Meanwhile, Canada’s tariffs have sparked retaliation from China, where officials called them discriminatory and said they “seriously violate World Trade Organization rules.”
Effective Thursday, China’s Ministry of Commerce has said it will apply a 100 per cent tariff on Canadian rapeseed oil, oil cakes and pea imports, and a 25 per cent duty on Canadian aquatic products and pork — causing major concerns for Canadian farmers.
This week China will impose a 100 per cent tariff on canola in retaliation for the Canadian government putting a tariff on Chinese electric vehicles. Jason Johnson is a grain farmer south of Morden, Man. He says the federal government has shown support for the steel industry in the face of U.S. tariffs but nothing for farmers.
Karaguesian said Canada could build out its EV industry by inviting Indian and Chinese manufacturers, alongside American and European operators, to set up factories in Canada.
The idea of building a closer trade relationship with China is still somewhat taboo, he said, and some have been “aghast” when he’s suggested it. But he argues that Canada’s stance against China has largely been to appease the U.S.: “What business quarrels do we have with China that aren’t manufactured in Washington?”
It may be time to stop worrying about retaliation from Canada’s unpredictable southern neighbour, Karaguesian said, arguing that Trump and others in the U.S. government seem to view Canada more as a “vassal state” than a respected partner — a pattern he said emerged long before Trump took office.
“Let’s just be a sovereign nation, pursue our own best interests,” he said. “Because even when we do everything for them, it may not have any kind of reward at all.”
Canadian automakers back tariffs
Automakers in Canada have stood firmly in support of the tariffs on electric vehicles from China.
Canadian Vehicle Manufacturers’ Association president and CEO Brian Kingston said the tariffs on Chinese EVs were “absolutely” the right decision and that the challenge posed by U.S. tariffs on Canadian goods — which increase costs for consumers and threaten jobs in Canada’s auto industry — have only strengthened that case.
Canada has attracted more than $46 billion in EV investment since 2020, according to a June 2024 report from the Office of the Parliamentary Budget Officer, and Kingston said allowing Chinese EVs to flood the market would put those investments — and the development of the entire industry — at risk.
“China has capacity to build nearly 80 per cent of global vehicle demand. There is a huge risk if those vehicles were to flood the Canadian market,” he said.
Kingston said he’s confident Canada will be able to produce competitively priced EVs if it’s given time to catch up to China.
“North Americans love to drive larger vehicles, pickup trucks and SUVs. You’re seeing electrified formats of those vehicles with increasingly large ranges,” he said. “So yes, the options to Canadians are getting better every single day, and prices over time will become increasingly competitive.”
David Adams, president and CEO of Global Automakers of Canada, said opening the doors to Chinese EVs now would render Canada’s investments in the sector pointless, because the Chinese vehicles would take over the market.
“The new tariffs from the U.S. certainly muddy the waters a little bit, but they don’t undermine the fundamental reason why those tariffs were put in place,” he said.
Hugo Cordeau, a PhD candidate in economics at the University of Toronto who researches climate policies, said he worries about a potential backlash from the U.S. if Canada were to go back on its tariffs on Chinese EVs.
He said there may be a middle ground, noting the European Union took a more “sensible” approach by increasing its surtax on Chinese EVs from 10 per cent to as high as 45 per cent and incentivizing Chinese companies to open factories in Europe.
“I believe it’s just a double-edged sword. I think we misstepped initially, I think we should have went with the EU,” Cordeau said. “I think there’s probably still time to align with the EU without 100 per cent dropping the policy.”
Reducing prices on cheap EVs would be “great” for Canadian consumers, he said, arguing that in the long run, allowing more competition would also be good for the Canadian auto industry, which he said has so far focused on high-end, luxury EVs.
China says it will impose a 25 per cent tariff on Canadian seafood exports effective March 20 as a retaliatory measure to Canadian tariffs on steel, aluminum and electric vehicles last year. Geoduck harvester Darrell Thomas discusses how the tariffs could impact his business.
Canada still ‘at the mercy’ of U.S., professor says
Sumeet Gulati, a professor in environmental and resource economics at the University of British Columbia in Vancouver, said allowing cheaper Chinese vehicles onto the market could also spur more charging stations — the lack of which is seen as one of the biggest deterrents for consumers considering buying an EV.
He said if the federal government is falling short of its target to phase out sales of gas-powered cars and trucks by 2035, it will need to reach out to other countries for more EVs to help Canada reach its goal.
But Gulati said while he was disappointed by the federal government’s announcement of the tariffs on China last fall, he understood the move because of how integrated the Canadian and U.S. auto industries are.
“I don’t think we have another choice because we have this tightly integrated market,” he said.
For now, Gulati said, Canada should wait about six months for the tariff war to settle before conceding that the Canadian and American auto industries have been “decoupled.”
“I think we are at this point, unfortunately, pretty much at the mercy of what the U.S. government does,” he said.
