Automotive
Canadian tariffs on Chinese EVs should look like the United States’, not Europe’s
From the Macdonald Laurier Institute
By Heather Exner-Pirot
It is clear that China’s green manufacturing subsidies are not merely levers to promote their domestic economy at the expense of their competitors, but part of a larger strategic plan to control parts of the global energy and transportation system.
China is now, beyond a doubt, engaged in dumping and subsidizing a range of clean technologies to manipulate global markets. The remaining question is: How should Canada respond?
The Finance Minister’s consultations on China’s unfair trade practices in electric vehicles is welcome, if belated. Canada should closely follow the United States’ lead on this matter, and evaluate the extent to which other Chinese products, from lithium-ion batteries to battery components, should also be sanctioned.
The New Trio
A key plank of China’s economic growth strategy is manufacturing and exporting the “new trio”: solar photovoltaics, lithium-ion batteries, and electric vehicles. These are high value-add, export-oriented products that China is hoping can compensate for domestic economic weakness driven by a property market crisis, poor demographics, and insufficient consumer demand.
To solidify its role in green technology manufacturing, the Chinese government has provided enormous industrial subsidies to its firms; far higher than those of western nations. According to analysis by Germany’s Kiel Institute, the industrial subsidies in China are at least three to four times – or even up to nine times – higher than in the major EU and OECD countries.
Washington-based think tank CSIS conservatively estimates industrial subsidies in China were at least 1.73 percent of GDP in 2019. This is equivalent to more than USD $248 billion at nominal exchange rates and USD $407 billion at purchasing power parity exchange rates – higher than China’s defense spending in the same year.
On top of state subsidies, Chinese green technology manufacturing companies also benefit from preferential access to critical mineral supply chains (many aspects of which China dominates and manipulates the global market), weak labour and environmental standards, and economic espionage (including stealing technology from western firms and using Chinese-made products to gather intelligence from their western consumers). This green tech espionage includes Chinese-made electric vehicles which are widely suspected of collecting users’ data and sending it back to China in ways that violate their privacy and security.
It is clear that China’s green manufacturing subsidies are not merely levers to promote their domestic economy at the expense of their competitors, but part of a larger strategic plan to control parts of the global energy and transportation system.
European and American Response
In response to these blatantly egregious practices, both the European Commission and United States have recently announced tariffs on Chinese-made electric vehicles.
The European Commission announced their tariffs on July 4, 2024, following a nine-month anti-subsidy investigation. Individual duties were applied to three prominent Chinese producers: BYD (17.4%); Geely (19.9%); and SAIC (37.6%).
Other Battery Electric Vehicle (BEV) producers in China, which cooperated in the investigation but were not sampled, are subject to a 20.8% duty. Non-cooperating companies are subject to a 37.6% duty.
The United States policy was announced on May 14, 2024, and is both more comprehensive and more punitive than the European Commission’s. It covers not only electric vehicles, which face an increase in tariffs from the previous 25% to 100% as of August 1, 2024, but lithium-ion batteries (from a 7.5% to 25% tariff) and battery parts (from a 7.5% to 25% tariff). Natural graphite and permanent magnets will also face a tariff of 25%, starting in 2026.
Canada’s Response
Minister Freeland’s determination that Canada “does not become a dumping ground” for subsidized Chinese-made EVs, and commitment that Canada “will not stand” for China’s unfair trade practices, is very welcome.
To that end, Canada’s tariff policy on Chinese-made EVs should closely match the United States’, rather than Europe’s.
Canada’s auto industry is highly integrated with the United States, and our EV and battery supply chain, to the extent consumers will demand them, will be no different. Official Washington is seized with the threat China poses to the liberal world order and their position atop the global hierarchy. The United States will have little tolerance for Canada as a back door for Chinese-made EVs and battery parts. The growth and penetration of Chinese-made EV imports in Canada from 2022 to 2023 – an increase of 2500% year over year, now representing 25% of our imported EVs – shows that this is not a theoretical problem, but an existing one.
A soft touch on Chinese EV tariffs would likely create worse economic consequences for Canada in the North American context – in terms of impact to our domestic auto manufacturing industry, extensive battery supply chain investments, and CUSMA renegotiations – than it would confront from China, though these may indeed be painful.
For all these reasons, Canada should extend tariffs to lithium-ion batteries and battery parts as well, as the United States has done. This is fully with precedent. Canada has already applied extensive duties to Chinese-made photovoltaics and wind towers, and has put heavy investment restrictions on Chinese ownership of critical minerals production and miners in Canada.
Long-term Thinking
Free trade is a cornerstone of the liberal world order. It has improved the material well-being of billions of people. Restrictions on trade should not be taken lightly.
But Chinese dumping, subsidies, and market manipulation mean that the global market is not free for many critical minerals, EVs, solar panels, wind towers, lithium-ion batteries, and other green technology components. Canada cannot ignore that fact for a perceived short-term gain from cheaper products.
Just as Europe learned that relying on Russia for cheap natural gas was expensive, relying on China for our energy transition will not move Canada to a lower carbon energy system easier, faster or cheaper. It will impose different costs that Canadians will pay in a multitude of ways.
This may disappoint those that prioritize renewables and EV deployment over national security and domestic economic growth. The good news is that Canada has good options that satisfy climate goals as well. Canada is rich in oil, gas, uranium, and water. We are independent in fossil fuels, nuclear and hydroelectric energy. Let us build on those strengths and invest in green technologies that leverage them, including carbon capture, utilization and storage (CCUS), third and fourth generation nuclear reactors, pumped storage hydropower, and hydrogen.
Canada needs to focus on decarbonization efforts in areas in which we can both be energy independent and protect Canadian consumers and workers from unfair trade practices. To do this, Canada should apply appropriately punitive anti-dumping subsides on Chinese-made EVs, lithium-ion batteries, and battery parts.
Heather Exner-Pirot is director of energy, natural resources and environment at the Macdonald-Laurier Institute.
From Energy Now
By Jim Warren
Northvolt, a wannabe electric vehicle (EV) battery manufacturing superstar, based in Sweden filed for Chapter 11 bankruptcy protection in the US on November 21, 2024. In just eight years the company had blown through $15 billion USD in startup capital. Bloomberg says it was one of the most indebted companies to file for bankruptcy in the US in 2024.
Northvolt promised to be everything green transition crusaders could hope for in a company. And it isn’t surprising the “whiz kids” in the Prime Minister’s Office and the environment ministry made sure Canada got in on the action. According to Bloomberg, Canada made pledges amounting to $7.3 billion CAD ($5.4 billion USD) in loans, equity stakes and subsidies for Northvolt.
Canada’s investments included support for the construction of four electric vehicle (EV) battery factories—one in B.C., two in Ontario and one in Quebec. As of today, only a cockeyed optimist could believe those four plants will be churning out batteries any time soon, if ever.
Northvolt was supposed to be a cutting-edge EV battery innovator. It had the cachet of companies claiming to be implementing next-generation technology. When the company was launched in 2016 it was hailed as Europe’s flagship entry into the international race to produce enough non-Chinese batteries to support a widely anticipated boom in electric vehicle demand in Europe and North America.
For eight years Northvolt rode the wave of green propaganda that accompanied government regulations phasing out the production of vehicles with internal combustion engines. The company further endeared itself with environmentalists by claiming it would be at the forefront of development for the mammoth batteries required to back up solar and wind power generation.
The Economist reports that prominent Wall Street players like BlackRock, Goldman Sachs and JPMorgan Chase ditched any aversion they might have had for getting into business with governments. They contributed to the $15 billion in startup money. Governments got on the Northvolt band wagon. Northvolt received $5 billion USD in grants from five countries: Canada, the European Union (EU), Poland, Germany and of course Sweden.
Private investors weren’t deterred by the fact governments had “picked a winner.” They actually liked the fact governments were backing Northvolt. They assumed the governments of wealthy countries dedicated to Net Zero by 2050, would patiently nurse Northvolt through its growing pains and back it financially when setbacks arose. Risks would be minimized—success was as close to guaranteed as anyone could hope to expect.
Governments in Europe as well as Canada had been busy implementing policies designed to reduce CO2 emissions and combat climate change. Building EV batteries dovetailed nicely with those goals. It was a virtuous circle of mutually reinforcing virtue signaling.
Around the same time it was becoming fashionable for businesses to adopt the principles of Environmental, Social and Governance (ESG). “Progressive” investors including union pension funds required companies they invested in to adopt the goals of environmental sustainability, diversity, equity and inclusion—the core missions of ESG.
Some of Europe’s car makers got behind Northvolt. They wanted to see a vertically integrated European EV industry developed to better withstand competition from cheaper Chinese imports. VW, BMW and Scania AB pre-ordered $50 billon USD worth of Northvolt’s products.
By the fall of 2024, Northvolt already had at least one foot planted on a banana peel. But that didn’t prevent 24 lenders including JPMorgan Chase from throwing it a $5 billion USD lifeline. According to The Economist, this was the biggest “green loan,” ever made in Europe. It apparently wasn’t big enough to prevent the company from filing for Chapter 11 protection.
Odd as it seems in hindsight, private sector investors had embraced a project led by politicians, bureaucrats and research scientists with little to no experience in commercializing their lab experiments. The company’s inability to meet the technical challenges of increasing production to the point of commercial viability was one of the reasons it failed. It turns out it is hard to transform next-generation technology from ideas that work in a test tube into something that makes money.
Ironically, it is car makers from China who are best placed to capitalize on Northvolt’s downfall and dominate Europe’s EV and battery markets. Without tariff support European and North American automakers simply won’t be able to compete with the less expensive government-subsidized Chinese made models.
In 2015 the Chinese government launched its ambitious “Made in China 2025” project. Under the program the government has plowed hundreds of billions into industries that combine digital technology and low emissions technologies. The EV sector was one of the program’s big success stories. Last year, BYD a Chinese manufacturer, overtook Tesla to become the world’s biggest EV producer.
This past November The Economist reported, Chinese auto makers already account for two-thirds of global EV production. They had sold 10 million of them in the previous year. Chinese manufacturers also made 70% of the EV batteries produced globally in 2024. Big investments in factory automation in Chinese EV plants have increased per worker productivity, reducing manufacturing costs.
Government subsidies combined with manufacturing know-how succeeded in creating the world’s most significant EV and EV battery manufacturing industries in China but similar efforts in Europe and North America (e.g. Northvolt) are struggling. It is embarrassing to realize China has become the world’s largest manufacturer and exporter. The West has been left in the dust when it comes to making things like solar panels and EVs.
Europe’s car makers are pressing their governments to limit the number of Chinese made EVs sold in Europe. Yet some EU member states like Germany are reluctant to antagonize China by putting tariffs on its EVs—many German manufacturers rely on access to the Chinese market.
EV sales declined by 5% across Europe in 2024 and high prices for European models are one of the factors responsible for declining sales. Allowing cheaper Chinese EVs into Europe tariff-free should improve EV sales making it more likely that governments’ emissions targets are met. But that makes it more likely that some European car makers will struggle to remain profitable. If large numbers of auto workers are laid off in Europe it will signify the breaking of a major promise made by environmentalists and governments. They have consistently assured people the green transition would create more than enough new green jobs, to make up for job losses in high emissions industries.
The bad news for EV champions extends beyond Europe. Donald Trump has signed an executive order killing federal grants to consumers purchasing electric vehicles. Getting rid of the Biden administration’s EV subsidies should give internal combustion engines a new lease on life. You have to wonder how Trump squared that move with Elon Musk. Perhaps Trump’s promise of tariffs on Chinese goods has been enough to satisfy Tesla. It helps that many EV purchasers in the US prefer big luxury models since the Chinese don’t make too many electric Hummers.
Here in Canada, the Liberal government has said it will cease subsidizing EV purchases as of March 31. It looks more and more like the wheels are coming off the Trudeau-Guilbeault environmental legacy.
While the EV markets in Europe and North America are on shaky ground it is unlikely Northvolt will find the investors required for another last minute bailout. That’s good news for people concerned about Canada’s fiscal health–the Liberals won’t be able to blow any more money on Northvolt if it doesn’t exist.
Last Monday, Transport Canada released a bombshell statement, announcing that the Trudeau government’s program granting a $5,000 rebate to Canadians purchasing an Electric Vehicle (EV) had run out of money and would be discontinued, “effective immediately.” This followed a prior announcement from the government of Quebec that they would be suspending their own subsidy, which had amounted to $7,000 per EV purchased.
This is, of course, a game changer for an industry which the Trudeau government (as well as the Ford government in Ontario) has invested billions of taxpayer dollars in. That’s because, no matter the country, the EV industry is utterly dependent upon a system of carrots and sticks from the government, in the form of subsidies and mandates.
EVs have remained notably more expensive than traditional Internal Combustion Engine (ICE) vehicles, even with those government incentive programs. Without them the purchase of EVs becomes impossible for all but the wealthiest Canadians.
Which is fine. Let the rich people have their toys, if they want them. Though if they justify the expense by saying that they’re saving the planet by it, I may be tempted to deflate them a bit by pointing out that EVs are in no way appreciably better for the environment than ICE vehicles, how all the lithium, nickel, cobalt, manganese, aluminum, copper, etc, contained in just one single EV battery requires displacing about 500,000 lbs of earth. Mining these materials often takes place in poorer countries with substandard environmental regulations.
Moreover, the weight of those batteries means that EVs burn through tires more quickly than gas-and-diesel driven vehicles, and wear down roads faster as well, which among other issues leads to an increase in particulate matter in the air, what in the old days we referred to as “pollution.”
That is a potential issue, but one that is mitigated by the fact that EVs make up a small minority of cars on the road. Regular people have proved unwilling to drive them, and that will be even more true now that the consumer subsidies have disappeared.
Of course, it will be an issue if the Trudeau Liberals get their way. You see, Electric Vehicles are one of the main arenas in their ongoing battle with reality. And so even with the end of their consumer subsidies, they remain committed to their mandates requiring every new vehicle purchased in Canada to be electric by 2035, now just a decade away!
They’ve done away with the carrots, and they’re hoping to keep this plan moving with sticks alone.
This is, in a word, madness.
As I’ve said before, the Electric Vehicle mandate is a terrible policy, and one which should be repealed immediately. Canada is about the worst place to attempt this particular experiment with social engineering. It is famously cold, and EVs are famously bad in the cold, charging much slower in frigid temperatures and struggling to hold a charge. Which itself is a major issue, because our country is also enormous and spread out, meaning that most Canadians have to do a great deal of driving to get from “Point A” to “Point B.”
Canada is sorely lacking in the infrastructure which would be required to keep EVs on the road. We currently have less than 30,000 public charging stations nationwide, which is more than 400,000 short of Natural Resources Canada’s projection of what we will need to support the mandated total EV transition.
Our electrical grid is already stressed, without the addition of tens of millions of battery powered vehicles being plugged in every night over a very short time. And of course, irony of ironies, this transition is supposed to take place while our activist government is pushing us on to less reliable energy sources, like wind and solar!
Plus, as I’ve pointed out before, the economic case for EVs, such as it was, has been completely upended by the recent U.S. election. Donald Trump’s victory means that our neighbors to the south are in no immediate danger of being forced to ditch gas-and-diesel driven cars. Consequently, the pitch by the Trudeau and Ford governments that Canada was putting itself at the center of an evolving auto market has fallen flat. In reality, they’ve shackled us to a corpse.
So on behalf of my fellow Canadians I say, “Thank you,” to the government for no longer burning our tax dollars on this particular subsidy. But that isn’t even half the battle. It must be followed through with an even bigger next step.
They must repeal the EV mandate.
Dan McTeague is President of Canadians for Affordable Energy.
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