Shares in Tesla closed down 3.2% yesterday, following an announcement from the Canadian government that they would impose a 100% tariff on imports of Chinese electric vehicles (EVs), with a further 25% tariff on steel and aluminium. This mirrors the policy of the US and European Union on EVs shipped from China. Prime Minister Justin Trudeau said that this measure was aimed at countering China’s policy of over capacity. The move is also seen as a response to pressure from the domestic EV industry, as Canada has been trying to attract EV automakers from all sectors of the EV supply Chain.

In 2023, Canadian imports of Chinese built automobiles hit 44,356, a 460% increase from when Tesla first started shipping EVs to Canada. China’s Commerce Ministry said that Canada’s decision to follow the example of its allies will ‘disrupt the stability of global and industrial supply chains.’ A spokesman called the decision a flagrant violation of World Trade Organization (WTO) rules and represented ‘typical trade protectionism.’ They added that the action threatens all China-Canada trade relations, damaging both their interests.

Tesla has yet to comment. The exact number of Tesla’s Chinese exports to Canada is unclear but Reuters reports that the Model 3 compact sudan and Model Y crossover were both exported from Shanghai to Canada. The Chinese government is concerned that the tariff may result in production being moved out of China. Seth Goldstein at Morningstar said that he expected to see Tesla move Canadian exports to its US production base, resulting in higher costs. This month saw the EU make an exception for Tesla, imposing a 9% tariff on the company's EVs compared to 36.3% on other Chinese imports.

But Trudeau warns that this may not be the only penalty applied to Chinese imports. Further measures are being considered in regard to chips and solar cells.

How China responds to this tariff is yet to be seen, however, Beijing has imposed tariffs on imports from the EU in the past. China is the world’s largest agricultural importer and currently imports approximately $23.5 billion worth of goods from Canada across petroleum, rapeseed, iron ore, and non-monetary gold.

President Joe Biden announced in May that the US would quadruple tariffs on Chinese EVs to 100%, as well as impose higher duties on goods such as semiconductors, solar cells, and steel, also to combat Chinese overproduction. Those measures have been delayed until September and some expect to see them softened this week.

(Sources: reuters.com)