Canada's tax blow on EVs will only hurt its own interests

In a move that mirrors the actions of its southern neighbor, Canada recently imposed 100 percent tariff on Chinese-made electric vehicles. While the step aims to shield Canada's domestic industry from what is perceived as unfair competition, a closer look reveals that such protectionist policies could backfire.

As with the tariffs imposed by the United States, Canada's new policy might seem like a strong stance against Chinese market practices, but in reality, it could stifle competition, inhibit innovation and make sustainable transportation less accessible for Canadians.

Protectionist measures, such as these tariffs, have historically proven to be counterproductive. Instead of bolstering domestic industries, they often lead to higher prices for consumers and less incentive for local manufacturers to innovate and improve.

In Latin America during the 1960s and 1970s, these measures led to an influx of outdated models and a significant drop in investment. The result was a stagnation that left consumers with fewer choices and poor quality products.

A case in point is the Ford Falcon manufactured in Argentina between 1962 and 1991. Argentines bought brand-new, locally produced Falcons decades after they had gone out of production elsewhere. Protectionism had originally forced Ford to build a new local factory but there was no incentive for the company to bring in newer models or technology. Rather the incentive was to sell as many cars as possible from the same factory.

North American consumers have, for decades, reaped the benefits of China's ability to manufacture high-quality goods efficiently and affordably. Chinese manufacturers have been able to provide products at a fraction of the cost of goods made elsewhere. This translated into a higher quality of life for North American consumers, who could buy anything from household appliances to electronics while keeping more money in their pockets.

This affordability is particularly crucial for EVs, which are notoriously expensive in North America, with prices far above those of equivalent gas-powered vehicles.

The cheapest EV available in Canada, the Chevrolet Bolt EV LT, costs around C$38,943 ($28,925).In contrast, EVs in China can sell for much less, demonstrating the potential for significant savings for consumers.

The argument for imposing these tariffs hinges on protecting Canadian jobs and industries. Deputy Prime Minister Chrystia Freeland voiced concerns over unsubstantiated claims of China's policy of overcapacity, which she argues could cripple the Canadian EV sector.

Even if protection of domestic industries is a valid concern, these measures are more likely to shield existing manufacturers from competition, rather than encourage them to innovate and find more cost-effective ways to produce EVs.

As it stands, Chinese EVs, which have proven to be popular in markets like Latin America — where they account for about 20 percent of the market — are cheaper and of comparable quality to their North American counterparts. This affordability and quality have been pivotal in making EVs more accessible to a broader range of consumers, an outcome that these tariffs will undermine.

Furthermore, the environmental implications of such tariffs cannot be ignored.

At current EV prices, it can take several years for buyers to realize any cost savings compared to traditional gas-powered cars. With EVs remaining a high-cost option, many consumers will continue to opt for gas guzzlers, delaying the transition to more environmentally friendly vehicles.

This tariff strategy extends beyond just EVs. Canada is also looking to impose a 25 percent tariff on some Chinese steel and aluminum products, further intensifying trade tensions between the two nations.

China has already criticized these moves, arguing that they violate World Trade Organization rules and could harm global trade.

With high-profile Chinese EV makers like BYD expressing interest in entering the Canadian market and Tesla's Shanghai-made cars already a part of the Canadian landscape, these tariffs may not only limit consumer choice but could also lead to retaliatory measures that further strain trade relations.

This is already at play. On Sept 3, China announced plans to launch an anti-dumping investigation into imports of canola from Canada.

The Canadian government's intent to protect domestic industries is understandable, but imposing a 100 percent tariff on Chinese EVs is likely to do more harm than good. By stifling competition and protecting more expensive existing offerings, these tariffs will ultimately hurt Canadian consumers, who will face higher prices and fewer choices.

And, by making EVs less accessible, Canada risks slowing down its progress toward environmental sustainability.

Rather than resorting to protectionist measures, Canada should focus on fostering innovation and competitiveness within its EV sector, ensuring that it can thrive on a global scale without relying on punitive tariffs. Only then can Canadians enjoy the full benefits of a dynamic, competitive and environmentally sustainable automotive market.

The author is managing director of Bahati, an editorial services agency based in Hong Kong.