Canada’s EV Tariffs: Protecting a Phantom Industry at a Real Cost

By Denis Koshelev

Canada implemented a comprehensive 100% surtax on Chinese-made electric vehicles effective October 1, 2024, alongside a 25% tariff on Chinese steel and aluminum products. This measure applies in addition to the existing Most-Favoured Nation import tariff of 6.1% on Chinese EVs [1]. The Canadian government justified these tariffs by citing China’s “pervasive use of non-market policies and practices,” including extensive subsidization, insufficient labour and environmental standards, and artificial cost reductions that create unfair competition. However, a closer look reveals these tariffs protect a largely non-existent industry, undermine Canada’s climate goals, and invite costly retaliation — suggesting the policy is driven by geopolitical alignment rather than sound economic strategy.

The Official Rationale vs. The Reality

In autumn 2024, Canada mirrored a policy initiated by then-U.S. President Joe Biden, imposing an additional 100 percent surtax on Chinese-manufactured electric vehicles. This decision faces significant criticism, particularly given Canada’s strained relationship with the United States, conflicting climate objectives, and China’s retaliatory tariffs on Canadian canola exports.

“That was a dumb policy, and we … followed suit by demonstrating our allegiance [to the U.S.]. The ground has shifted … making it an even dumber policy,” thinks Jessica Green, political science professor at the University of Toronto. [7]

In contrast, the European Union’s approach to Chinese EV tariffs is more nuanced and company-specific. The EU implemented provisional tariffs in October 2024 following a nine-month anti-subsidy investigation initiated by the European Commission itself. These tariffs vary by manufacturer, with rates such as 17.0% for BYD, 18.8% for Geely, and 35.3% for SAIC, in addition to the standard 10% import duty on all cars. [8]

The Canadian tariffs were designed to protect Canada’s substantial investment in domestic EV manufacturing, with over $46 billion in foreign direct investment announced across thirteen projects from October 2020 to April 2024 [2].

According to the Department of Finance, Canada’s auto manufacturing industry directly supports over 125,000 jobs, many of which are unionized, while the steel and aluminum sectors support an additional 130,000 jobs [3]. However, these figures include the entire automotive sector, not specifically EV manufacturing. The Canadian Vehicle Manufacturers’ Association reports that combined employment across the automotive sector reached 603,500 employees in 2024, with motor vehicle and parts manufacturing directly employing 130,000 Canadians. [12]

The jobs currently being “protected” are primarily in traditional automotive manufacturing and the battery supply chain. Major investments from companies like Volkswagen (St. Thomas battery plant), Northvolt (Montreal gigafactory), and Ford (Bécancour cathode materials facility) are focused on battery production rather than vehicle assembly. These projects represent potential jobs rather than existing employment that would be immediately threatened by Chinese EV imports. [13] Modern EV and automotive plants are overwhelmingly powered by automation and robotics, with human labour contributing a mere 7 percent to a vehicle's total value. [29]

Foreign electric vehicle manufacturers operating in Canada, such as Volkswagen and Stellantis, receive substantial public subsidies funded by Canadian taxpayers to support their investments. These subsidies are non-taxable, meaning the full value goes directly to the companies. While this may make sense as an incentive mechanism, the problem lies in how unevenly these benefits are distributed.

Canadian companies, especially smaller innovators like Electrovaya, do not receive comparable support, yet continue to operate under the full weight of Canadian tax obligations. In effect, our own firms are being asked to compete on an uneven playing field — penalized for being domestic, and for lacking the lobbying power or scale of foreign multinationals.

This policy approach sends a troubling message: that Canada is more willing to invest in attracting foreign giants than in nurturing its own homegrown innovation. Unsurprisingly, firms like Electrovaya are choosing to expand in the United States, where incentives are more accessible and consistent regardless of company origin. [30]

The reality is that Canada’s domestic EV manufacturing industry is largely aspirational rather than operational. While the government has announced billions in investments for future EV production, the current landscape is quite different from what policymakers suggest.

Honda’s highly publicized $15-billion electric vehicle project in Ontario, announced in April 2024, has been postponed for at least two years due to “the recent slowdown of the EV market.” This was supposed to be Canada’s flagship EV manufacturing initiative, promising 1,000 new jobs and production of 240,000 vehicles annually by 2028. [9]

General Motors operates Canada’s only current full-scale EV manufacturing plant, the CAMI assembly facility in Ingersoll, Ontario, which produces BrightDrop electric delivery vans. [10] However, GM has also delayed EV parts production at its St. Catharines, Ontario plant, citing the need to “build to demand” rather than follow original timelines [11]. Even this existing production is focused on commercial vehicles rather than the passenger cars that Chinese manufacturers would primarily target.

The Arrow, an innovative all-Canadian electric vehicle, has garnered attention through various development stages. This ambitious project, currently in its prototype phase, was initiated by Flavio Volpe, President of Canada’s Automotive Parts Manufacturers Association (APMA). According to APMA projections, a compact SUV version of the Arrow could enter production at a Canadian facility by 2029, with an estimated retail price of $35,000.

“The technologies being delivered by our member companies are going to drive down the cost of vehicles. If we are going to compete with the Chinese, we have to invest in these product innovations and also in the process and technologies to manufacture these EVs,” said Flavio. [25]

The "Threat" and The Consumer Impact

The tariffs are to serve as a critical shield for Canada’s nascent EV industry, which has attracted sizeable investment commitments from global automakers. Honda’s $15-billion investment in four Ontario plants represents the largest automotive investment in Canadian history. [4] Volkswagen committed $7 billion for an EV battery plant in St. Thomas, Ontario, promising 3,000 direct jobs by 2027. Without tariff protection, these investments face what industry experts describe as an ’existential threat’ from artificially cheap Chinese imports — a threat to projects that, as recent production postponements show, are already on fragile ground. [5]

Chinese electric vehicles have consistently demonstrated their capacity for rapid market dominance when given unrestricted access. In Canada, for instance, the market share for Chinese-made EVs surged from a mere 2% in 2022 to an impressive 11.3% in 2023. This includes a commanding 25.9% of the fully electric vehicle segment. [1] This striking growth trajectory mirrors trends observed in European markets, where Chinese EVs escalated from just 1% of the market in 2019 to over 50% by 2023. Unlike Canada, the EU tariffs apply only to EVs and are not extended to intermediate inputs or materials in the supply chain [6].

The tariffs have significant implications for Canadian consumers. Chinese-made EVs, such as BYD’s Seagull model priced at approximately CAD 14,600 [16], represent dramatically cheaper alternatives to current Canadian options, which start at roughly CAD 40,000. [17] The 100% tariff effectively doubles the price of any Chinese EV, making them uncompetitive regardless of their underlying value proposition.

In relation to quality, most Chinese EVs are already comparable to their Western counterparts, and in many ways surpass them. Chinese EVs often use lithium iron phosphate (LFP) batteries, which are safer and less prone to fires than traditional lithium-ion batteries used by many Western automakers.

Canadian EV sales have been volatile, reaching 15.4% of all new vehicle registrations in 2024 but dropping sharply in early 2025 following the end of federal rebate programs. [18] [19] ZEV market share fell from 18.9% in Q4 2024 to just 9.7% in Q1 2025 [20]. This suggests that Canadian consumers are highly price-sensitive in the EV market, making the exclusion of lower-cost Chinese options particularly significant.

The High Cost of Tariffs

Canada’s Electric Vehicle Availability Standard requires that 100% of new light-duty vehicle sales be zero-emission by 2035, with interim targets of 20% by 2026 and 60% by 2030. [23] This mandate creates a fundamental contradiction with the Chinese EV tariffs. The government is simultaneously requiring Canadians to buy electric vehicles while artificially inflating the prices of some of the most affordable EVs available globally.

The mandate applies to all new passenger cars, SUVs, and light trucks, with plug-in hybrids with at least 80 kilometres of all-electric range counting toward the targets. [24] However, without access to lower-cost Chinese EVs, meeting these ambitious targets becomes more challenging and expensive for Canadian consumers. Canadian electric vehicle proponents contend that unrestricted access for Chinese EVs would dramatically accelerate adoption, thereby making the government’s ambitious 2035 mandate, requiring all new vehicle sales to be electric, a more achievable target.

China has responded predictably to Canada’s EV tariffs with retaliatory measures. In March 2025, China imposed 100% tariffs on Canadian canola oil, oil cakes, and pea imports, along with 25% duties on Canadian seafood and pork [21]. This retaliation targets actual, substantial Canadian export industries rather than the largely theoretical EV manufacturing sector Canada claims to be protecting.

The canola industry alone represents billions in exports to China, with China being the second-largest market for Canadian canola exports. The asymmetry is stark: Canada is protecting a mostly non-existent industry while jeopardizing established agricultural export relationships worth billions of dollars annually. [22]

BYD has registered lobbyists in Canada to engage with the government about its market entry and the impact of tariffs on its vehicles. BYD’s lobbyists aim to advise the government on matters related to the company’s anticipated entry into Canada and the application of tariffs on EVs. That tells us the company still hopes to enter the market, even despite the tariffs. [28]

Historic Parallels: Korean Cars in the 1980s and 1990s

In 1987, Canada imposed a 36% duty on Hyundai cars following a preliminary investigation that found they were being "dumped" or sold at unfairly low prices. [14] This was in response to complaints from General Motors of Canada and Ford Motor Company of Canada. Hyundai entered the Canadian market in 1983, before the tariff was imposed, and found a niche by offering affordable, well-built cars in a market segment largely abandoned by other manufacturers. [27]

By 2014, Canada and South Korea concluded a free trade agreement that phased out Canada’s 6.1% tariff on South Korean vehicles over three years [15]. Korean manufacturers like Hyundai and Kia were allowed to establish themselves in the Canadian market, and their vehicles improved in quality over time, while prices naturally increased to reflect this improvement.

Conclusion

Canada is implementing tariffs to protect a domestic electric vehicle industry that largely does not exist, while undermining its own environmental goals and consumer affordability objectives. The policy appears driven more by geopolitical alignment with the United States than by rational economic strategy.

If the goal is genuinely geopolitical — to limit Chinese technological influence or maintain trade solidarity with America — then the government should be transparent about these motivations rather than claiming to protect Canadian jobs and industry. The Korean precedent demonstrates that allowing foreign manufacturers to enter the market can ultimately benefit consumers through improved products and competitive pricing, while domestic industries adapt and develop their own competitive advantages over time.

The current approach risks the worst of both outcomes: higher prices for Canadian consumers, retaliation against Canadian exporters, and delayed achievement of environmental objectives, all while providing little actual protection to Canadian manufacturing jobs that don’t yet exist at scale.

Additional Insights from Lark Scientific’s Founder & Executive Director, Axel Doerwald

Perhaps we could propose a potential middle ground, such as taking the European approach and being more selective about how we implement the tariffs against Chinese imports. The European approach appears less heavy-handed than our 100% tariff. A more nuanced approach provides Canadians with more options and alternatives, while still supporting the industry, which requires government subsidies anyway.

It is unfair for Canadian consumers to be punished by having to pay more for EVs because of government tariff policy, and at the same time, be forced to buy EVs because of the looming 2035 deadline.