With the "tariff stick" again, the U.S. and Canada markets only account for 2.4%

2024-08-05

Following the United States, another country is considering imposing an additional 100% tariff on Chinese-made electric vehicles.

The Canadian government announced on August 26th its intention to levy an additional 100% duty on all electric vehicles manufactured in China starting from October 1st of this year. This includes electric and some hybrid passenger cars, trucks, buses, and commercial passenger vehicles. The 100% additional duty will be imposed on top of the current 6.1% tariff that Canada already imposes on electric vehicles from China.

Canadian Deputy Prime Minister and Finance Minister Chrystia Freeland stated that the background for this additional tariff is Canada's capability to produce electric vehicles but is facing competition from Chinese electric vehicles. She claimed that the Chinese government's industrial support policies "harmed Canada's competitiveness," and the additional tariff on Chinese electric vehicles is to protect domestic workers.

Previously, on May 14th, the White House website released information stating that by 2024, the tariff on Chinese electric vehicles exported to the United States would be increased from 25% to 100%. The White House's reasoning was almost identical to Canada's, stating that the increased tariff would help protect American manufacturers from adverse effects from China.

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In recent years, as China's automobile exports, especially new energy vehicles, have been booming, the "Chinese electric vehicle threat theory" has begun to spread. Data from the General Administration of Customs shows that in 2023, China's automobile exports crossed two million-level thresholds (from 3 million to 5 million), ranking first in the world for the first time, reaching 5.221 million vehicles. From January to July of this year, the cumulative automobile export volume reached 3.48 million vehicles.

According to data published by Cui Dongshu, Secretary-General of the China Passenger Car Association, in the first seven months of this year, China's cumulative export volume of new energy vehicles reached 1.17 million vehicles, a year-on-year increase of 25%; however, among them, the number of new energy vehicles exported from China to the US and Canada market was only 28,000, a year-on-year decrease of 10%, accounting for only 2.4% of the total export volume of new energy vehicles.

In July of this year, the number of pure electric passenger cars exported from China to Canada was 4,927, a decrease of 1,951 compared to the 6,878 vehicles in the same period last year. It is worth noting that at the same time, the number of pure electric passenger cars exported from China to Mexico has been increasing significantly, with the figure for July of this year being 6,809, an increase of 5,393 compared to the same period last year, ranking among the top 5 destinations for China's pure electric passenger car exports.

In the past few years, South America has been considered by Chinese car manufacturers as a stepping stone to enter the North American market, with companies like Chery and BYD already having a presence in South America. Data shows that although Mexico did not rank among the top five countries for China's new energy vehicle exports in the first seven months of this year, it ranked second in terms of export growth, with an increase of nearly 43,000 vehicles compared to the same period last year.

Earlier this year, Ford CEO Jim Farley stated, "25% of all cars sold in Mexico come from China. The world is changing."

In January, during Tesla's earnings call, Tesla CEO Elon Musk also stated that Chinese car manufacturers are the most competitive in the world and will achieve great success abroad. "Frankly, without trade barriers, they would almost wipe out most other car companies in the world."Apart from Mexico, another major country in South America, Brazil, has also become a popular export destination for Chinese automakers. In the first seven months of this year, China exported as many as 134,500 new energy vehicles to Brazil, an increase of 114,000 compared to the same period last year, making Brazil the largest contributor to the increase in China's new energy vehicle exports this year.

However, it is worth noting that the United States has called on Canada and Mexico in North America, as well as the Group of Seven (G7), to align with the United States to prevent the circumvention of imports of Chinese products, among other things.

According to Mexican media reports, under current policies, starting from October 1, 2024, Mexico will no longer enjoy a tariff exemption of 15% to 20% on the import of light electric vehicles from countries with which it has not signed a free trade agreement. China has not yet signed a free trade agreement with Mexico.

Today, in response to Canada's proposed imposition of additional tariffs, Foreign Ministry spokesperson Lin Jian stated that Canada's move disregards objective facts, ignores World Trade Organization rules, and goes against the historical trend. It is a typical protectionist approach. It not only undermines the economic and trade relations between China and Canada, harms the interests of Canadian businesses and consumers, but also does not contribute to Canada's green transition process and global efforts to combat climate change. China strongly and resolutely opposes this.

Lin Jian pointed out that subsidies cannot create industrial competitiveness; protectionism protects backwardness and loses the future. China's electric vehicle industry has developed rapidly due to continuous technological innovation, a well-established supply chain system, and sufficient market competition. This is the result of the joint effect of comparative advantage and market laws.

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