The Unheralded Protection Against Unfair Chinese EV Pricing

From: Lawrence Herman
To: Trade war watchers
Re: The Unheralded Protection Against Unfair Chinese EV Pricing

Donald Trump has threatened Canada with 100-percent, across-the-board tariffs because Canada has agreed to allow 49,000 Chinese EVs to enter at reduced tariffs in return for the removal of duties on canola and other Canadian agrifood products.

This latest eruption is, at worst, another example of Mr. Trump’s erratic trade policy and, at least, as Prime Minister Mark Carney has said, pre-bargaining bluster ahead of the CUSMA review.

For the record, nothing in this deal on Chinese EVs contravenes any agreement we have with the Americans. While the CUSMA provides for advance notice of a party seeking to negotiate an outside free trade agreement with China, simple tariff adjustments, one of Mr. Trump’s defining behaviors, is not that.

What this latest Trump threat reveals, however, is the likely atmosphere in the impending review of the CUSMA.

Whether the agreement itself survives the process is uncertain, but whatever happens, it is difficult to imagine Trump reducing his 25-percent duty on Canadian auto imports. With that being the reality, the concerns of the Canadian auto sector over Chinese EV imports are understandable; every imported Chinese EV meaning one less sale of a Canadian-made vehicle. That means Canadian jobs.

Something to remember, however, is that before Canada imposed 100-percent duties on Chinese EVs in 2024 (to match a Biden administration move), the duty on these imports was only 6.1 percent, a most-favoured-nation (MFN) rate that had been in place for decades.

Assuming for a moment that these autos were exported at non-dumped and un-subsidized prices (a large assumption, as will be discussed), there were no constraints on vehicle imports at that rate.

Notwithstanding industry concerns over return to this low duty, at the end of the day it will be the Canadian consumer who will have the final say.

While quality and price will be critical, much will also depend on whether these vehicles can be easily charged and cost-effectively serviced across the country. So, low duties on 49,000 imports is only part of the story.

The other factor, alluded to above, is that Canadian trade law provides strong protections if these vehicles are unfairly priced and take away sales or force price reductions on Canadian auto makers. Anti-dumping and countervailing (AD/CV) duties, level the playing field by removing any unfair price advantage from Chinese government subsidies or from below-cost, predatory export practices.

And Canadian companies have been remarkably successful over many years in using these laws to combat a variety of unfairly priced Chinese imports, to the point where today almost two-thirds of all of Canada’s AD/CV duty orders are against goods from China. Most cover industrial products like flat-rolled steel and oil and gas pipe, but some address Chinese consumer product exports as well, like upholstered furniture.

These can be used as precedents for a complaint in the EV sector, and nothing in this recent agreement prevents these remedies being invoked. The Carney government needs to make it clear that it cannot and will not limit or curtail these long-established rights for Canadian producers, in full accord with the rules of the World Trade Organization.

Of course, getting these orders is not a slam-dunk for Canadian parties. The process is complicated and costly. Building a case for trade remedy action requires careful preparation, the filing of vast amounts of supporting evidence and spending thousands, if not millions, of dollars on lawyers and other experts to convince Canadian trade agencies that import relief is warranted.

Some experts have said that these kinds of private law remedies, even if sanctioned under the WTO Agreement, are not the best way of curtailing Chinese export subsidization practices. That may be right, but the reality is that these laws are going to remain part of Canada’s trade architecture for the long term.

While it may be conjecture, if a complaint was filed at some point against Chinese EVs, given what is known about that country’s export practices, Chinese auto makers would be forced to prove that their exports follow applicable trade rules and are fairly priced.

The result is that it is far from open season on the Canadian EV market.

Together with convincing Canadian consumers that their cars are worth buying for all the reasons mentioned, Chinese vehicle manufacturers and their Canadian sellers will have to ensure that their autos are neither dumped nor subsidized to avoid the powerful hammer of Canada’s trade relief mechanisms.

While that system is costly and complex, it has been remarkably successful over time and – appreciating that the most serious threats are the US duties – the laws can be used to counter unfair Chinese EV competition, giving some solace to the Canadian auto industry and its workers.

Lawrence Herman, a former Canadian diplomat, is counsel at Herman & Associates and senior fellow of the C.D. Howe Institute.

To send a comment or leave feedback, email us at blog@cdhowe.org. 

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.

A version of this Memo first appeared in Policy Magazine.

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