On July 2, the Canadian government initiated a 30-day consultation on potential imposition of tariffs and others measures on Chinese electric vehicles (“EVs”). The Canadian side argued that “Canadian auto workers and the auto sector currently face unfair competition from China's overcapacity”, which is “undermining the ability of Canada's EV sector to compete in domestic and global markets”. Therefore, actions should be taken to “defend Canada’s national interest”.

However, there is no so called “overcapacity” in China’s EV industry. The abuse of protectionist measures on China's EVs imports will not only limit the development of Canada's auto industry, negatively impact the welfare of Canadian people, but also hinder Canada’s effort on green transition, which is not in line with Canada's national interest.

—On the “overcapacity” in China’s EV Industry. According to the logic of market economy, the “overcapacity” theory is a false proposition. It is well known that countries should produce and export products with comparative advantage. Nowadays, nearly 80 percent of the cars produced in Germany, 50 percent in Japan, and 25 percent in the United States are exported to foreign markets. However, only 12.7 percent of new energy vehicles(“NEV”s) produced in China are exported, accounting for only 8 percent of global sales. Chinese EVs are priced higher overseas compared to those in the domestic market. Therefore, the “dumping” practice does not exist. Under this circumstance, to criticize China for the so-called "overcapacity" is typically holding double standards.

For China, at present and in the near future, Chinese EVs mainly serve the domestic market. In 2023, domestic sales of NEVs in China accounted for 87.3% of the total. China’s National Development and Reform Commission predicts that the domestic demand for NEVs is likely to maintain fast growth. According to a Bloomberg analysis, overcapacity might result in the scenario that vast parking lots filled with unsold cars, but Chinese automakers' inventories don't look high. Therefore, one cannot draw the conclusion that there is overcapacity in China. 

The global supply of the current EV production is “under capacity” rather than “overcapacity”. In 2023, 14.65 million NEVs were sold globally, an increase of 35.4% year-on-year. But the average market penetration rate in major countries was only 16%. According to IEA’s estimation, global sales of NEVs will reach 45 million in 2030, more than three times that of 2023. That indicates global demand for EVs will continue to grow rapidly over the next decade.

—On the development of Canada’s EV industry. Economists maintain that a country can utilize the “catfish effect” to stimulate the growth of its industries by introducing strong competitors. The Canadian government's current concerns about the competition of China’s EVs are not new. Over 20 years ago when China was applying for WTO membership, some people in China also worried that given China's less competitive auto industry, a huge number of imported foreign cars would flood into China and devastate China’s domestic auto industry after China joining the WTO. However, as a supporter of globalization, China chose to embrace the challenge and stays open to the outside world. While many multinational automakers came to China to build factories in order to gain the market share and profit, Chinese car companies turned pressure into motivation, vigorously promoting independent technology innovation and promptly catching up with their foreign peers. Finally, China has gained a firm foothold in the booming EV industry. 

Similarly, the entry of Chinese EVs into Canada will bring not only competition but also leading technology, design and valuable experience in supply chain management, which will serve as catalyst for the rapid growth of Canada’s EV industry. Furthermore, China welcomes Canadian EV  manufactures to share its super large market of tens of million EVs.

Will high tariffs and trade barriers really protect Canada’s EV industry? As an important pillar of the Canadian economy, Canada’s auto industry is at a juncture of transformation and upgrading. In recent years, the Canadian government has been vigorously supporting the EV industry, while it prefers to hide its EV industry under the umbrella to avoid competition with market leaders. Bloomberg columnist David Fickling has pointed out that like birds on isolated islands, automakers are evolving to suit an oddly congenial environment — one where they can grow big and bloated in the absence of competition from rivals. Gradually, they’ll lose the ability to fly.

As a typical trading nation, Canada has been fully committed to the multilateral regime and free trade principles. Protectionist policies against Chinese EVs run counter to Canada's long-held trade philosophy. It is hoped that the Canadian government will keep its original commitment and take a long-term view to create a healthy and vibrant environment for its EV industry.

—On the interests of the Canadian people. Chinese EVs have been well recognized in the global market with their advanced technology, high quality and competitive pricing. The BYD ATTO 3 has been awarded "Electric Car of the Year" by News UK. The GWM HAVAL H6 PHEV has won the "Best Hybrid Vehicle" award in Brazil. Nearly half of the Spanish respondents consider buying a Chinese car as their next car. The organizer of the Canadian International AutoShow has warmly invited Chinese EV manufacturers to participate in the AutoShow to bring more affordable and quality choices to the Canadian EV consumers. 

Excluding Chinese EV’s from the Canadian market will hurt Canadian consumers’ interests. A study on US trade protection in the textile industry during the 1980s and 1990s found that trade protection seems to generate transfer income for enterprises and tariff revenue for governments, but the welfare loss to consumers is much greater than the sum of the two. Trade protection also undermines improvements of products and services, the consequences of which ultimately fall on consumers. To slam the door on quality and affordable Chinese EVs will greatly drive up the cost of EV purchases, fuel inflationary pressure and lower the quality of life for Canadians.

Restrictions on Chinese EVs will also affect Canada’s employment. In the 1990s, American economists Hufbauer and Elliott studied the impact on employment of US trade protectionist policy. It turned out that in industries like sugar and synthetic resins, the annual cost to save one job is close to US$600,000, an amount that could instead be used to create a dozen jobs in other fields. An analysis by the Peterson Institute for International Economics in 2018 showed that the US tariffs on imported cars would cost 195,000 jobs, and 624,000 jobs would be reduced if retaliated by other countries. Canada’s unfair trading measures against China's EV industry will result in higher job cost in related industries and subsequently decrease investment in other fields. Any trade retaliation will trigger widespread job losses in Canada.

—On Canada's green transition agenda. As a strong advocate of the global green transition, Canada has committed to achieve net zero greenhouse gas emissions by 2050, which requires extensive international cooperation. The automotive sector accounts for approximately 10 percent of global emissions, highlighting the significant role of Chinese EVs in the global green agenda. Domestic data shows that emissions of Chinese EVs are more than 40% lower than those of gas-powered vehicles. China is also leading the way in EV battery recycling technology. For instance, The Chinese company CATL can recycle 99.6% of nickel and cobalt, and 91% of lithium in its batteries. This showcases an excellent Chinese solution for the world to further decrease pollution in the entire automotive industry.

In order to achieve green transition, the Canadian government set a mandatory target that all new light-duty cars and passenger trucks sales be zero-emissions by 2035. However, in 2023 the zero-emission vehicles only accounted for 11.7 percent of new vehicle registrations in Canada. According to Clean Energy Canada, “Excluding the world’s largest manufacturing hub from our auto market at such a crucial moment in the energy transition is not something that should be taken lightly.” Bloomberg also commented, “If climate change is an existential risk, surging output of good, cheap Chinese EVs is a good thing.” Canada has long boasted of being a pioneer in global green transition. Rejecting Chinese EVs would make Canadians question about its government’s determination to green transformation and undermine the public’s effort to combat climate change.

Since the establishment of diplomatic ties, China-Canada economic and trade relations have been developing steadily, which reflects the strong complementarity of the two economies, the common aspiration of the two peoples and the fundamental interests of both countries. It is hoped that the Canadian side will respect basic economic principles and multilateral trade rules, view the EV issue in an objective manner, be open to dialogue and cooperation based on mutual respect and common interest. China will pay close attention to the follow-up moves of the Canadian side and safeguard the legitimate rights and interests of Chinese companies.