In a move that mirrors the United States' trade actions, Canada has announced plans to impose significant tariffs on Chinese electric vehicle (EV) imports and imported steel and aluminum. Prime Minister Justin Trudeau cited China's state-directed policy of overcapacity as the main reason behind the decision, stating that China does not adhere to the same rules as other countries.

These tariffs, set to take effect on October 1, aim to address concerns over Chinese EV manufacturers flooding overseas markets with cheaply produced vehicles, thanks to government subsidies. The Canadian government asserts that this practice harms domestic automakers and disrupts fair competition.

While Prime Minister Trudeau did not specify the impact on US-based Tesla, whose shares dropped over 3 percent following the announcement, he emphasized the importance of aligning with other economies worldwide. He further stated that Ottawa intends to collaborate with the United States and other allies to safeguard customers from unfair practices employed by countries such as China.

In addition to the current tariffs on Chinese EVs and steel, the Canadian government is considering further punitive measures, including tariffs on chips and solar cells. The aim is to address the issue of excess Chinese production and protect Canada's position as a critical player in the global EV supply chain.

This decision comes on the heels of similar moves by the United States and the European Union. In May, US President Joe Biden increased tariffs on Chinese electric vehicles, semiconductors, solar cells, lithium-ion batteries, and steel. Similarly, the European Union imposed tariffs of up to 36.3 percent on Chinese-made EVs this month.

Canada, being the second-largest trading partner of China after the US, is striving to position itself as an essential part of the global EV supply chain. Imports of automobiles from China have skyrocketed since Tesla began shipping Shanghai-made EVs to Canada in 2023, with a staggering 460 percent annual growth rate. Although Tesla does not disclose its Chinese exports to Canada, it is evident that the Model 3 compact sedan and Model Y crossover models are being exported from its Shanghai Gigafactory to Canada.

Experts predict that in response to the tariffs, Tesla may shift its logistics and potentially export vehicles to Canada from its higher-cost production base in the US. The market has already reacted to the tariffs, causing a decline in Tesla's shares as investors contemplate the potential impact on the automaker's profitability.

While Canada has inked multi-billion dollar deals with top European automakers to strengthen its EV manufacturing sector, the implementation of US tariffs has been delayed until September. There is a possibility that the planned duties might be softened, highlighting the evolving landscape of global trade tensions.

The Chinese embassy in Ottawa has not commented on Canada's decision to impose tariffs. The question remains as to how China will respond to these escalating trade actions, which could have significant implications for the global EV industry.

In the coming weeks, as tariffs take effect and negotiations continue, the Canadian government aims to protect its domestic industries while fostering an environment of fair competition and innovation in the rapidly growing electric vehicle market.