Canada has announced the introduction of a 100 percent tariff on imports of Chinese electric vehicles (EVs), alongside a 25 percent tariff on imported steel and aluminum from China, following in the footsteps of the United States. Prime Minister Justin Trudeau made the announcement at a press conference in Halifax, Nova Scotia, emphasizing the need to address what he described as China’s deliberate, state-directed policy of overcapacity.

The tariffs are set to take effect on October 1, but Trudeau did not specify whether the tariffs would be eased for Tesla, which has seen its stock drop by more than 3 percent following the announcement. “We all know that China does not play by the same rules,” he told reporters.

Overcapacity refers to an industrial capacity in a sector where a low rate indicates excess production. Chinese EV manufacturers have been accused of using state subsidies to produce cars at lower prices, thereby flooding foreign markets and harming brands in other countries.

Trudeau confirmed that Ottawa will continue to collaborate with the United States and other allies to ensure that consumers worldwide are not unfairly penalized by non-market practices from countries like China. Additional punitive measures, such as tariffs on chips and solar modules, are also under consideration, although further details were not disclosed.

In May, President Joe Biden announced that the U.S. would quadruple tariffs on Chinese electric vehicles to 100 percent, and double tariffs on semiconductors and solar panels to 50 percent. The European Union has also imposed tariffs of up to 36.3 percent on imports of Chinese-made electric vehicles this month.

Canada aims to position itself as a key player in the global EV supply chain, and Trudeau pointed out that the Canadian and American automotive industries are fully integrated, making it logical for Canada to work in tandem with the U.S. on these tariffs.

Data from Canada’s largest port, Vancouver, indicates that imports of vehicles from China have increased by 460 percent annually in 2023, following Tesla’s decision to ship Shanghai-produced electric vehicles to Canada. Although Tesla does not disclose its Chinese export numbers to Canada, vehicle identification codes revealed that the Model 3 and Model Y were exported from Tesla’s Shanghai Gigafactory.

Analyst Seth Goldstein predicts that in response to the tariffs, Tesla may adjust its logistics and potentially export cars to Canada from the U.S., which could negatively impact the company’s profitability. It is also noteworthy that the EU has instituted a new, reduced additional tariff of 9 percent for Tesla, which is lower than the 36.3 percent that applies to other Chinese EV imports.

Canada has formed multi-billion dollar agreements to attract top European automakers throughout the entire EV supply chain in an effort to bolster its manufacturing sector. “We feel validated and motivated. Let’s now get to work defending our market with the best Canadian innovation and determination,” said Flavio Volpe, President of the Automotive Parts Manufacturers’ Association.

The implementation of the U.S. tariffs has been postponed until September, and there is a possibility that the planned tariff rates may be eased this week.