Taxing Chinese EVs should be straightforward. Batteries? Not so simple.

Canada’s battery and critical minerals businesses are on tenterhooks as the federal government consults on imposing tariffs on imports of Chinese batteries and battery parts, semiconductors, solar and critical minerals. 

The consultations started last week and end Oct. 10. Some companies say the domestic battery industry may need such tariffs to overcome unfair competition from China. Canada has addressed this so far by imposing a blanket, 100 per cent tariff on Chinese EV imports. While that may make it harder for new entrants to win a share of the Canadian market, it affects relatively few vehicles on the market today, apart from some made-in-China Teslas that will need to be shipped from elsewhere. 

But analysts say the already globalized mining industry could be harder to untangle from China, which not only mines 80 per cent of natural graphite and 60 per cent of magnet rare earths, but also refines 99 per cent of battery-grade graphite, over 80 per cent of magnet rare earths and 70 per cent of cobalt, according to the International Energy Agency.

That means carve-outs and exceptions to any new tariffs will be “inevitable,” said Frik Els, who works for Toronto-based critical minerals consulting firm Adamas Intelligence.

“You can set up a mine in Canada if you want, but where do you send [the minerals] to process? For the foreseeable future that’s going to be China,” said Els, giving the example of a rare-earths mine. 

“The industry is just happy that government has woken up to this … at least there is a government realization that they have to get involved in these alternative supply chains or sourcing.” 

Iola Hughes, head of research at U.K.-based energy consulting firm Rho Motion, said Canada is likely to follow in the footsteps of the U.S., whose protectionist measures many Canadian companies have applauded.

But Hughes noted the U.S. did see some “backlash” because certain parts of the supply chain were not yet ready to produce at the volume necessary to replace China. The U.S. has since fiddled with special rules for tricky supply chains like graphite, and has limited tax incentives for companies in other countries, like nickel mines in Indonesia, with significant Chinese ownership.  

Despite the challenges in scaling up, Canadian battery materials startup Nano One is up to the challenge and open to potential tariffs as a tool to get there. COO Alex Holmes said that Nano One’s Chinese rivals sell their product below cost, thanks to subsidies and price offsets elsewhere in their supply chain. It can be hard to compete with their unfairly low prices, Holmes said.

Still, Dentons Canada international trade lawyer Sean Stephenson said Canada should also look carefully at non-tariff tools, like duty investigations, as he has already heard from companies, who cannot find replacements for Chinese parts, affected by the recent steel and aluminum tariffs. 

“It’s absolutely critical that the government listens and listens carefully,” Stephenson said. “We are moving here at light speed.” 

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