Will new trade policies disrupt clean energy efforts, or could they create unexpected opportunities?
The ongoing trade tensions between the United States and Canada are introducing new challenges for industries involved in decarbonization, particularly electric vehicles (EVs), aluminum, steel, and power grid equipment.
While tariffs are already in place on steel and aluminum, additional trade restrictions could disrupt supply chains that are key to electrification efforts, according to BNN Bloomberg.
The US has imposed a 25% tariff on Canadian steel and a 10% tariff on aluminum, prompting Canada to respond with reciprocal measures. More tariffs are expected on April 2, but US officials recently indicated that auto sector tariffs, initially set to take effect on that date, may be introduced at a later stage.
The uncertainty surrounding these potential trade barriers raises concerns for manufacturers and policymakers in both countries.
Impact on Auto Industry and EVs
Canada exported C$78.8 billion ($54.8 billion) worth of automobiles and auto parts to the US in 2024, while importing C$81.92 billion in return. With supply chains deeply integrated, new tariffs could lead to significant cost increases.
According to BNN Bloomberg, internal combustion engine (ICE) vehicles may experience steeper price hikes than EVs because they require more cross-border components. This could shift the cost dynamic between traditional gasoline-powered cars and electric models.
The potential removal of the US Inflation Reduction Act’s tax credit—up to $7,500 for North American-made EVs—could impact EV adoption. At the same time, Canada has introduced a 100% tariff on Chinese EVs, aligning with a similar US measure, which could influence competition in the North American market.
Canada’s EV and Battery Production Strategy
Canada has sought to expand its EV and battery manufacturing industry, supported by its supply of critical minerals and clean electricity.
Automakers, including Ford, Stellantis, General Motors, Volkswagen, Honda, and Northvolt, have made investments in Ontario and Quebec, though some projects have faced delays or modifications.
Andrew McKinnon, director of policy for Accelerate, an organization representing Canadian EV supply chain companies, said that ICE vehicle production remains necessary to sustain the industry’s transition to EVs.
Trade Barriers and Clean Energy Supply Chains
Ollie Sheldrick-Moyle of Clean Energy Canada told BNN Bloomberg that Canada could respond to trade restrictions by increasing domestic mining and refining of critical minerals, removing interprovincial trade barriers, and expanding trade partnerships beyond the US.
If US tariffs limit Canadian exports of power transformers and grid equipment, there could be a shift toward greater domestic electrification. Some clean-tech investment that might have gone to the US could instead seek opportunities in Canada.
Aluminum and Steel in Trade Disputes
The trade conflict extends beyond automobiles. Canada supplies nearly 90% of US aluminum imports and has developed lower-carbon production methods, largely due to hydroelectric power.
The steel industry has also seen investment in lower-emission technology, supported by Canada’s access to high-grade iron ore.
Tariffs on aluminum and steel could increase costs for clean technology production in the US and potentially lead to higher emissions if manufacturers turn to suppliers with more carbon-intensive operations.
According to BNN Bloomberg, wind turbine and EV manufacturers have been hesitant to pay premiums for sustainable materials, but shifting trade relationships could influence sourcing decisions.
Future Trade and Policy Considerations
The European Union’s carbon border adjustment mechanism will impose domestic carbon pricing on imported goods starting next year.
The United Kingdom plans to implement a similar policy in 2027, which could impact Canada’s role in global trade.
Rick Smith, president of the Canadian Climate Institute, told BNN Bloomberg that despite current trade disputes, the long-term global push for decarbonization remains unchanged.
Prime Minister Mark Carney has said Canada will introduce its own carbon border adjustment mechanism, which may shape future trade relations with the US.
As Canada and the US navigate evolving trade policies, the decisions made in the coming months will influence industrial strategies and clean energy initiatives in both countries.
