Canada, following the lead of the United States, says it will impose a 100 percent tariff on Chinese electric vehicle (EV) imports and also announces a 25 percent tariff on imported steel and aluminum from China.

On Monday, Prime Minister Justin Trudeau said Ottawa was acting to counter what he called China’s intentional, state-directed policy of overcapacity. But he did not specify whether tariffs would be softened or would be the same on US-based Tesla, whose shares were down more than 3 percent on Monday after the announcement.

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“I think we all know that China is not playing by the same rules,” he told reporters. The tariffs will be imposed starting October 1.

“What is important about this is we’re doing it in alignment and in parallel with other economies around the world,” Trudeau said on the sidelines of a three-day, closed-door cabinet meeting in Halifax, Nova Scotia.

The Chinese embassy in Ottawa was not immediately available for comment.

Overcapacity refers to the rate of industrial capacity in a sector – a lower rate implies surplus production. Chinese EV makers have been accused of using government subsidies to build cars cheaply to flood overseas markets, hurting brands of those countries.

Trudeau said Ottawa will continue to work with the US and other allies to ensure that customers around the world are not unfairly penalised by nonmarket practices of countries such as China.

Ottawa is also looking at further punitive measures, such as tariffs on chips and solar cells, Trudeau said without giving any details.

US President Joe Biden in May announced a quadrupling of tariffs on Chinese electric vehicles to 100 percent, a doubling of duties on semiconductors and solar cells to 50 percent, and new 25 percent tariffs on lithium-ion batteries and other strategic goods, including steel, to shield firms from excess Chinese production.

The European Union this month imposed tariffs of up to 36.3 percent on imports of Chinese-made EVs.

Ottawa is trying to position Canada as a critical part of the global EV supply chain and had come under pressure from domestic industry to act against China.

“The Canadian and US auto sectors are fully integrated, and it makes sense for Canada to be fully aligned and in lockstep with the US on these tariffs,” Vina Nadjibulla, vice president of research and strategy at the Asia Pacific Foundation of Canada, told Al Jazeera. “This is consistent with Canada’s economic and national security agenda. … The question mark right now is how China will react.”

China-made Teslas

China is Canada’s second largest trading partner although it trails far behind the US. Data from Canada’s largest port in Vancouver show imports of automobiles from China jumped 460 percent annually in 2023 when Tesla started shipping Shanghai-made EVs to Canada.

Tesla does not disclose its Chinese exports to Canada, which began in the first half of 2023. However, vehicle identification codes showed that the Model 3 compact sedan and Model Y crossover models were being exported from its Shanghai Gigafactory to Canada.

“In response to the tariffs, I would expect Tesla would shift its logistics and potentially export autos to Canada from the US,” Seth Goldstein, equity strategist at Morningstar, said.

“The market is likely reacting to the tariffs and weighing a potential profit impact if Tesla has to export vehicles to Canada from its higher-cost production base in the US,” Goldstein said referring to the drop in shares.

The EU imposed a new reduced extra rate tariff of 9 percent for Tesla, lower than the 36.3 percent it had imposed on other Chinese EV imports.

Canada has inked deals worth billions of dollars to bring in top European automakers in all parts of the EV supply chain to bolster its manufacturing heartland.

“We feel vindicated and motivated. Let’s now get to the business of defending our market with the best of Canadian innovation and resolve,” Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said via email.

Implementation of the US tariffs has been delayed until September, and there is a possibility that planned duties might be softened this week.