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Nio (NYSE:NIO), Li Auto (NASDAQ:LI) and XPeng (NYSE:XPEV) stock are in the spotlight following news that the Canadian government is considering levying new tariffs on electric vehicles (EVs) made in China.

According to Bloomberg, Prime Minister Justin Trudeau has faced pressure to enact tariffs on Chinese EVs following similar plans from the U.S. and European Union (EU). Last month, the White House announced that it would increase the tariff on Chinese EVs to 100% from 25% in order to protect domestic manufacturers from lower-priced vehicles.

Earlier this month, the EU also disclosed that tariffs on vehicles shipped from China could rise to as high as 48% beginning on July 4. This followed an investigation on subsidized Chinese EVs. In 2023, Chinese-made EVs accounted for almost 20% of all EU EV sales. That figure is expected to rise to 25% this year.

NIO, LI and XPEV Stocks: Canada Considers Tariffs on China-Made EVs

The good news is that Nio, Li Auto and XPeng currently don’t sell their vehicles in Canada. In addition, the potential tariffs in Canada are aimed to suppress the volume of lower-priced Chinese EVs. All three of these companies sell luxury vehicles at their core.

The bad news is that other governments around the world could take notice of the increased tariff activity for China-made vehicles and follow suit.

Canada, like the U.S. and EU, is worried that Chinese subsidies and production of vehicles and vehicle components will threaten domestic production and demand. Last year, Chinese EV imports to Canada totaled $1.6 billion compared to less than $100 million in 2022.

“China has an intentional, state-directed policy of overcapacity […] Protecting Canadian jobs, manufacturing, and our free trade relationships is essential,” said Katherine Cuplinskas, press secretary for Canada Finance Minister Chrystia Freeland.

The potential tariffs have the support of several Canadian auto industry groups. At the same time, Trudeau is still worried about how China will respond if he decides to follow through with the tariffs.

Another point of contention for Trudeau to consider is the adoption of EVs. Customers will be more inclined to purchase EVs at a lower price point. That could rise if the tariffs are approved.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.