On Oct. 1, Canada will slap 100 percent tariffs on Chinese electric vehicles. Ottawa says it’s doing this to match recent U.S. trade actions. This understates the provocative nature of Canada’s “surtax.”
Prime Minister Justin Trudeau’s government is rolling out a rarely used unilateral tariff and applying it to every type of Chinese EV. Why? It’s more about U.S. politics than Canadian politics.
To be fair, the tariff has political support in Canada. Unifor, the national union, pressed hard for it, and a Nanos Research poll found that 63 percent of Canadians are at least somewhat supportive of the import duty.
But there’s also opposition, including from the Global Automakers of Canada, which represents European companies that export EVs from China to Canada.
Herein lies the problem. Canada’s tariff will mostly hurt Tesla — hence Ottawa’s plea that Tesla import cars to Canada from the U.S. or Germany instead of China. The European Union has the same problem, which is why it lowered its tariff on Tesla to 9 percent, almost a 50 percent discount on the lowest countervailing duty Brussels imposed on Chinese companies earlier this summer.
A unilateral tariff that covers 23 tariff codes (the EU’s countervailing duties only apply to cars and U.S. tariffs exclude trucks and hybrid buses) is over the top for Ottawa.
That’s why it sends a message to the U.S. that Canada is willing and able to close Fortress North America to Chinese trade and investment, which is key if the US-Mexico-Canada Agreement is to be renewed in July 2026.
Trudeau’s government is concerned about the USMCA review. The worry is that the U.S. will push to renegotiate the deal as a precondition for renewing it. Given the consensus in Washington that critical U.S. supply chains should be less dependent on Chinese inputs, Canada needs to demonstrate that it can keep its second-closest trade partner at bay. The EV tariff appears to be exhibit A.
China has always been a factor in USMCA. The deal includes a provision barring Canada and Mexico from signing free trade agreements with “non-market” economies, the target being China.
Likewise, to get exemptions from President Trump’s steel and aluminum tariffs, Canada and Mexico agreed in USMCA side letters to curb Chinese inputs and prevent transshipment. In autos, USMCA’s more stringent rules of origin were meant to re-shore more of the supply chain and keep China out.
To signal its commitment to this cause, Canada has more than stepped up its protectionist game. At the end of August, the Department of Finance announced that, along with its 100 percent tariffs on EV cars, trucks, buses and delivery vans, Canada will also be imposing a new 25 percent tariff on Chinese steel on Oct. 15.
There’s more. Ottawa will hold consultations about additional tariffs on batteries and parts, semiconductors, solar panels and critical minerals, and make products from countries with which it has no free trade deals (read: China) ineligible for its domestic incentives on reducing emissions.
The most interesting part of this story concerns the legal basis for the EV tariff. Canada had options, such as safeguards, antidumping duties and countervailing duties. Going with one of these measures wouldn’t have been provocative.
Canada could have followed the EU’s lead in using countervailing duties, for example. But the EU’s provisional tariffs, announced in July, range from 17.4 percent for China’s BYD Co. to 37.6 percent for China’s SAIC Motor Corp., suggesting Canada wouldn’t have found anything resembling 100 percent subsidy margins.
In fact, it’s doubtful that the 100 percent figure would have been within reach even if antidumping duties were stacked on top of the countervailing duties.
Instead, Canada went with Section 53 of the Customs Tariff, which concerns unfair trade practices of foreign countries that “adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.”
This is unilateralism. It’s un-Canadian and that’s exactly the point: Canada is in on the U.S. vision for Fortress North America. Keep in mind that, when Canada testified as a third party in the EU’s World Trade Organization case challenging Section 301 of the U.S. Trade Act, it insisted that unilateralism “is fundamentally incompatible with the multilateral trading system.”
Experts warned that China would retaliate against Canada, and that Beijing might even sue at the WTO. They were right on both counts.
First, China is threatening to take action against Canadian canola imports, which have increased 170 percent since 2023 and account for almost one-quarter of the country’s farm crop receipts. And canola won’t be the last Canadian agricultural product added to China’s hit list.
Second, China filed last week for WTO consultations with Canada. The complaint says that Canada is denying China most favored-nation treatment and making the tariffs out of whole cloth.
Interestingly, China didn’t raise a claim about the WTO’s prohibition on countries taking retaliatory measures without the WTO’s blessing. Beijing may well be signaling that it, too, can “go unilateral.”
There are reports that National Security Advisor Jake Sullivan nudged Trudeau to put the tariff in place. Would antidumping duties or countervailing duties have sufficed? Will Canadian unilateralism be enough to get the next administration to support USMCA’s renewal? The answers, in all likelihood, are “yes” and “no.”
Here’s the irony: Back in 1989, Ottawa pursued a bilateral trade deal with the U.S. to insulate itself from American unilateralism. Thirty-five years later, USMCA, which is rooted in that very same agreement, is leading Canada to practice unilateralism.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a Global Fellow at the Wilson Center’s Wahba Institute for Strategic Competition.
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Publish date : 2024-09-20 09:00:00
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