The Canadian government announced today that it would impose 100% tariffs on imports of Chinese EVs and 25% tariffs on Chinese steel and aluminum, with a public consultation to take place on imposing tariffs on additional products.
In the announcement, Canada's Department of Finance said that "Canadian auto workers and the auto sector currently face unfair competition from Chinese producers, who benefit from unfair, non-market policies and practices." In this regard, China’s "intentional, state-directed policy of overcapacity and lack of rigorous labour and environmental standards threaten workers and businesses in the EV industry around the world and undermine Canada’s long term economic prosperity." Recent consultations with stakeholders "have confirmed that exceptional measures are required to address this extraordinary threat."
The series of measures announced today was as follows.
First, Canada "intends to implement a 100 per cent surtax on all Chinese-made EVs, effective October 1, 2024." Additional details on this surtax are here. The products covered include "electric and certain hybrid passenger automobiles, trucks, buses, and delivery vans." This surtax will apply in addition to the Most-Favoured Nation import tariff of 6.1 per cent that currently applies to EV imports.
Second, Canada "intends to apply a 25 per cent surtax on imports of steel and aluminum products from China, effective October 15, 2024." More details on this surtax are here and here. This measure "aims to protect Canada’s workers from China’s unfair trade policies and to prevent trade diversion resulting from recent actions taken by Canadian trading partners." An initial list of goods is being released today for public comment, and the final list of goods subject to the surtaxes will be announced by October 1, 2024, with the surtaxes taking effect on October 15, 2024.
Third, Canada "will launch a second 30-day consultation concerning other sectors critical to Canada’s future prosperity, including batteries and battery parts, semiconductors, solar products, and critical minerals," with a consultation notice to be released in the coming days.
And fourth, the federal government will "limit eligibility for the Incentives for Zero-Emission Vehicles (iZEV), the Incentives for Medium and Heavy Duty Zero Emission Vehicles (iMHZEV), and the Zero Emission Vehicle Infrastructure Program (ZEVIP) to products made in countries which have negotiated free trade agreements with Canada."
Canadian Prime Minister Justin Trudeau spoke to reporters about these issues today (a transcript is at the end of this piece). In his remarks, Trudeau said that "we all know that China is not playing by the same rules as other countries, whether it's on environmental standards, whether it's on labor standards and labor practices in general, whether it's on government subsidies and state owned industries."
Trudeau also noted a conversation with U.S. National Security Adviser Jake Sullivan about these issues. Sullivan had visited Canada the day before, and also spoke to Canadian reporters (a transcript is at the end of this piece). He stated that "Canada will make its own determinations, but the US does believe that a united front, a coordinated approach on these issues, benefits all of us."
Canadian Finance Minister Chrystia Freeland also spoke about the tariffs (a transcript is at the end of the piece), and in doing so she explained the main rationale as follows: "China has an intentional, state directed policy of overcapacity and oversupply, designed to cripple our own industries"; and "this Chinese policy of oversupply and overcapacity ... is built on abysmal labor standards, and it is built on abysmal environmental standards."
Canada and China are both parties to the MPIA, which is an alternative to the non-functional Appellate Body in WTO dispute settlement, and a Chinese challenge to these measures at the WTO seems very likely. Canada has not yet offered an explanation of how it thinks the tariffs, which would appear to violate GATT Article I:1 (MFN) and Article II (Canada's tariff commitments), would be justified under WTO law.
During a press conference (link in Chinese) in June, a spokesperson for the Chinese Ministry of Commerce commented on then potential Canadian duties on Chinese EVs by stating that "Canada should respect facts, abide by WTO rules, and create a fair, non-discriminatory and predictable market environment for the common development of China-Canada electric vehicle industry." He also urged Canada "not to practice protectionism in the name of fair competition'," and noted that "China will closely follow Canada's subsequent moves and firmly safeguard the legitimate rights and interests of Chinese companies."
China's Tariff Law authorizes the government to impose countermeasures such as retaliatory tariffs in response to foreign countries violating the MFN treatment obligation or preferential tariff commitments in international treaties and agreements.
Question: Have you communicated with China about these tariffs, and how are you preparing for potential retaliatory measures?
Freeland: Let me just start by saying our government starting point is to act resolutely, to defend the national interest, to defend Canadian workers and to defend the Canadian economy. That's our starting point. ... we spent the summer speaking in great detail with the leading stakeholders. So I met with the car parts sector, car manufacturers, steel industry, aluminum industry, critical minerals and metals and labor. And the message we heard was very, very clear. Now, of course, Canada needs to be ready for all manner of reactions, and we are, but our starting point is we have to do, and we will do, what the national interest, what Canadian workers require.
Question: You probably know some climate activists are opposed to these sort of tariffs because they just want to get people into cheap EVs. They don't really care where they come from, and think cheap BYD vehicles might be a good thing for our climate goals and emissions in this country. What's your message to those who say these tariffs will actually have a detrimental effect on the adoption of EVs in this country?
Freeland: My reply is very clear and very categorical. We have a very thought through rationale for imposing these tariffs, something that we have been discussing a lot among colleagues and, most importantly, with Canadians over the summer. The reality is China has an intentional state directed policy of overcapacity and oversupply, designed to cripple our own industries. Talk to the steel sector, talk to the aluminum sector, to understand how effective that has already been, and we simply will not allow that to happen to our EV sector, which is showing such promise and in which we have invested so effectively. Now it's also really important to remember what is this Chinese policy of oversupply and overcapacity built on. You know what it's built on? It is built on abysmal labor standards, and it is built on abysmal environmental standards. We are not going to build Canadian policy based on abuses of workers in China and based on pollution in China.
Justin Trudeau press conference on August 26, 2024:
Trudeau: Companies around the world are taking an interest in investing in Canada, to make things in Canada, more than just about any other country. So today, we're taking yet another step to ensure that Canada is the country of choice to make the things that will drive the new 21st century green economy. We're listening to automakers. We're listening to workers. Shortly, we will be introducing a 100% tariff on Chinese made electric vehicles and a 25% tariff on Chinese steel and aluminum. ... Because of our government's choices and the hard work of hundreds of thousands of Canadian auto workers, we are transforming Canada's automotive sector to be a global leader in building the vehicles of tomorrow. But actors like China have chosen to give themselves an unfair advantage in the global marketplace, compromising the security of our critical, critical industries and displacing dedicated Canadian autos and metal workers. So we're taking action to address that. We actually spent some time talking about that and many other geopolitical issues last night with Jake Sullivan, the US national security advisor.
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Question: The tariffs you announced this morning on EVs and steel and aluminum largely bring you into line with the US, but the US has also gone much further, solar cells, chips, battery parts, critical minerals. Do you believe Canada will need to go further with its tariffs? And if so, why are you waiting?
Trudeau: As the Minister will address later, we are looking at further measures. We're looking into, as you mentioned, chips, solar cells, issues like that, where we know there is work to be done to make sure we're protecting Canadian industries and Canadian workers from unfair practices from China. So we will continue to work with not just the United States but allies in Europe and elsewhere around the world to make sure that those with similar approaches in terms of high labor standards, high environmental standards, proper processes to deliver high quality goods to Canadians and to customers around the world are not being unfairly penalized by non market practices, and countries like China.
Question: On the tariffs, it seems almost certain that China is going to retaliate in some way, very likely on the agricultural sector. Remember back in 2016 how hard your government worked to reopen China for canola exports. Are you concerned about the possibility of retaliation? And are you not, by protecting a fledgling industry, EVs, putting a much larger, established industry risk?
Trudeau: I think we all know that China is not playing by the same rules as other countries, whether it's on environmental standards, whether it's on labor standards and labor practices in general, whether it's on government subsidies and state owned industries. The group of democracies of which we are a part, the value of the work that our citizens do, that recognize the need to protect the environment and invest for the longer term, requires us to take action. And what is important about this is we're doing it in alignment and in parallel with other economies around the world that recognize that this is a challenge that we are all facing, that unless we want to get in a race to the bottom, we have to stand up, and that's what we're doing, and that's what Canada has been part of conversations on at the G7 table, at the international summits that we've been attending over the past years to move forward on.
We had a good long conversation about this and other things last night with the National Security Advisor in the United States, and we know that standing up for Canadian jobs and Canadian interests, not just for the short term, but for the long term, is exactly what we need to do. And that means making sure the people who are doing things right, building things well, being responsible in how they function to build things, don't get penalized by countries not playing by those rules.
Jake Sullivan press conference on August 25, 2024:
Question: Three months after the US imposed tariffs, hiked tariffs on Chinese EV imports, Canada still has yet to act, has not yet revealed its plan, and I'm wondering what your message is to the Canadian government vis a vis your national security concerns around this vital industry, and are they mainly economic, or are they centered on the software in these vehicles? Can you elaborate, as you head to China yourself tomorrow, what your message to Canada is, and should the two countries be presenting a united front?
Sullivan: Canada ultimately will determine its own trade policy, and that's for the Prime Minister and the government to make determinations on, it's not for the US to try to dictate. Of course, we will talk behind closed doors about our experience and what we see, and what we see is really two distinct challenges, one to do with overcapacity, which we have talked about quite openly, the view that massive subsidies going into the Chinese electric vehicle industry have eliminated a level playing field, and so part of the economic response the US has taken is responding to that.
And then there are issues associated with data security, with critical infrastructure, and with the underlying questions of national security associated with connected vehicles, electric vehicles, and so that has also motivated steps that we have taken on policy grounds through presidential action.
So I'll be talking about all of that with my Chinese counterparts when I see them in Beijing. We'll discuss this here as well. And I will also point out ... that the European Union has taken action on this front, and the G7 has spoken broadly about this set of issues, about overcapacity and about the national security challenges associated with certain kinds of supply chain issues and trade issues. And Canada will make its own determinations, but the US does believe that a united front, a coordinated approach on these issues, benefits all of us.
