Supply Chain Scanner - Week of September 9, 2024
Weekly blog by Emily Atkins
What is the likely impact of the new tariffs on Chinese goods?
On August 26, the Canadian government announced considerable import tariffs on electric vehicles (EVs), and aluminum and steel products from China that will take effect on October 1 and October 15, respectively.
The new tariffs, at 100% for EVs, and 25% on steel and aluminum products, follow similar tariffs imposed by the US and European Union. On May 14, the United States announced that it would increase tariffs on Chinese EVs and certain hybrids to 100% on August 1, 2024. On June 12, the European Commission followed suit, announcing it would apply provisional countervailing (anti-subsidy) duties on Chinese-made EVs on July 4, following a preliminary trade remedy investigation, with final duties expected to be finalized in the fall.
The Canadian government has not finalized the metals tariffs, and the Department of Finance is accepting comments from the public until September 20. Stakeholders have been asked to submit “reasons for the expressed support for, or concern with, the proposed surtaxes, including detailed information substantiating any expected beneficial or adverse impact.”
According to an analysis by RBC economist Salim Zanzana, the proposed 25% tariffs on steel and aluminum from China, although targeting only a small proportion of Canadian goods imports – approximately 0.3% – could boost costs for Canadian industries that cannot find alternative supplies. Since 2020, over one-fifth of Canada’s aluminum imports have come from China, and in 2023, Chinese steel accounted for 8.1% of total steel imports.
On the EV side, while Chinese branded EVs are not yet available here, Tesla vehicles made in China are, and in 2023 EV imports from China totalled $2.3 billion, up from $116 million in 2022. The Chinese brands of EV slated to arrive here are up to two-thirds cheaper than other brands of EV on the market. The tariffs are designed to protect massive federal ($52 billion) and private sector investments in the EV sector from these cheap competitors.
However, according to Zanzana, new tariffs now, before Canadian EV manufacturing gets up to speed, could result in increased costs “given China’s large presence in the global EV supply chain. It could also challenge one of Canada’s climate targets of electric cars making up 60% of new vehicle sales by 2030, and 100% by 2035.”
In spite of these potentially negative impacts, one of Canada’s main business organizations, Canadian Manufacturers and Exporters (CME), has put its support behind the initiative. In a statement, CME president and CEO Dennis Darby said the tariffs are necessary to level the playing field between Canada, the US and Mexico.
“With the United States and Mexico already implementing similar measures, it was imperative Canada take the necessary steps to counter the threat posed by China’s state-directed support for its EV, steel and aluminum sectors,” Darby said.
“By ensuring a level playing field, today’s announcement will bolster Canada’s manufacturing competitiveness and strengthen our partnerships with key economic allies.”
The need for a level playing field stems from the idea that without tariffs, Chinese EVs and other products that would otherwise possibly have been destined for the US market would be diverted into Canada’s more open market. In a statement announcing a consultation on the tariffs in early July, Deputy Prime Minister Chrystia Freeland said the new duties “will also guard against unfair competition from a potential surge of Chinese imports resulting from the diversion of Chinese EVs from markets that have recently announced increased trade protections on Chinese EVs, including the United States and the European Union.”
The Chinese, however, are not likely to let these tariffs go unchallenged. Shortly after the announcement China initiated an investigation into the dumping of Canadian canola, and referred the tariffs to the World Trade Organization, saying it was a “unilateral” and “protectionist” action.
Canada has a lot to lose in a potential trade war. We export 90 percent of our canola production, with $5 billion worth sold in China. Overall, Canadian exports to China in 2023 amounted to $30.50 billion, with significant sales from the metals, petroleum products and wood fibre sectors, falling in behind canola.
Losses in these sectors will not only affect the economy generally but will also have significant impacts on demand for transportation. 2025 could be an interesting year.
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Emily Atkins
President
Emily Atkins Group
Emily Atkins is president of Emily Atkins Group and was editor of Inside Logistics from 2002 to 2024. She has lived and worked around the world as a journalist and writer for hire, with experience in several sectors besides supply chain, including automotive, insurance and waste management. Based in Southern Ontario, when she’s not researching or writing a story she can be found on her bike, in a kayak, singing in the band or at the wheel of her race car. LinkedIn: https://www.linkedin.com/in/emilyatkinsgroup/