Canada to See Small Revenue Bump from China Tariffs: PBO Report

Canada added a 100 per cent tariff on Chinese-made electric vehicles and 25 per cent tariffs on Chinese steel and aluminum, effectively matching moves by U.S. President Joe Biden earlier this year.

Giroux’s report does not consider the effect of Chinese trade retaliation, or the possibility that U.S. President-elect Donald Trump may follow through on his threat to put across-the-board 25 per cent tariffs on Canadian goods.

The electric vehicle tariff will actually cause a drop in revenue for Canada, Giroux estimated. That’s because nearly all Chinese EVs currently imported to Canada are from Tesla Inc.’s factory in Shanghai, and Tesla will likely avoid the new tariffs by sourcing these cars from a factory outside China instead.

Because Chinese vehicles were previously subject to a 6.1 per cent tariff, Canada will now lose that revenue if Tesla sources the vehicles from a tariff-free location such as the U.S. That would represent lost revenue of a little more than $100 million annually, Giroux concluded.

Canadian demand for Chinese steel and aluminum will decrease by nearly 50 per cent in response to the new tariffs, Giroux estimated. But he said the new 25 per cent tariff will still likely bring in revenue of more than $200 million annually.

Overall, the steel and aluminum tariffs will have “a negligible impact” on Canada’s gross domestic product, Giroux said in the report. Domestic output of metals and utilities will increase, while manufacturing and construction output may decline due to the increased cost of businesses sourcing their metals from elsewhere or paying the new tariff, he said.

Bloomberg.com