Tax Insights: Canada to impose surtaxes on steel and aluminum products from China and Chinese-made electric vehicles

In brief

On August 26, 2024, the federal government announced a series of measures that are intended to protect Canadian workers and key economic sectors from what it views as unfair Chinese trade practices. These measures include imposing surtaxes on Chinese‑made electric vehicles (EVs) and steel and aluminum products and holding consultations to determine whether the Canadian government should implement measures to protect other critical sectors. The government’s goal is to level the playing field for Canadian workers and industries to ensure that they can compete fairly in both domestic and global markets.

In detail

Background

Recent consultations with stakeholders in Canada’s automotive manufacturing, steel and aluminum industries have determined that “exceptional measures” are required to help these industries because they face unfair competition from Chinese producers. Chinese producers generally benefit from non‑market policies and practices, such as state‑directed overcapacity policies and lax labour and environmental standards, which pose a threat to global EV industries.

Key measures affecting Chinese imports

Key measures to be implemented by the Canadian government follow:

• Surtaxes on Chinese products: Starting:
  • October 1, 2024, a 100% surtax will be imposed on Chinese‑made EVs, including electric and certain hybrid passenger automobiles, trucks, buses and delivery vans
  • October 15, 2024, a 25%¹ surtax will be imposed on imports of steel and aluminum products from China
• Consultations: 30‑day consultations on other critical industrial sectors, including batteries and battery parts, semiconductors, solar products and critical minerals, will be held to help determine whether any further government action is needed to protect these sectors.
• Incentives limitation: Eligibility for the following incentives will be limited to products made in countries with free trade agreements with Canada:
  • Incentives for Zero‑Emission Vehicles
  • Incentives for Medium- and Heavy‑Duty Zero‑Emission Vehicles
  • Zero Emission Vehicle Infrastructure Program
• Review and extension: These measures will be reviewed within a year of their entry into force, and potentially extended and/or supplemented by additional measures.

The above measures align with those taken by international partners, such as the United States and the European Union and are intended to present a united front against unfair trade practices.

Implications

The implications of Canada’s measures to protect its workers and key economic sectors follow:

• Economic implications: These measures are intended to protect jobs and ensure stable employment in Canada’s automotive, steel and aluminum sectors, as well as enhance the industries’ competitiveness in domestic and global markets. Clear protective measures may attract more investments in Canada’s key sectors and boost economic growth.
• Trade relations: The surtaxes and other measures could lead to tensions between Canada and China, potentially affecting other areas of trade and diplomacy. However, by taking similar actions as the United States and the European Union, this should strengthen Canada’s trade alliances and present a united front against unfair trade practices.
• Environmental and technological impact: Limiting incentives to products from countries with free trade agreements is intended to support the development of a green economy within Canada, which aligns with Canada’s environmental goals. In addition, protecting critical sectors (e.g. batteries, semiconductors and solar products) will encourage innovation and technological advancements within Canada.
• Consumer impact: The surtaxes on Chinese‑made EVs and steel and aluminum products may lead to higher prices for these goods in Canada, which will affect consumers and businesses that rely on them. It may also temporarily reduce the availability of certain products as the market adjusts to these new measures.
• Long‑term strategic goals: These measures aim to ensure long‑term economic security by addressing unfair competition and supporting key sectors critical to Canada’s future prosperity. By reducing reliance on Chinese technology and products, they also mitigate risks related to data privacy and national security.

The takeaway

To adapt to these new measures, businesses should proactively:

• diversify their supply chains by exploring alternative suppliers from countries with free trade agreements with Canada to avoid the new surtaxes; in addition, local sourcing can reduce dependency on international suppliers, particularly from China
• invest in new technologies and innovations that can enhance competitiveness and reduce their reliance on imported goods; businesses should also focus on improving operational efficiency and implementing cost‑saving measures to offset higher import costs
• participate in government consultations to provide input on critical sectors and shape future policies; businesses should stay informed, which would allow them to adjust their strategies accordingly

By being proactive, businesses can better navigate the changes and continue to thrive in a competitive and evolving market.

^{1. For more information, see Department of Finance notice “Notice of intent to impose surtaxes on Chinese steel and aluminum in response to unfair Chinese trade practices.”}