Canada to See Small Revenue Bump from China Tariffs, Report Says

(Bloomberg) -- Canada can expect to collect about C$100 million ($71.4 million) annually from its new tariffs on Chinese steel, aluminum and electric vehicles, Parliamentary Budget Officer Yves Giroux said in a report Thursday.

Finance Minister Chrystia Freeland announced the tariffs in August and they came into effect in October. Freeland justified the tariffs by saying China intentionally overproduces goods in these sectors and then undercuts Canada’s domestic industry on price.

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

Giroux’s report does not consider the effect of Chinese trade retaliation, or the possibility that US President-Elect Donald Trump may follow through on his threat to put across-the-board 25% 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% tariff, Canada will now lose that revenue if Tesla sources the vehicles from a tariff-free location such as the US. That would represent lost revenue of a little more than C$100 million annually, Giroux concluded.

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