Canada recently imposed tariffs on Chinese electric vehicles, steel and aluminum to protect its domestic industries making these products (today or in the future). But the move will have downsides for some Canadian industries and users.

  • The tariffs are expected to raise consumer prices for electric vehicles in Canada in the short term.
  • Levies on Chinese steel and aluminum could raise costs for domestic consuming industries.
  • Importantly, the Canadian move raises the risk of retaliation from Beijing, which could put exports of Canadian commodities at risk, as seen with the newly announced probe on Canadian canola exports.

On August 26, the Canadian government announced it will impose steep import tariffs on electric vehicles (EVs), and aluminum and steel products from China. The federal government justified the move as a measure to protect jobs and investments in the country in the face of unfair competition. This decision follows similar actions by the United States and the European Union, reflecting a hardening of trade relations with China amid rising geopolitical friction and growing protectionist sentiment. The new tariffs–100% for EVs, and 25% on steel and aluminum products–are set to take effect on October 1 and October 15, respectively.

China-made EVs were on the rise in Canada

Although Chinese branded EVs are not yet available in Canada, the share of imported Chinese vehicles surged last year as U.S.-based Tesla began supplying the Canadian market with cars made in its Shanghai manufacturing plant. In 2023, total EV imports from China amounted to $2.3 billion, or 13.3% of total imports, a massive increase from $116 million in 2022. Chinese branded EVs are considerably cheaper than other brands selling in Canada, with some models priced at nearly a third of the cost of the cheapest alternatives currently on the Canadian market. The stiff 100% tariff on imported Chinese EVs will be a barrier to more affordable options becoming available in the Canadian EV market, which has seen slower growth of late due to high price tags.

The federal government is also launching a 30-day consultation on the threat Chinese imports pose to other industries deemed “critical to Canada’s future prosperity”, including batteries and battery parts, semiconductors, solar products, and critical minerals. That could lead to more tariffs  after the consultation period.

The Canadian government along with Ontario and Quebec are heavily subsidizing investments—to the tune of $52 billion—to develop a Canadian domestic EV supply chain. The tariffs, both announced and considered, are clearly designed to protect those investments.

However, imposing new tariffs up the supply chains at this time—when most Canadian EV production capabilities still aren’t operational—would lead to broader cost pressure in the short term 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.

Tariffs on Chinese steel and aluminum could challenge domestic industries

Canada ranks among the world’s top five aluminum producers, and is also a top 20 steel producer. While the country is relatively self-sufficient in aluminum, it is more dependent on steel imports to meet domestic demand. The proposed 25% tariffs on steel and aluminum from China, although targeting a small portion of total Canadian goods imports—approximately 0.3%—could raise costs for Canadian industries that are unable to find alternative supplies. Notably, 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.

Bottom line: While the Chinese imports affected by the new tariffs represent a relatively small but growing share of Canadian imports—especially for EVs and aluminum—the Canadian government is taking pre-emptive measures to protect strategic domestic producers from potential harm, signalling its alignment with the U.S. and other countries in adopting a tougher stance against China. Although the initial direct economic impact is expected to be small, the tariffs are likely to raise consumer prices for EVs in the short term – or prevent them from falling more rapidly – potentially slowing their adoption in Canada. Tariffs on Chinese steel and aluminum could also raise costs for some businesses reliant on Chinese supply. A possibly greater impact may result from the risk of retaliation and a wider trade conflict. China just initiated a probe into Canadian canola products and recently on EU agricultural commodities in response to the bloc’s tariffs on EVs. It’s also important to be mindful that initiating such trade actions—especially outside the World Trade Organization—could escalate into deeper trade conflicts.

Salim Zanzana is an economist for RBC. He focuses on emerging macroeconomic issues, ranging from trends in the labour market to shifts in the longer-term structural growth of Canada and other global economies.

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