China is almost certain to retaliate against Canada after the federal government on Monday raised tariffs on electric vehicles and other materials made in China, experts say, though probably not in a way that would endanger Canadians.
The new 100% tariff on Chinese electric vehicles and 25% on Chinese steel and aluminum will bring Canada in line with higher tariffs on the same imports announced by the United States in May. Both countries have said the measures are aimed at countering “unfair” Chinese subsidies for their electric vehicle industry that will oversaturate the global market.
A Chinese Commerce Ministry spokesman said Canada’s move will disrupt the stability of global industrial and supply chains and “seriously undermine” economic and trade rules. The statement stopped short of promising retaliation, while Beijing’s Foreign Ministry spokesman said China would take “all necessary measures” to safeguard its economy.
Beijing promised to retaliate against the United States when the tariffs were announced, but has yet to do so. Analysts warn that Canada should not expect similar treatment.
“They’re going to retaliate,” said Moshe Lander, an economics professor at Concordia University.
“China is not a country that sits back and accepts economic sanctions against it, which is actually what happened.”
A key reason for this, Lander and other analysts say, is the disparity between the U.S. and Canadian economies and what China may believe it can achieve without consequences.
“The dynamics between the U.S. and China are on a scale that is just not the same for us,” said Vina Nadjibulla, vice president of research and strategy at the Asia Pacific Foundation of Canada.
China’s reaction, Nadjibulla suggested, may be in line with how it responded to the European Union when the bloc imposed additional tariffs on Chinese electric vehicle imports of up to 36.3 percent.
Last week, Beijing launched an anti-subsidy investigation into imports of European dairy products, the latest in a series of Chinese probes this year into EU agricultural products.
Although China’s Commerce Ministry said the probe was prompted by a complaint filed in July on behalf of the country’s dairy industry, the move was seen as retaliation for tariffs on electric vehicles, and Nadjibulla said Canada could face a similar tit-for-tat measure.
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“China could pick a sector and launch its own process and then potentially block certain market access,” he said, pointing to agricultural exports as a potential target.
China may also be awaiting a final decision from the United States on whether to ease the proposed tariff increases, amid pushback from industries and lawmakers over concerns about higher costs of the materials in question.
A final implementation plan is expected by the end of August.
The White House had initially said the new tariffs would take effect on Aug. 1, but that was delayed until sometime in September while the U.S. Trade Representative’s office reviewed more than 1,100 public comments.
EU tariffs have also been reduced for some companies, including Tesla, which will see only a nine percent tariff on imported Chinese components.
If the United States lowers its proposed tariffs, Canada could do the same, which would have a bigger impact on China’s response.
“Given how integrated our automotive sectors are, I think Canada will stay aligned with the United States,” Nadjibulla said. “It just makes economic sense.”
White House national security adviser Jake Sullivan told reporters Sunday after meeting with the Liberal cabinet in Halifax that China, where Sullivan will travel this week to meet with government leaders, was a topic of discussion.
While he made clear the U.S. was not pressuring Canada to fall in line with its Chinese tariff increases, he reiterated the Biden administration’s concerns about Chinese overcapacity in the electric vehicle industry and national security challenges.
“Being on the same page between the United States and Canada, particularly as we enter a year in which Canada will chair the G7, is vital to U.S. national security, to our priorities, and we believe it is vital to the free world at large,” he said.
“Canada will make its own decisions, but the United States believes that a united front and coordinated approach on these issues is in the interest of all.”
Speaking at the same cabinet retreat on Monday, Foreign Affairs Minister Melanie Joly said she discussed government consultations on whether to press ahead with tariffs on electric vehicles when she visited China this summer, and alerted Beijing to Monday’s announcement.
He also anticipated further action to be taken in the near future regarding China.
“Just because we’re engaging with China diplomatically doesn’t mean we can’t continue to defend our interests, and that’s exactly what we’ll continue to do and you’ll see more of that in the weeks ahead,” he told reporters.
The government did not specifically say Monday whether it is concerned about a heightened threat environment for Canadians in China because of the announcement.
Canada’s current travel alert on China warns Canadians to exercise a high degree of caution in the country “due to the risk of arbitrary enforcement of local laws.”
The notice was last updated on Aug. 8 and Global Affairs Canada did not say whether it would make additional changes.
“Canadian officials will continue to closely monitor the situation with China,” a spokesperson said in an email.
Nadjibulla, whose ex-husband Michael Kovrig was arbitrarily detained in China for nearly three years, said she does not expect the practice to increase in response to economic problems.
“This could potentially increase the overall level of tension in the relationship, but arbitrary detention is generally used for other reasons, not in trade disputes,” he said.
Whatever the outcome of this move, Lander says the government has now created political risk for any future prime minister unless it creates an exit strategy to remove or reduce tariffs if China meets certain requirements, such as reducing its domestic subsidies.
“Whatever the next prime minister says, I will remove those tariffs on Chinese products, and they will be accused of kowtowing to China or giving in to Chinese influence,” he said.
“If you’re going to do something stupid, at least tell me when that stupidity will end.”
— with files from Uday Rana of Global and Reuters
