A sign of things to come? Canada matches US trade measures against EVs, aluminium and steel from China

In a move that mirrors similar measures by the United States, the Government of Canada has imposed surtaxes on electric vehicles (EV), aluminum and steel from China. Such measures foreshadow potential further trade action that Canada may need to take under the Trump Administration to safeguard its privileged trading position with its southern neighbour. At the same time, the recent measures expose the risk that other Canadian sectors may face when Canada imposes trade measures against an important trading partner like China.

What measures did Canada impose?

EVs

On October 1, 2024, the Government of Canada implemented China Surtax Order (2024), resulting in a 100% surtax on EVs produced in China and imported into Canada. The EV surtax was ordered, following a consultation period, pursuant to section 53 of the Customs Tariff, which allows cabinet to apply trade measures (including surtaxes) to respond to acts, policies or practices of other countries’ governments that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada. 

The EV surtax applies to electric and certain hybrid passenger automobiles, trucks, buses and delivery vans, which qualify as goods that originate in China, which mean the affected EVs have to be substantially manufactured in China.¹ The full list of goods subject to the EV surtax can be found on the Government of Canada website.

Aluminium and Steel

On October 22, 2024, the Government of Canada amended China Surtax Order (2024), to add a 25% surtax on certain aluminum and steel products produced in China and imported into Canada. Canada has indicated that the surtax responds to Chinese “overcapacity” which “has led to volatile market conditions and created significant challenges for Canadian producers.”² China is currently the world’s largest steel producer, producing over one billion metric tonnes in 2023 (54% of global production), while its aluminum capacity has increased drastically over the last 20 years and now sits around 59% of global production. 

Under the Customs Tariff, there are three forms of iron and steel: (1) primary materials and products in granular or powder form; (2) iron and non-alloy steel; and (3) stainless steel. The aluminum and steel surtax only applies to iron and non-alloy steel goods, as well as stainless steel. Primary materials and products in granular or powder form are not subject to the aluminum and steel surtax.

The categories of aluminum subject to the surtax include unwrought aluminum; aluminum bars, rods and profiles; aluminum wire; aluminum plates, sheets and strip, of thickness exceeding 0.2 mm; certain aluminum foil (backed or not backed); aluminum tubes and pipes; and aluminum tubes or pipe fittings (for example, couplings, elbows, sleeves). Excluded from the list are aluminum in the form of structures such as doors, windows and their frames, aluminum drums, cans or similar containers, aluminum household articles, and other articles of aluminum such as nails, tacks and staples.

The full list of goods subject to the aluminum and steel surtax can be found on the Government of Canada website. 

Who pays the surtax and how is it calculated?

The Chinese exporter does not pay the surtax at the time of export. Rather, the importer of the relevant product is responsible for paying the surtax when the goods arrive in Canada. Importers pay the surtaxes in the same way and within the same time periods that they pay customs duties and taxes.³

The amount of surtax payable under the EV surtax is calculated as 100% of the value for duty of the imported Chinese EV, which is normally calculated based on the “transaction value” or price paid for the goods, subject to adjustments. The aluminum and steel surtax is similarly calculated as 25% of the value for duty of the subject aluminum and steel products from China. This EV, steel and aluminum surtax is in addition to any other duties owing (i.e. in addition to customs or anti-dumping duties that may be applicable).

What motivated Canada to impose the surtaxes?

Canada imposed the surtaxes so the US and Canada would have similar measures in place to protect North American industries, and particularly the highly integrated auto sector. In particular, Canada’s measures came on the heels of tariff increases announced by the US. In April 2024, the Office of the United States Trade Representative announced it would implement higher tariffs on China by tripling the current Section 301 tariffs applied to Chinese steel and aluminum products from an average of 7.5% to an average of 22.5%.⁴ In May 2024, the US also announced its intention to increase Section 301 tariffs on Chinese EVs and certain hybrids from 25% to 100%.⁵

What were the consequences of the surtax to Canada? 

While Canada’s surtaxes maintain a certain level of homogeny with US trade measures against China, they did not come without consequences. Shortly after Canada announced its measures, China’s Ministry of Commerce formally announced on September 9, 2024, its notice of intention to commence an anti-dumping investigation into imports into China of Canadian canola seed.⁶ This is the first step of the investigation that will cover a dumping investigation period of January 1, 2023, to December 31, 2023, and an industry injury investigation period of January 1, 2021, to December 31, 2023.⁷ China imposing anti-dumping duties would significantly increase the cost of imports of Canadian canola seed into China. 

By all accounts, the timing of the Chinese announcement is no coincidence and is meant to be a message to Canadian policymakers that attempts by Canada to limit market access to Chinese goods will be met by corresponding measures against Canadian goods destined to China. 

Between a rock and a hard place: What lessons can we learn from the surtaxes? 

The EV and aluminium and steel surtaxes provide an interesting study of the tough choices Canada will have to make in its trade policy once the Trump Administration is sworn in in late January 2025.  During the recent US elections, incoming President Trump indicated his intention to effectively shut out Chinese imports into the US by enacting tariffs at the US border as high as 60% against all Chinese goods. While the details of future US tariffs against China are still to be determined, it is virtually certain Canada will feel pressure to follow suit in some way. To protect its position as a privileged trading partner with the US, and to prevent a flood of Chinese imports from being diverted into Canada, the Canadian government will need to match some or all of the US measures. If the Chinese government’s reaction to the current surtaxes on EVs, steel and aluminum is any indication, this future trade action by Canada will come at the expense of Canadian exporters to its second biggest export market – China.

Given President-elect Trump’s recent announcement that he plans to impose across-the-board tariffs of 25% against Canada and Mexico in any event, one thing is clear: Canada will need to carefully weigh its approach to tariffs and surtaxes in the coming months.

The authors would like to thank Madeline Heinke, articling student, for her contribution to preparing this legal update.