China will almost certainly retaliate against Canada after the federal government hiked tariffs on Chinese-made electric vehicles and other materials Monday, experts say — though likely not in a way that puts Canadians in danger.
The new 100 per cent tariff on Chinese EVs and 25 per cent tariff on Chinese steel and aluminum will bring Canada in line with increased tariffs on the same imports announced by the United States in May. Both countries have said the moves are meant to counter “unfair” Chinese subsidies for its EV industry that will oversaturate the global market.
A spokesperson for China’s commerce ministry 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 spokesperson said China would take “all measures necessary” to safeguard its economy.
Beijing vowed to retaliate against the U.S. when the American tariffs were announced, but it has yet to follow through. Canada shouldn’t expect similar treatment, analysts warn.
“They’re going to retaliate,” said Moshe Lander, an economics professor at Concordia University.
“China is not a country that just stands idly and accepts economic sanctions against it, which is really what happened.”
One key reason why, Lander and other analysts say, is the disparity between the U.S. and Canada’s economies and what China may believe it can get away with.
“U.S.-China dynamics are at a scale that is simply 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 EV imports as high as 36.3 per cent.
Beijing last week opened an anti-subsidy probe into European dairy imports, the latest in a series of Chinese probes this year into EU agricultural goods.
Although China’s commerce ministry said the probe was prompted by a complaint submitted in July on behalf of the domestic dairy industry, the move was seen as retaliatory over the EV tariffs, and Nadjibulla said Canada could face a similar tit-for-tat move.
“China could pick a sector and launch its own process to potentially then block some market access,” she said, pointing to agricultural exports as a potential target.
China may also be waiting for a final decision from the U.S. on whether the proposed tariff increases are softened, amid pushback from industries and lawmakers over concerns of higher costs of targeted materials.
A final implementation plan is expected by the end of August.
The White House had said initially the new tariffs would take effect on Aug. 1 but that was delayed until some time in September as the U.S. Trade Representative’s office studied more than 1,100 public comments.
The EU’s tariffs were also reduced for some companies, including Tesla, which will see just a nine per cent duty on imported Chinese components.
If the U.S. reduces its proposed tariffs, Canada may also follow suit, further impacting China’s response.
“Given how integrated our auto sectors are, Canada I think will stay aligned with U.S.,” Nadjibulla said. “It just makes economic sense.”
U.S. White House National Security Advisor Jake Sullivan told reporters on Sunday after meeting with the Liberal cabinet in Halifax that China, where Sullivan is travelling this week to meet with government leaders, was a topic of discussion.
Although he made clear the U.S. wasn’t pushing Canada to align with its Chinese tariff increases, he reiterated the Biden administration’s concerns about Chinese overcapacity in the EV industry and national security challenges.
“Being on the same page between the U.S. and Canada, particularly as we enter a year where Canada will be chairing the G7, is vital for U.S. national security, for our priorities, and we believe it’s vital for the broader free world as well,” he said.
“Canada will make its own determinations, but the U.S. does believe that a united front, a coordinated approach on these issues, benefits all of us.”
Speaking at the same cabinet retreat Monday, Foreign Affairs Minister Melanie Joly said she discussed the government’s consultations on whether to pursue the EV tariffs when she visited China this summer, and gave Beijing a heads-up on Monday’s announcement.
She also previewed more actions to come on China.
“The fact that we are engaging with China diplomatically doesn’t mean that we can’t continue to defend our interests, and that’s exactly what we’ll continue to do and you’ll be seeing more of that in the coming weeks,” she told reporters.
The government wouldn’t specifically say Monday if it is concerned about a heightened threat environment to Canadians in China due to the announcement.
Canada’s current travel advisory 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 advisory was last updated on Aug. 8, and Global Affairs Canada would not say if it would be making any additional changes.
“Canadian officials will continue to monitor the situation with China closely,” a spokesperson said in an email.
Nadjibulla, whose ex-husband Michael Kovrig was arbitrarily detained in China for nearly three years, said she doesn’t expect that practice to increase in response to economic issues.
“This could potentially raise the overall level of tension in the relationship, but arbitrary detention usually is used for other reasons, not in trade disputes,” she said.
Whatever comes from the move, Lander says the government has now created a political risk for any future prime minister — unless it creates an exit strategy for removing or lowering the tariffs if China meets certain requirements, such as reducing its domestic subsidies.
“Whatever prime minister down the line says, I’m going to remove those tariffs on Chinese products, they’re going to be accused of kowtowing to China or giving into Chinese leverage,” he said.
“If you’re going to do something foolish, at least tell me when the foolishness stops.”
— with files from Global’s Uday Rana and Reuters