On October 1, 2024, the Canadian government imposed a 100 percent tariff on electric vehicles (EVs) imported from China, followed by a 25 percent tariff on Chinese steel and aluminum two weeks later. These actions represent a stark contrast to Canada’s long-standing tradition of diplomatic caution and adherence to international trade rules.
Motivations Behind the Measures
Departing from its traditional approach, Canada has implemented new tariffs without explicitly justifying their compliance with World Trade Organization (WTO) rules. Instead, the Canadian government argues the measures are necessary to protect domestic industry and workers, emphasizing the strategic importance of the EV and steel and aluminum sectors. These industries account for approximately 125,000 and 130,000 Canadian jobs, respectively, and have received substantial public investment.
Federal authorities argue these measures are needed to counter what they perceive as unfair trade practices by China, including state-subsidized overcapacity, insufficient labour standards and a lack of environmental protection measures. Ottawa contends these practices distort competition and create a trade imbalance that is harming Canadian industry.
Rather than leveraging the established mechanisms of the WTO to address trade distortions, Canada has chosen a unilateral path by imposing steep surcharges on Chinese products.
Alignment with Western Partners
Canada’s decision aligns with a broader trend of tightening Western trade policies toward China. The
100 percent tariff on Chinese EVs, specifically, mirrors a similar policy announced by the United States in
May 2024. The European Union has also responded, albeit more moderately, by imposing countervailing duties of up to 35.3 percent on Chinese EVs, in addition to an existing 10 percent tariff.
Canada’s position differs from that of the United States on a crucial point, however: unlike its southern neighbour, Canada is party to the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). Canada’s adherence to the MPIA means it is subject to a binding dispute settlement mechanism within the WTO, whereas the United States can adopt protectionist policies without fear of being called to order by the WTO. This difference could have significant consequences for Canada in its trade dispute with China — also a member of MPIA.
WTO Dispute and Canada’s Position
Following Canada’s tariff announcement, China promptly filed a complaint with the WTO dispute settlement body, asserting the Canadian measures violate the principle of non-discrimination provided for by the most-favoured-nation clause of the General Agreement on Tariffs and Trade (GATT).
The dispute settlement process will begin with bilateral consultations aimed at reaching an amicable agreement. If consultations fail, a panel of three experts will hear arguments from both countries and issue a ruling.
Canada faces challenges in justifying its actions before the WTO panel. While it may attempt to invoke exceptions provided in GATT rules, particularly those related to public order or national security, the strategy is fraught with systemic risks. An overly broad interpretation of these exceptions could potentially undermine the integrity of the international trading system. Moreover, Canada will need to provide a compelling rationale for circumventing standard WTO procedures in implementing measures that China considers both unfair and illegal.
Should the panel rule in China’s favour and Canada fail to comply with its international obligations, Beijing would be authorized to impose trade sanctions against this country.
WTO-Compliant Alternative Approaches
Canada had other WTO-compliant options available, such as implementing countervailing or safeguard measures, which are permitted under both Canadian law and WTO rules. These mechanisms allow member countries to temporarily impose duties when their industries are affected by foreign subsidies or by a sudden increase in imports.
The European Union has chosen this approach, implementing countervailing duties to offset Chinese subsidies. Although these measures have also led to an increase in customs duties, they are not punitive. Unlike Canadian surcharges that severely limit the entry of Chinese EVs, European measures aim to compensate for trade distortions caused by Chinese subsidies by adjusting customs duties in proportion to the effect of said subsidies. Each Chinese manufacturer is thus subject to customs duties proportional to the illegal subsidies it has received.
Canada’s Delicate Position
By adopting these protectionist measures, Canada finds itself in a delicate position: balancing the defence of its national interests against its commitment to a rules-based international trading system.
The potential repercussions are not limited to the automotive sector. China has already launched an anti-dumping investigation into Canadian exports of canola seed, of which Canada is one of the world’s leading producers. This action could further erode economic relations between Canada and China, its second-largest trading partner. At the same time, Ottawa is considering extending its surcharges to other strategic Chinese products, such as critical minerals, batteries and spare parts, as well as certain products related to renewable energies, such as solar panels and semiconductors.
Future Perspectives
In sum, although motivated by legitimate concerns related to the protection of its domestic industry and the maintenance of crucial jobs in several strategic sectors, Canada’s recent trade measures mark a significant shift in its approach to international trade relations. There is risk in this strategy. These customs measures, significantly shaped by Washington’s trade policy toward Beijing, indicate a closer alignment of Canada with the American stance. This trend could intensify given the recent election of Donald Trump and the upcoming revision of the Canada-United States-Mexico Agreement scheduled for 2026.
This departure from Canada’s diplomatic tradition could have significant long-term implications, complicating the country’s future attempts to promote a rules-based trade order with other international partners. The challenge for Ottawa will be to find a delicate balance between protecting its national economic interests and maintaining credibility on the international scene as a defender of trade multilateralism.
How Canada navigates these turbulent waters will be closely scrutinized by the international community, potentially serving as a model — or warning — for other nations facing similar dilemmas. This decision underscores the growing tension between national economic protectionism and the commitment to an open, regulated global trading system — a challenge many countries face in an increasingly polarized geopolitical landscape. The outcome of this Canadian strategy could well influence how other nations approach their own trade policies, potentially redefining the landscape of international trade in the years to come.
The author wishes to thank Affilia collaborators Chakib Chergui, M.B.A., and André-Philippe Ouellet, M.A., for their support in preparing this article, which is also available in French at https://blogue.corim.qc.ca/surtaxe-canada-chine/.
