Tariffs on Chinese Goods to Raise Federal Revenue by $473M by 2029: Budget Watchdog

Tesla China-made Model 3 vehicles are seen during a delivery event at the carmaker's factory in Shanghai, China on Jan. 7, 2020. REUTERS/Aly Song/File Photo

Ottawa’s new surtaxes on Chinese-made electric vehicles and steel and aluminum imports are projected to raise $473 million in additional revenue over the next five years, the budget watchdog says.

On Oct. 1, the government imposed a 100 percent surtax on EVs imported from China, followed by a 25 percent surtax on Chinese-made steel and aluminum starting on Oct. 22. Ottawa said the measures aim to counter China’s “unfair” trade practices, including state subsidies and oversupply it says harms Canadian workers.

In a Dec. 5 report, the Parliamentary Budget Officer (PBO) estimated that the surtaxes will generate a total of $473 million in revenue from the 2024/2025 to 2028/2029 fiscal years. The surtax on steel and aluminum imports is expected to be the main driver of revenue growth each year, generating a total of roughly $1.02 billion in additional revenue over this period.

On Oct. 18, the government launched a process allowing Canadian businesses to request remission of surtaxes on EVs, steel, and aluminum to help mitigate potential supply chain disruptions caused by the tariff.

The PBO report noted that while some businesses may qualify for remission, the surtax on steel and aluminum is still expected to generate significant revenue. Analysts based their remission estimate on the fact that China controls a majority share of the market for these goods, leaving Canadian industries with few alternatives.

In 2023, Chinese steel accounted for 8.1 percent of Canada’s total steel imports, while Chinese aluminum made up 21.8 percent of Canada’s total aluminum imports.

“Overall, we estimate that the 25 per cent surtax on Chinese imports of steel and aluminum will have a negligible impact on Canada’s real GDP. There are, however, some important sectoral impacts,” the report said.

PBO analysts noted that in 2023, imports of Chinese-made EVs surged nearly 1,900 percent, reaching $2.3 billion, compared to just $116 million in 2022. They attributed this dramatic increase primarily to the opening of Tesla’s Shanghai plant. They suggested that the 100 percent surtax on Chinese-made EVs would likely lead most consumers to opt for alternative vehicles.

However, the report also examined Tesla’s global production, noting that the company manufactures vehicles not only in China but also in Texas, California, and Germany. Given Canada’s position as the fifth-largest market for Tesla vehicles—and accounting for demand from countries with greater purchasing power—the report indicates that there will likely be an excess supply of Tesla cars produced outside China. These vehicles could be redirected to Canada, thereby avoiding the surtax.

“For the other tariff items impacted by the surtax, imports from China account for a negligible share. As a result, importers are likely to source goods from countries not subject to the 100 per cent surtax, therefore the additional revenue is expected to be insignificant,” the PBO report said.