Budget Watchdog Predicts $473M Increase in Federal Revenue by 2029 from Tariffs on Chinese Goods
Ottawa’s new surtaxes on Chinese-made electric vehicles and steel and aluminum imports are expected to generate an additional $473 million in revenue over the next five years, according to the budget watchdog.
On Oct. 1, the government implemented 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 stated that these measures are aimed at combating China’s “unfair” trade practices, such as state subsidies and oversupply that negatively impact Canadian workers.
In a Dec. 5 report, the Parliamentary Budget Officer (PBO) estimated that these surtaxes will result in 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 primary source of revenue growth each year, generating approximately $1.02 billion in additional revenue over this period.
On Oct. 18, the government launched a process permitting Canadian businesses to request remission of surtaxes on EVs, steel, and aluminum to help alleviate potential supply chain disruptions caused by the tariffs.
The PBO report highlighted that while some businesses may be eligible for remission, the surtax on steel and aluminum is still projected to generate substantial revenue. Analysts based their remission estimate on the fact that China dominates a significant portion of the market for these goods, leaving Canadian industries with limited alternatives.
In 2023, Chinese steel accounted for 8.1 percent of Canada’s total steel imports, while Chinese aluminum comprised 21.8 percent of Canada’s total aluminum imports.
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”Overall, we estimate that the 25 percent surtax on Chinese imports of steel and aluminum will have minimal impact on Canada’s real GDP. Nevertheless, there will be significant sectoral repercussions,” the report stated.
Analysts from the PBO revealed that Chinese-made EV imports experienced a nearly 1,900 percent surge in 2023, amounting to $2.3 billion, compared to just $116 million in 2022. This sharp increase was primarily attributed to Tesla’s Shanghai plant’s opening. The report suggested that the 100 percent surtax on Chinese-made EVs would likely prompt most consumers to choose alternative vehicles.
However, the report also analyzed Tesla’s global production, highlighting 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 considering demand from countries with greater purchasing power—the report indicated that there may be excess supply of Tesla cars produced outside China that could be redirected to Canada to avoid the surtax.
”For other tariff items affected by the surtax, imports from China represent a minimal share. As a result, importers are anticipated to seek goods from countries not subjected to the 100 percent surtax, thereby resulting in insignificant additional revenue,” the PBO report mentioned.
