China’s investigation of Canadian canola for potential dumping came after Canada announced the upcoming 100 per cent tariff on electric vehicles and 25 per cent tariff on steel and aluminium from China. It’s clear this move by China is direct retaliation.
Trade tensions between countries can severely disrupt international trade. The mere threat of an anti-dumping duty can discourage importers, even when the duty is not actually imposed. Although China only recently announced a dumping investigation, the prices of canola oil futures are already being affected.
Under their World Trade Organization obligations, both Canada and China are required to ensure their trade policies comply with its regulations.
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Members can also take action against dumping to protect their domestic markets. However, such actions must follow established WTO protocols.
The WTO outlines how countries can respond to dumping. China would need to prove Canada is dumping canola, quantify the extent and demonstrate that it is causing or threatening harm to Chinese canola farmers.
If China’s investigation uncovers evidence of dumping, it has the right to impose anti-dumping duties.
The threat or imposition of such duties could significantly disrupt Canada’s canola exports to China, which would have serious implications for Canadian farmers.
China is Canada’s second-largest importer of canola, after the U.S., with imports totalling $5 billion in 2023, or nearly one-third of Canada’s total canola export value that year. Notably, China is the largest market for canola seed, while the U.S. is the largest market for canola oil and meal.
Canola is predominantly exported to China in its primary form rather than as processed products. The data shows stable exports to China from 2014 to 2018, and a sharp decline in canola seed exports from 2019 to 2023, coinciding with a period of diplomatic tension between Canada and China in which the canola trade was indirectly targeted.
This suggests the current trade war could have devastating effects for canola producers.
Additionally, Canada’s canola exports have shown limited diversification, relying heavily on just four countries: the U.S., China, Mexico and Japan. Together, these countries accounted for 98 per cent of Canada’s total export value in 2023.
This heavy reliance on few markets heightens Canada’s vulnerability to trade disruptions. If China imposes anti-dumping tariffs, Canada risks losing 30 per cent of its canola export value to other potential suppliers.
Like many advanced economies, Canada seeks to shield its domestic market from the influx of low-cost Chinese products, such as electric vehicles. However, Canada must exercise caution, particularly when adopting trade policies from larger economies.
These larger economies hold greater leverage in international trade negotiations. Canada, a small open economy, faces greater risks.
Moreover, to support a swift transition to a green economy and help Canada meet its climate target of achieving 100 per cent zero-emission vehicle sales by 2035, it is essential that electric vehicles become more affordable.
Instead of escalating trade tensions with China, Canada should explore alternative measures such as safeguards or tariff rate quotas on Chinese electric cars. Those approaches could be mutually beneficial and less likely to provoke retaliation.
Imposing a prohibitive tariff on electric vehicles from China would come at the expense of other Canadian sectors that rely on Chinese buyers.
Canola producers, in particular, would likely bear the cost of Canada’s unilateral tariff on China. Numerous other sectors could also be targeted.
Canada must strive to minimize diplomatic tensions and avoid trade wars with major global market players, as such conflicts are becoming increasingly frequent. Trade disputes can significantly undermine Canada’s export competitiveness.
Sylvanus Kwaku Afesorgbor is an associate professor of agri-food trade and policy in the University of Guelph’s Department of Food, Agricultural and Resource Economics.
