While we’ve been focused on the potential 25 per cent tariffs on Canadian and Mexican goods entering the US, we’ve ignored the 10 per cent tariff being imposed on Chinese goods.
China has responded with a 15 per cent tax on certain types of coal and liquefied natural gas, along with a 10 per cent tariff on crude oil, agricultural machinery, large-displacement cars, and pickup trucks. The measures take effect on February 10.
China’s Ministry of Commerce and customs administration also announced new export controls, effective immediately, on more than two dozen metal products and related technologies. These include tungsten, a critical mineral used in industrial and defense applications; tellurium, essential for solar cell production; and molybdenum, which is used to strengthen steel.
The measures have clearly been calibrated to send a message to the US (and domestic audiences) without inflicting too much damage. The Chinese tariffs affect, at most, US$20 billion in annual US imports —about 12 percent of the total—far less than the US$450 billion in Chinese goods being targeted by the US
The 10 per cent duties are also significantly lower than the 60 per cent tariffs Trump threatened during his campaign, signaling that more could follow if the two sides are not able to reach a deal on a broader host of issues.
Trump campaigned on outcompeting China economically and, on his first day in office, ordered a review of the US-China economic relationship, which is due April 1. The findings could justify additional duties on Chinese goods.
Like the tariffs on Canada and Mexico, the 10 per cent tariffs on China have been explicitly linked to the fentanyl trade. However, their inflationary impact on US consumer prices is less direct than the tariffs on Mexican and Canadian imports. During Trump’s first term, China helped US consumers avoid earlier taxes by rerouting exports. Also, electronics and computers tend to fall in price over time, so taxing slows disinflation rather than fuelling inflation. The biggest consumer impact will be on textiles and apparel, which disproportionately impact lower income groups.
For Canada, the tax on LNG and coal will likely have an impact. Some of Canada’s natural gas exports are sold to LNG exporters, and a large portion of the thermal coal from the Powder River Basin in Wyoming and Montana—home to the largest coal mines in the US—is shipped through Westshore Terminals in BC. Since this coal is transported to BC via the Burlington Northern Santa Fe Railway, our domestic rail carriers won’t be impacted. On the positive side, we’re finally making headway in exporting crude oil to China, with our exports nearly matching US volumes. Let’s hope we don’t squander this opportunity to expand our export market.
China’s threat to restrict strategic mineral exports opens up a longer-term opportunity for the BC mining industry. The molybdenum mines in Kitsault and Endako, which hold some of the largest reserves in North America, have been shut down for a number of years due to low prices but could become viable again if demand rises.
Source: US Imports from China, by Category – Apollo Academy
It’s clear that the US-China trade war is just getting started and could have far-reaching impacts.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Development charges (DCs) are driving up housing costs, particularly in the GTA, where they’ve surged by over 200% since 2011, compared to a 31.7% increase in inflation over the same period. This has a compounding effect, pushing up prices for both new and existing homes. A new report from the Building Industry and Land Development Association (BILD) and the Ontario Home Builders’ Association (OHBA) examines how Ontario’s DC legislation can be reformed to help reduce these costs and improve housing affordability.
Explore the key takeaways in our latest Housing Affordability Watch: Reforming Ontario’s Development Charge (DC) Framework
Independent Opinion
The views and opinions expressed in this publication are solely and independently those of the author and do not necessarily reflect the views and opinions of any person or organization in any way affiliated with the author including, without limitation, any current or past employers of the author. While reasonable effort was taken to ensure the information and analysis in this publication is accurate, it has been prepared solely for general informational purposes. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author. There are no warranties or representations being provided with respect to the accuracy and completeness of the content in this publication. Nothing in this publication should be construed as providing professional advice including investment advice on the matters discussed. The author does not assume any liability arising from any form of reliance on this publication. Readers are cautioned to always seek independent professional advice from a qualified professional before making any investment decisions.
