International Economic Relations

Today, the Government of Canada's consultation on potential policy responses to unfair Chinese trade practices in #electric #vehicles ends. In my submission, I benchmark Canada's policy options against approaches adopted by its Western allies. 1. 🇬🇧 and 🇦🇺 have refrained from imposing additional duties on Chinese EVs. Australia even provides duty-free access. The "Australian approach" prioritizes the climate benefits of greater EV adoption. But Australia also does not have a domestic auto industry to speak of. For Canada, Australia’s approach mainly offers lessons for separating the #trade and #NationalSecurity concerns Chinese EVs pose (dealing with latter through regulatory rather than trade measures). 2. 🇺🇸 keeps Chinese EVs off US roads entirely by imposing a prohibitively high tariff of 100%. This maximalist “US approach” is part of a broader set of #geopolitically motivated anti-China tariffs on a wide array of Chinese products. By mirroring the US tariffs, Canada would overshoot the goal of "levelling the playing field" it set out in its consultation. The approach also comes with severe downsides for Canada, from slower EV adoption and inconsistency with Canada's trade obligations to certain Chinese retaliation and political friction. 3. 🇪🇺 imposed company-specific anti-subsidy tariffs that range between 18%-38%. The “EU approach” offers a middle ground. It is calibrated to levelling the playing field for the domestic import-competing industry closely aligning with the goals stated in the Canadian consultation. The approach would also mitigate downside risks for Canada, from averting broader Chinese retaliation and legal challenges to softening the anti-climate impact of potential tariffs. The submission therefore recommends that Canada should follow the “EU approach” and (1) launch an anti-subsidy investigation against Chinese EVs, (2) impose a countervailing duty on Chinese EVs consistent with that investigation and (3) initiate a #WTO complaint against China to level the playing field in EV export markets. Read the full submission below.

North American Trade Conflict : A First Assessment of the Economic and Financial Consequences https://lnkd.in/gMSsMu5g The implementation of broad-based tariffs by the Trump administration is a significant escalation in trade tensions and economic consequences will likely unfold rapidly. Indeed, the swift application of tariffs implies that businesses have much less time to adjust than previously assumed. This means that supply chains disruptions will be felt rapidly, with knock-on effects on price pressures and economic growth. This is on top of the direct and indirect impact of the tariffs themselves on consumer prices, and therefore their purchasing power. For Canada, while the specific sectoral and provincial impacts differ from our December scenario analysis, the overall magnitude of these measures—assuming they are maintained over a lengthy period—points towards recessionary conditions. The distribution of these effects will be notably uneven across regions and industries, with some sectors such as auto manufacturing, steel and aluminum and the aerospace sector likely facing the most acute challenges, while some others may prove more resilient. Looking ahead, several developments will warrant close monitoring. The US administration has signaled potential tariff actions against European trading partners, who have already indicated swift retaliation. Representing 65% of US exports, the combined responses from Canada, Mexico, China and the EU should apply significant economic and political pressure in the US, although much will depend on their sequence and coordination. It is difficult to predict the end of this protectionist escalation. If, as President Trump’s executive order dictates, the issue is about Fentanyl, demonstrated improvement could allow Donald Trump, on the advice of the Secretary of Homeland Security, to reverse tariff hikes. Congress can also end the national emergency declaration via a joint resolution of Representatives and Senators. However, President Trump’s grievances likely go beyond this. The wish for a sustained protectionist trade policy, or the desire to increase government revenues could keep the tariffs in place, although it would likely turn into a major issue in next year’s midterm elections. Domestically in Canada, the forthcoming announcements of government support packages—where provinces are likely to take the lead in the near term—will also be an important determinant of sector outcomes. Regardless, the Bank of Canada is expected to answer with deeper rate cuts as the shock requires not a merely neutral monetary policy but an accommodative one. Our team is working to incorporate the fine details of these new developments—as well as potentially forthcoming ones—into comprehensive forecast revisions, which we will publish next week.

At the WTO Government Procurement Committee’s March 2026 session, the EU — joined by the US, Japan, New Zealand, Norway, Switzerland and the United Kingdom — raised concerns about Canada’s federal-level procurement policies (”Buy Canadian”) that entered into force in December 2025, questioning whether Canada is acting in accordance with its WTO GPA commitment to guarantee non-discriminatory access to other parties. Canada’s defence was essentially: we are under exceptional trade pressure, GPA-party suppliers still have access, and we are willing to talk. This is a somewhat problematic stance worth discussing. The ”Buy Canadian” framework gives Canadian suppliers additional points in bid evaluation and assesses all bids based on their inclusion of Canadian goods, services and value-added content. Formally, EU suppliers can still bid. But the GPA and CETA Chapter 19 do not merely require open doors, but non-discriminatory treatment of tenders. A 10% evaluation discount applied to Canadian suppliers’ financial proposals, plus 25% of total score tied to Canadian value-added content, engages those obligations directly. Formal access without equal treatment for FTA partners (this is not the same situation as with third-country economic operators within the EU) is not much, and I am not sure Canada’s position at the Committee meeting seriously addressed this. Canada’s broader argument — that it is absorbing genuine economic problems and that EU suppliers are still better positioned than those from non-GPA countries — sounds nice bat has little effect (“better off than excluded” is not the treaty standard). And Canada’s procurement FTA obligations are more substantial than, for example, the US obligations under ”Buy American”, precisely because Canada is a GPA party but also with CETA commitments layered on top. Whether this proceeds to formal GPA Article XX consultations or parallel CETA Chapter 29 state-to-state dispute settlement is the question worth watching, these issues rarely stay at a diplomatic level for long.

Without the conflict in the Middle East, the USMCA renegotiation would likely be dominating headlines. The new trade math is less about where goods can move and more about what it costs to keep them moving. Economic security, energy security and the AI buildout will be at the center of USMCA talks. A new, full trilateral agreement is unlikely any time soon. The base case is not collapse, but a more complicated, higher-cost trade environment. Ahead of the review, the three countries are seeking different outcomes. 🔹 US: The administration is prioritizing bilateral leverage, reshoring, stricter rules of origin, national security and critical supply chains. US labor advocates will lobby for stricter enforcement of the minimum wage in Mexico; Mexican workers make less than Chinese workers. Bilateral agreements may resolve specific disputes more efficiently but are less effective for integrated issues such as rules of origin and critical minerals. 🔹 Mexico: The country is seeking to extend USMCA given its deep dependence on US demand. Nearshoring has been a tailwind. USMCA has provided the firm ground beneath it. Mexico's priorities are to reduce demand uncertainty, increase predictability and avoid tariffs. 🔹 Canada: Negotiations with the US are at a standstill, but preserving access to the US market is ideal. Energy, automotive manufacturing and critical minerals are seen as key areas of mutually beneficial cooperation. As a hedge, Canada is intensifying engagement with the EU, India and Turkey, pursuing greater trade diversification. Firms will continue shifting toward multi-country, resilience-first supply chains, embedding flexibility but higher costs into their operating models. That means trade policy becomes a planning variable for margins, working capital, capital expenditures and sourcing decisions. Expect a more fragmented and less predictable global trade environment, where cross-border activity continues to expand, but along more segmented and policy-driven lines. This piece was written with Valentina Skryabina, a contractor with KPMG LLP. #kpmg #trade #economics #usmca #us #mexico #canada