Werner’s blog: Chinese tariffs on Canadian canola should prompt development of a larger domestic biofuels market

China recently announced tariffs on Canadian canola seeds, retaliating against Canadian EV tariffs implemented last year. Should Canada escalate the trade war, or is there a domestic opportunity presenting itself that will be of greater benefit to Canada? UBC Sauder Associate Professor Werner Antweiler discusses in this excerpt from his latest blog post.

On August 12, 2025, China announced preliminary anti-dumping duties against Canadian canola seeds at a rate of 75.8 per cent. The timing of this move is intended to inflict maximum pain on Canadian farmers, who have already planted the crop for this year and have started harvesting. Canola prices have already dropped, and farmers will be losing much income. China accuses Canada of subsidizing canola farmers, but this allegation lacks substance. Rather, China is retaliating against Canada's 100 per cent tariff on EVs, which were brought in last year, and to the more recent tariff-rate quotas (TRQs) on aluminum and steel. What should Canada do in response? Some are making the case for intensifying the trade war with China. But there is also a good case to be made to make some concessions to China. Most importantly, Canada needs to look to the future and develop a larger domestic market for canola. I explain the reasoning below.

In September 2024, China imposed 100 per cent preliminary anti-dumping duties on canola oil and canola meal. The 2024 measure was limited in scope because it targeted a small segment of the canola market. However, Canadian exports of canola seeds is a much larger market segment. The August 2025 move will hurt significantly.

Canola (also known as rapeseed) is a major agricultural product for Canada. During 2024, canola was grown on about 9 million hectares of land, with a harvest of nearly 18 million tonnes, spread amongst Saskatchewan (55 per cent), Alberta (29 per cent) and Manitoba (16 per cent). Canola seeds are exported directly, but seeds are also crushed and refined into canola oil, with canola meal (which is mainly used as animal feed) as a valuable byproduct. The markets for canola seeds and canola oil are roughly similar in size, while the market for canola meal is much smaller. Most Canadian canola exports to the United States are canola oil, while most Canadian exports to China are canola seeds.

What can Canada do about the new Chinese tariffs? Is China's government using these anti-dumping duties as a bargaining chip in trade negotiations to obtain concessions on EVs or steel? Perhaps there is indeed scope for Canada to relent on EV tariffs. The 100 per cent tariff on EVs was imposed arbitrarily, mirroring an earlier move by the United States. Canada's move was intended to protect North American automakers that have fallen behind their Chinese competitors in developing battery technology and electric vehicles. In my view, this 100 per cent EV tariff was ill conceived and will ultimately hurt Canadian consumers, without protecting jobs in Canada's auto industry in the long term.

The European Union is much more exposed to Chinese EVs than Canada, primarily because European motorists prefer smaller and mid-sized vehicles that China is now excelling at producing. Despite this greater threat, the E.U. has chosen a softer approach than Canada, and one that relies on fact-based economic analysis. After an investigation of Chinese subsidies to their EV industry, the European Union imposed countervailing duties of between 7.8 per cent and 35.3 per cent. These numbers are all economically plausible, and unlike Canada's 100 per cent tariffs, are intended to level the playing field and do not make Chinese EV sales completely unprofitable. Canada should follow the E.U.'s lead and replace the 100 per cent tariffs with countervailing duties that vary by manufacturer, and can be based on solid empirical investigation of unfair state subsidies. Canada's federal government should engage China to explore whether a move on EV tariffs would allow China to abandon their tariffs on canola.

Even successful trade negotiations with China should not distract from an underlying problem. Canada's canola farmers are overly exposed to the whims of foreign markets. Canada needs to grow its domestic market, and in fact it can and must. Canola oil has become the major input into the production of renewable diesel (RD) and sustainable aviation fuel (SAF). On August 5, 2025, Imperial Oil announced that it has started producing RD at its Strathcona refinery near Edmonton. The new plant (integrated with its existing conventional refinery) has the capacity to produce a billion litres of diesel per year. RD is a drop-in fuel that can be used without engine modifications just like conventional diesel made from fossil sources. To make one litre of RD one needs about 2.85 kilograms of canola. A plant with an annual capacity of 1 billion litres would require 2.85 million tonnes of canola, roughly half of the 5.86 million tonnes of canola exported to China in 2024. Hopefully, much of the output that was supposed to be sold to China will now find its way into domestic RD and SAF.

The case for developing a stronger domestic biofuels market is strong. It would enhance energy security. It would give Canadian farmers a reliable and predictable market for their crop. It would reduce carbon emissions as renewable diesel replaces the conventional kind. It would extend our agricultural value chain and create new jobs. And politically, it should be a case for broad consensus across party lines. What needs to be done is to beef up the federal Clean Fuel Regulations (CFR) to mandate Canadian content in biofuels. B.C. has already paved the way for this with its recent changes to its Low Carbon Fuel Standard (LCFS). The renewable fuel requirement for diesel was increased from 4 per cent to 8 per cent for the 2025 compliance period, and the minimum 8 per cent renewable fuel requirement for diesel must be met with eligible fuels produced in Canada.

Beefing up the federal CFR may also deal with unfair practices by our southern neighbour. Section 45Z of Biden's Inflation Reduction Act introduced generous subsidies for RD and SAF. These subsidies were renewed under Trump’s One Big Beautiful Bill Act. Foreign producers such as Canada cannot claim these subsidies, but U.S. producers can obtain these credits for fuels produced from Canadian feedstock. This distorts trade and could swamp the Canadian biofuels market with subsidized U.S. output. Minimum Canadian content for biofuels should prevent such unfair trade practices. Canada should increase the domestic content to ensure that domestic RD and SAF refineries are not disadvantaged. Canada needs to build its own refining infrastructure and not let the United States monopolize the market unfairly.