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Canada Breaks with U.S. on China Trade

Canada Breaks with U.S. on China Trade

Ottawa slashes EV tariffs and forges 'strategic partnership' with Beijing as Trump's trade war reshapes alliances

Overview

Canada followed the U.S. in imposing 100% tariffs on Chinese electric vehicles in October 2024. Seventeen months later, Prime Minister Mark Carney flew to Beijing and cut them to 6.1%—the first explicit break with American trade policy since Trump began his tariff offensive. The deal allows 49,000 Chinese EVs into Canada annually in exchange for China slashing canola tariffs from 84% to 15%, unlocking $3 billion in agricultural exports.

The shift marks a structural change in North American trade alignment. With Trump's tariffs pushing Canadian unemployment to a nine-year high and straining the U.S.-Canada relationship, Ottawa is betting that diversification toward its second-largest trading partner outweighs the risks of diverging from Washington. For Canadian consumers, it could mean sub-$20,000 EVs. For autoworkers in Ontario, it means new competition from state-subsidized Chinese manufacturers.

Key Indicators

49,000
Chinese EV quota (year one)
Initial annual cap on Chinese EVs at 6.1% tariff, rising to 70,000 over five years.
100% → 6.1%
EV tariff reduction
Canada's tariff on Chinese EVs dropped from 100% to most-favored-nation rate.
$3B
Agricultural exports unlocked
Value of new export orders for Canadian farmers, fish harvesters, and processors.
8 years
Gap since last PM visit
First Canadian prime minister to visit China since Justin Trudeau in December 2017.

People Involved

Mark Carney
Mark Carney
Prime Minister of Canada (Leading trade diversification strategy)
Xi Jinping
Xi Jinping
President of China (Advancing strategic ties with middle powers)
Justin Trudeau
Justin Trudeau
Former Prime Minister of Canada (Resigned January 2025)
Doug Ford
Doug Ford
Premier of Ontario (Opposing federal EV deal)
LP
Lana Payne
National President, Unifor (Opposing federal EV deal)

Organizations Involved

CA
Canola Council of Canada
Industry Association
Status: Welcoming tariff resolution

Represents Canada's canola value chain, which generated $12.9 billion in farm cash receipts in 2024.

UN
Unifor
Labor Union
Status: Opposing EV deal

Canada's largest private-sector union with 315,000 members, including auto workers at Ford, GM, and Stellantis plants.

BYD Company Limited
BYD Company Limited
Automaker
Status: Potential entrant to Canadian market

China's largest EV manufacturer and Tesla's main global competitor, known for affordable models like the $14,000 Seagull.

Timeline

  1. Carney and Xi sign bilateral trade agreement

    Trade

    First Canadian PM visit to China since 2017. Deal cuts EV tariffs from 100% to 6.1% with 49,000 vehicle quota. China reduces canola tariffs from 84% to 15%. Leaders announce 'new strategic partnership.'

  2. China adds 76% tariff on Canadian canola seed

    Trade

    Beijing escalates with additional duties on raw canola seed, effectively blocking Canada's largest agricultural export to China. Combined rate reaches 84%.

  3. China imposes 100% tariffs on Canadian canola oil and meal

    Trade

    Beijing announces retaliatory measures effective March 20. Adds 25% tariffs on pork, fish, and seafood. Canadian canola exports to China drop sharply.

  4. Carney wins Liberal leadership

    Political

    Former central banker Mark Carney elected Liberal leader with 85.9% of vote, replacing outgoing PM Trudeau. Campaigns on trade diversification and reducing U.S. dependence.

  5. Trump imposes 25% tariffs on Canadian goods

    Trade

    President Trump signs executive orders under IEEPA placing 25% tariffs on most Canadian goods, 10% on energy. Breaks with USMCA free trade terms.

  6. China launches anti-dumping investigation on Canadian exports

    Trade

    Beijing announces investigation into Canadian canola, signaling retaliation for EV tariffs. Investigation expands to pork and seafood.

  7. Canada imposes 100% tariff on Chinese EVs

    Trade

    Prime Minister Trudeau announces punitive tariffs at cabinet retreat in Halifax, matching U.S. policy. Also adds 25% surtax on Chinese steel and aluminum. Cites state subsidies and overcapacity.

  8. 'Two Michaels' released after 1,019 days

    Diplomatic

    Meng Wanzhou signs deferred prosecution agreement with U.S. DOJ and returns to China. Hours later, Kovrig and Spavor are released and fly home to Canada.

  9. Canada arrests Huawei CFO Meng Wanzhou

    Legal

    RCMP arrests Meng at Vancouver airport on U.S. extradition request for alleged bank fraud related to Iran sanctions. Nine days later, China detains Michael Kovrig and Michael Spavor on espionage charges.

  10. Trudeau's last China visit ends without trade deal

    Diplomatic

    Prime Minister Justin Trudeau concludes five-day visit to Beijing and Guangzhou. Fails to secure agreement for formal free trade negotiations. No Canadian PM would return for eight years.

Scenarios

1

Chinese EVs Gain Foothold, Canadian Auto Sector Contracts

Discussed by: Unifor, Ontario Premier Doug Ford, Global Automakers of Canada

BYD, SAIC, and other Chinese brands enter Canada with sub-$25,000 EVs, capturing price-sensitive buyers. Without matching investment commitments, Canadian auto plants lose market share. Layoffs accelerate beyond current levels. The 49,000 vehicle cap proves insufficient protection as Chinese manufacturers shift production to other countries to circumvent limits.

2

Quota System Attracts Chinese Manufacturing Investment

Discussed by: McMaster University researchers, Carney government officials

Like Japanese automakers in the 1980s, Chinese EV companies respond to quotas by building Canadian plants to access the North American market. BYD or another major manufacturer announces battery or assembly facility. Deal proves strategic success, creating jobs while delivering affordable EVs to consumers.

3

U.S. Retaliates, Closes Border to Canadian-Made Vehicles

Discussed by: U.S. Trade Representative Jamieson Greer, Senator Bernie Moreno

Washington treats Canadian allowance of Chinese EVs as security vulnerability. Cites connected vehicle cybersecurity rules to block or inspect Canadian auto exports. USMCA review in July 2026 becomes confrontational. Canada forced to choose between Chinese market access and American trade relationship.

4

Deal Expands, Becomes Template for Allied Diversification

Discussed by: Atlantic Council, trade policy analysts

Other U.S. allies facing Trump tariffs follow Canada's approach. European countries, Australia, or Japan pursue similar bilateral arrangements with China. A bloc of middle powers develops China trade relationships independent of U.S. policy, fundamentally reshaping post-war trade architecture.

Historical Context

Japan-Canada Auto Quota (1981)

June 1981

What Happened

After Japan agreed to cap auto exports to the U.S. at 1.68 million vehicles, Canada secured similar voluntary restraints limiting Japanese imports to 174,000 vehicles annually. Canadian officials feared a flood of diverted Japanese cars. The quota was a managed trade solution to protect a domestic industry facing foreign competition.

Outcome

Short Term

Japanese manufacturers Honda and Toyota responded by building Canadian plants in Ontario during the 1980s, creating thousands of jobs.

Long Term

The quota system transitioned from protection to investment attraction. Japanese 'transplant' factories became pillars of Canadian auto manufacturing for decades.

Why It's Relevant Today

Carney's 49,000-vehicle quota mirrors this approach. The question is whether Chinese manufacturers will respond as Japanese did—by investing locally—or simply work around limits.

Australia-China Trade War Resolution (2020-2024)

May 2020 - March 2024

What Happened

China imposed 80% tariffs on Australian barley and duties up to 218% on Australian wine after Canberra called for a COVID-19 origins investigation. Trade worth $2 billion annually was effectively blocked. Australia challenged both at the WTO.

Outcome

Short Term

Australian exporters diversified to other markets. Many wine producers found buyers in the UK, U.S., and Southeast Asia.

Long Term

After the Albanese government took a softer diplomatic tone, China lifted barley tariffs in August 2023 and wine tariffs in March 2024. Trade recovered but Australia remained more diversified.

Why It's Relevant Today

Shows that China's retaliatory tariffs can be reversed through sustained diplomacy. Canada's faster resolution came with more explicit concessions—the EV tariff cut Australia never offered.

Meng Wanzhou Affair (2018-2021)

December 2018 - September 2021

What Happened

Canada arrested Huawei CFO Meng Wanzhou at U.S. request. China detained Canadians Michael Kovrig and Michael Spavor on espionage charges nine days later. The 'hostage diplomacy' standoff lasted 1,019 days until a coordinated release.

Outcome

Short Term

Canada-China relations hit their lowest point since diplomatic recognition in 1970. Trade talks froze. No Canadian PM visited China for eight years.

Long Term

The affair demonstrated Canada's vulnerability when caught between U.S. and Chinese interests. Carney's China visit explicitly aims to rebuild from this nadir.

Why It's Relevant Today

The Meng affair is the direct predecessor to today's rapprochement. Carney's visit marks Canada's attempt to move past the hostage crisis and establish a relationship independent of U.S. demands.

10 Sources:
+4
Al Jazeera CBC News NPR CNN Washington Post Global News Unifor Canola Council of Canada Wikipedia Wikipedia