Prime Minister Carney can be pleased with the results of his first official visit to China. Through a temporary trade truce, and a list of political, economic and cultural MOUs, the federal government has effectively reset relations with China to where they were in 2016, before the arrest of Meng Wanzhou at the request of the first Trump administration.
The headline announcement is a reduction of Chinese tariffs on Canadian canola seed (from 85 to about 15 per cent) in exchange for a limited number of electric vehicle imports to Canada (49,000) per year at a 6.1 per cent tariff (Canada’s most-favoured nation rate). This outcome, and a one-year tariff reprieve on Canadian lobster and canola meal, will ease some farmer concerns in Western Canada.
Autoworkers, on the other hand, are expressing serious concerns about opening the door to Chinese EVs given the impact this has had on auto-producing European countries. “Lifting the surtax risks turning Canada into a dumping ground for China-owned companies at the expense of our domestic auto industry and the Canadian workers who rely on it,” said Unifor, the union which represents most Canadian auto workers, in a statement today.
The EV tariffs were imposed in 2024 to harmonize with the Biden administration’s cold war–like position with respect to China’s industrial dominance in automotive, renewables and, increasingly, high tech production. The tariffs and Biden-era subsidies, including EV consumer rebates, prompted an inflow of investment into electric battery and vehicle manufacturing in North America. Many of these auto sector plans were reversed when Trump dismantled Biden’s attempt at a green industrial strategy.
Removing the Canadian EV tariffs looks reasonable from the perspective of improving China relations, but it is a highly risky move absent a more elaborated industrial strategy for the automotive and other struggling manufacturing sectors.
An official statement from the PMO says that Chinese investment in Canadian EV supply chains and renewable energy is part of the arrangement. But as Unifor points out, this investment is not guaranteed. The anticipated five-year timeframe for the importation of affordable (under $35,000) EVs from China, within the annual vehicle limits, coincides with the introduction of similar and similarly priced models by North American producers including Ford and General Motors but may still undermine the market share (and therefore jobs) of union-made vehicles.
There are two clear political bonuses to the federal government from the China relations reset. The first is internal. Western premiers and opposition MPs can no longer reasonably claim there is a federal bias toward Eastern Canadian manufacturers over Western farmers. Canola prices will rise with the news of stable market access in China, at least for the coming year.
Less high-profile but equally importantly, Canada and B.C. signed a non-binding MOU with China on modern wood construction that could provide an important new market for a Canadian lumber industry struggling under U.S. tariffs and environmental stresses. The prize would be making more money and creating more jobs out of felling fewer trees.
Additional cooperation on civil nuclear energy could pay off for Canadian technology and manufacturing as China aims to transition its significant number of coal-fired power plants to nuclear power. Concerns about the high cost and risk of nuclear versus cheaper and more reliable renewable power technologies notwithstanding, Canada-China nuclear cooperation on proven technology makes more sense than cooperating with the United States and United Kingdom on untested and expensive “small” modular reactors.
A second, related bonus to the federal government is that, in solving the China trade war first, the prime minister may be able to forge a stronger all-of-Canada position on U.S. relations and the upcoming CUSMA review. That review is set to begin by the end of January, with a July 1 decision date on whether to rollover the North American trade deal in some form or other.
The U.S. media, to the extent they were interested, has interpreted Carney’s visit to China as a natural outcome of being pushed away, again and again, by the brutish Trump administration. The U.S. president said again this week he doesn’t need CUSMA or anything Canada makes.
At the same time, the prime minister has been at pains to stress the importance of Canada-U.S. relations to his government even with a population solidly in favour of a hardline position in defence of Canadian sovereignty. Canadians are also still concerned about political freedom in China and the extensive use of forced labour in Chinese supply chains, in particular mining and basic manufacturing.
Speaking of mining, the Canadian announcements from Beijing emphasize the benefits of Chinese investment in new fossil fuel and extractive projects in Canada. This looks like a shift from Trudeau government restrictions imposed on Chinese investment in projects deemed sensitive for national security.
A Canada-China foreign investment protection agreement signed by the Harper government grants rather extreme guarantees to Chinese investors in the event future provincial or federal governments change their mind about expanding oil and gas exports, which they surely will given the implications for global warming. Canada is currently being sued for at least $1 billion by a U.S. LNG firm under similar investment protections in CUSMA. Energy and mining-related investor-state claims are on the rise internationally.
The Chinese government knows Canada’s room to manoeuvre is limited by American hegemony in North America. These agreements with Canada are small potatoes for President Xi, who benefits internationally from the flow of Western leaders hoping to make nice with China in the face of U.S. aggression. The future of Canada-China relations depends on what Canada agrees to in the upcoming CUSMA review.
A more stable economic and diplomatic relationship with China, including lowering EV tariffs (which put Canada at odds with both U.S. and Mexican policy), may be a message to the Americans that we have options and some leverage to withstand some of the more outlandish demands we expect from the CUSMA review.
Or it could prove a short-lived reprieve if the Carney government agrees to harmonize international trade policy under a more tightly controlled (from Washington) Fortress North America—a very real possibility, as discussed in our look at the CUSMA review scenarios. United States Trade Representative Jamieson Greer has already called the EV tariff drop “problematic.”
Which brings us back to industrial strategy. Canada’s exports to China are heavily weighted toward raw materials (iron ore, coal, canola seeds) and our imports weighted toward high-tech goods, including automobiles.
We may be able to double these exports with the help of oil and gas, but this is not a strategy for economic sustainability or good job promotion in the long-term. For that, we need more internal cooperation among governments and the private sector, to fortify our economy against ongoing and future trade threats from any direction.
