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Canada Shifts Trade Focus to China as Trump’s Policies Push Allies Away
WASHINGTON — America’s top trading partners are increasingly looking to diversify their economic relationships in response to President Donald Trump’s unpredictable and confrontational trade policies.
In a significant diplomatic pivot, Canada announced Friday it would slash its 100% import tax on Chinese electric vehicles to just 6.1% in exchange for lower tariffs on Canadian agricultural products, particularly canola seeds. The move represents a dramatic departure from Canada’s previous alignment with U.S. trade policy toward China.
“It’s a huge declaration of realignment in Canada’s economic relations,” said Edward Alden, senior fellow at the Council on Foreign Relations. “The economic threat from the United States is now perceived by Canadians as far bigger than the economic threat from China. So this is a big deal.”
The decision by Canadian Prime Minister Mark Carney comes at a potentially risky moment, just as negotiations are set to begin over renewal of the U.S.-Mexico-Canada Agreement (USMCA), a trade pact crucial to Canada’s economy. The timing suggests growing Canadian frustration with Trump’s repeated targeting of Canadian industries.
Trump has frequently threatened Canada with punitive measures, including an October warning of a 10% tariff on Canadian imports in retaliation for a critical advertisement from Ontario’s provincial government. While that specific threat didn’t materialize, U.S. tariffs on Canadian steel and aluminum remain in place.
Canada isn’t alone in seeking alternatives to the U.S. market. The European Union is expected to formally sign a trade agreement Saturday with Mercosur, the South American alliance that includes Brazil and Argentina. The EU is simultaneously pursuing a trade deal with India.
China, meanwhile, has successfully diversified its export markets away from the United States toward Europe and Southeast Asia. Despite declining exports to America, China reported a record $1.2 trillion trade surplus with the rest of the world in 2025, according to recent government data.
Since returning to office in January, Trump has abandoned decades of U.S. policy supporting free trade, imposing double-digit tariffs on imports from nearly every country while targeting specific industries like steel and automobiles. His approach has often appeared arbitrary and politically motivated.
The president claims tariffs benefit the U.S. Treasury, protect American industries, and attract investment. Indeed, Taiwan recently agreed to invest $250 billion in the United States in exchange for a tariff reduction from 20% to 15% on Taiwanese products.
For Canada, the deal with China marks a significant shift. In 2024, Canada had followed the U.S. lead by imposing 100% tariffs on Chinese electric vehicles, reflecting concerns that low-cost Chinese EVs would overwhelm North American automakers.
The new agreement provides concrete benefits for Canada’s economy. Chinese tariffs on Canadian canola will drop from 84% to 15%, a crucial development for Canadian farmers seeking export markets. Additionally, the deal positions Canada to benefit from China’s advanced electric vehicle technology.
“China’s strengths in the electric vehicle sector are undeniable,” Carney said Friday. “China produces some of the most affordable and energy-efficient vehicles in the world. And in order for Canada to build our own competitive EV sector, we need to learn from innovative partners, access their supply chains, and increase local demand.”
The agreement limits Chinese EV exports to Canada to 49,000 vehicles annually at the reduced tariff rate, increasing to approximately 70,000 over five years.
Carney’s decision represents a calculated risk given Canada’s historically troubled relationship with China. In 2018, China detained two Canadians in retaliation for Canada’s arrest of a Huawei executive at U.S. request. All three were released in a 2021 prisoner swap. Canada also launched an investigation three years ago into alleged Chinese interference in Canadian elections.
Domestic criticism has already emerged, particularly from Ontario Premier Doug Ford, who represents Canada’s automotive manufacturing heartland. “Make no mistake: China now has a foothold in the Canadian market and will use it to their full advantage at the expense of Canadian workers,” Ford posted on social media.
The greatest risk, however, comes from potential U.S. retaliation as USMCA renewal negotiations approach. Trump is expected to demand changes favoring U.S. manufacturing and might threaten to withdraw from the agreement entirely. This presents a significant threat to Canada, which sends 75% of its exports to the United States.
William Reinsch, a former U.S. trade official now with the Center for Strategic and International Studies, predicted complications: “Trump will not be pleased with the Canadian action, will probably take some retaliatory measure, probably against the Canadian auto industry, and will certainly make it an issue in the USMCA talks.”
Carney noted Friday that the China agreement is preliminary, potentially giving him flexibility to modify terms if necessary to avoid conflict with the U.S. He may also be counting on American businesses to defend USMCA, as U.S. automakers depend on integrated North American production networks, and American farmers rely on Canadian and Mexican markets.
For now, economist Mary Lovely of the Peterson Institute for International Economics sees Canada’s deal with China as sending “a big signal that Canada is looking to other partners and has options that would allow it to walk away from the USMCA before it makes humiliating compromises to serve only American interests.”
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11 Comments
Canada’s decision to lower tariffs on Chinese EVs while seeking lower agricultural tariffs from China is a pragmatic response to the uncertainty created by Trump’s protectionist trade policies. Maintaining strong economic ties with the U.S. is crucial, but Canada appears to be adapting to the new realities.
The Canadian government’s decision to realign its economic relations with China is a bold move, but one that may be necessary given the unpredictability of the Trump administration’s trade policies. However, the potential for retaliation from the U.S. and further strain on the Canada-U.S. relationship is a significant concern.
It’s interesting to see how Canada is adapting to the changing global trade landscape. Reducing tariffs on Chinese EVs while seeking lower agricultural tariffs from China represents a strategic pivot away from the U.S. as a primary trading partner. The potential risks and rewards of this move will be closely watched.
It’s understandable that Canada would want to reduce its reliance on the U.S. market given the Trump administration’s aggressive trade tactics. Strengthening economic ties with China could pay dividends, but also raises concerns about geopolitical tensions and the potential for retaliation from the U.S.
This news highlights the growing tensions between the U.S. and its traditional allies, as countries like Canada seek to diversify their trade relationships in response to the Trump administration’s protectionist policies. It will be interesting to see how this shift in Canada’s trade focus plays out in the broader geopolitical landscape.
This pivot by Canada demonstrates the broader shifts in global trade dynamics. As traditional alliances become strained, countries are seeking to diversify their economic partnerships. However, the risks of angering the U.S. and further inflaming tensions between Washington and Beijing should not be overlooked.
Absolutely, Canada will have to carefully balance its relationships with the U.S. and China to avoid getting caught in the crossfire of their ongoing trade disputes.
The move by Canada to reduce tariffs on Chinese EVs while seeking lower agricultural tariffs is a pragmatic response to the Trump administration’s protectionist policies. However, it remains to be seen how this will impact Canada’s relationship with the U.S., a crucial trading partner.
You raise a good point. Canada will need to tread carefully to maintain strong ties with both the U.S. and China, as the geopolitical dynamics continue to evolve.
This is an interesting development. It seems Canada is hedging its bets and diversifying its trade relationships in response to the unpredictable policies of the Trump administration. Shifting focus to China could be a strategic move, but also carries risks given the ongoing tensions between the U.S. and China.
Canada’s decision to shift its trade focus to China is a significant diplomatic move, especially given the country’s historical alignment with U.S. trade policy. This suggests a growing frustration with the Trump administration’s unpredictable and confrontational approach to international trade.