Is Canada’s New Deal with China a Sign of Its Shift Away from the US?

Prime Minister Mark Carney's new approach to Canada's foreign policy is encapsulated in his statement: "We take the world as it is, not as we wish it to be." This shift is exemplified by a recent trade agreement with China that reduces tariffs on Chinese electric vehicles (EVs) while China lowers tariffs on key Canadian agricultural products. This deal marks a significant change in Canada's stance towards China, especially amid evolving relations with the United States, its largest trading partner.

Last updated: 06 October 2023 (BST)

What’s happening now

On Friday, Prime Minister Mark Carney announced a landmark trade deal with China, easing tariffs on Chinese electric vehicles that Canada had imposed in coordination with the United States. This agreement comes at a time of uncertainty regarding Canada's relations with the US, particularly under the Trump administration. Experts are interpreting this move as a significant recalibration of Canada’s foreign policy towards China, demonstrating a willingness to engage with a major global power despite previous criticisms of its human rights record.

Key takeaways

Canada has decided to ease tariffs on Chinese electric vehicles while China reciprocates by lowering tariffs on Canadian agricultural exports.
The agreement signifies a major shift in Canada's foreign policy towards China, adjusting to a new geopolitical landscape.
Canadian provinces have reacted differently, with some viewing the deal as beneficial while others express concerns over economic impacts.

Timeline: how we got here

Since the beginning of Mark Carney's premiership, a number of key events have shaped Canada’s foreign policy towards China:

January 2022: Carney labels China as a "security threat", highlighting concerns over human rights and trade practices.
March 2024: Canada and the US impose tariffs on Chinese EVs, citing overproduction issues.
October 2023: Canada announces a new trade deal with China that eases duties on EVs and leads to reduced tariffs on Canadian agricultural products.

What’s new vs what’s known

New today/this week

The recent trade deal has altered tariffs significantly: Canadian tariffs on Chinese EVs will drop from 100% to 6.1% for the first 49,000 vehicles. In return, China will reduce its tariffs on Canadian canola seed from 84% to around 15% by 1 March 2024.

What was already established

Prior to this deal, Canada had a critical view of China's trade practices and human rights record, which shaped its foreign policy. The tariffs imposed in 2024 were part of a broader strategy to protect domestic industries from perceived unfair competition.

Impact for the UK

Consumers and households

The agreement could lead to lower prices for electric vehicles in Canada, which may benefit Canadian consumers. However, it raises concerns about the potential flooding of the Canadian market with cheaper Chinese vehicles, impacting local manufacturers.

Businesses and jobs

Canadian farmers, particularly in Saskatchewan, may benefit from the reduction of tariffs on agricultural products. However, the automotive sector in Ontario is apprehensive, fearing job losses due to increased competition from Chinese EV manufacturers.

Policy and regulation

This deal may shift the regulatory landscape in Canada, prompting discussions about how to support local industries while engaging with China. The Canadian government will need to balance these interests carefully to ensure long-term economic stability.

Numbers that matter

Tariff reduction on Chinese EVs: from 100% to 6.1% for the first 49,000 vehicles.
Projected increase in Chinese EV market share in Canada: approximately 10%.
Reduction of tariffs on Canadian canola seed: from 84% to around 15% by 1 March 2024.

Definitions and jargon buster

EV: Electric Vehicle, a vehicle powered by electricity rather than traditional fuels.
Tariff: A tax imposed on imported goods to protect domestic industries.
USMCA: United States-Mexico-Canada Agreement, a trade agreement between the three countries.

How to think about the next steps

Near term (0–4 weeks)

Watch for reactions from various sectors in Canada, particularly from the automotive and agricultural industries, as they assess the impact of the new trade deal.

Medium term (1–6 months)

Monitor how the relationship with the US evolves, especially in light of ongoing trade negotiations and the potential for further tariff changes.

Signals to watch

Changes in market share for Canadian and Chinese EVs in the Canadian automotive market.
Reactions from US trade representatives regarding Canada's new approach to China.
Performance of Canadian agricultural exports in response to reduced tariffs from China.

Practical guidance

Do

Stay informed about changes in tariffs that may affect your purchasing decisions.
Consider the potential long-term implications of increased Chinese investment in Canada.

Don’t

Don’t dismiss the potential for job losses in the automotive sector without careful consideration.
Don’t overlook the importance of supporting local industries amidst international competition.

Checklist

Review how the new tariff changes may affect your business or purchasing decisions.
Stay updated on industry responses from Canadian farmers and automotive manufacturers.
Consider the geopolitical implications of Canada's trade relationship with China.

Risks, caveats, and uncertainties

While the deal with China has potential benefits, uncertainties remain regarding its long-term impact on Canadian industries. The automotive sector may face challenges from increased competition, and there is no guarantee that the anticipated investments in Canadian manufacturing will materialise. Additionally, the evolving US-Canada relationship could complicate matters further, especially if the US imposes new tariffs or trade barriers.

Bottom line

The recent trade agreement with China represents a significant shift in Canada's foreign policy and economic strategy. As the country navigates a complex geopolitical landscape, it will be crucial for Canada to balance engagements with global powers while protecting its domestic industries. The future of trade relations, particularly with the US, remains uncertain, making it imperative for Canada to remain agile and proactive.

FAQs

What is the significance of the new trade deal between Canada and China?

The trade deal is significant as it marks a recalibration of Canada's foreign policy towards China, reducing tariffs on Chinese EVs while China lowers tariffs on Canadian agricultural exports.

How will this deal impact Canadian consumers?

Canadian consumers may benefit from lower prices on electric vehicles due to reduced tariffs, but there are concerns about the potential impact on local manufacturers.

What are the implications for Canada's relationship with the US?

This deal may complicate Canada's relationship with the US, particularly with the Trump administration's mixed reactions, signalling a need for Canada to assert its own trade interests.