Canada-China Trade Deal

Canada-China Trade Deal

Why in News? 

Recently, Canada and China announced a preliminary trade agreement during Canadian PM Mark Carney’s visit to Beijing, marking a significant reset after nearly a decade of tensions and stalled bilateral ties. The move aims to expand cooperation across trade, energy, agriculture, and finance.

Highlights of Canada‑China Trade Deal

• Electric Vehicle (EV) Tariff Adjustment Framework: Canada’s decision to scale back its 100 % duty on Chinese EVs creates a controlled entry system where 49,000 vehicles a year can access the market under the standard 6.1 % MFN tariff. This quota will gradually expand toward 70,000 units within five years, signalling a calibrated move to balance consumer choice, industrial policy, and diplomatic stability.
• Revival of Canadian Agri-Exports to China: China’s pledge to reduce the canola seed tariff from nearly 85 % to about 15 % by March 2026 marks a major reset for Canadian agriculture. Tariff relief on canola meal, lobsters, crabs, and peas is set to begin the same month, collectively reopening critical export channels that were constrained during the dispute phase.
• Strategic Partnership Framework: Both countries committed to a “new strategic partnership” involving enhanced cooperation in clean energy, technology, agriculture, and public safety, and discussions around law enforcement and counter‑crime collaboration.
• Energy and Climate Collaboration: Energy cooperation emerged as a key pillar, with both nations agreeing on joint efforts in solar, wind, batteries, and energy storage, and expanding dialogues on low‑carbon energy initiatives to align with global decarbonization goals.

• Affordable EVs and Market Impact: Under the EV deal, half of the permitted Chinese EVs are expected to cost less than US $35,000 (~C$47,000) by 2030, increasing affordable clean‑energy vehicle options for Canadian consumers and encouraging EV supply chain investments in Canada.
• Expansion of High-Value Export Opportunities: Canadian producers are poised to regain meaningful access to the Chinese market. Early projections indicate that the restored trade environment could generate close to US $3 billion in new export contracts, benefiting crop growers, seafood industries, and food-processing businesses that depend heavily on stable international demand.

• Visa‑Free Travel and Cultural Ties: As part of broadening bilateral ties, China also signaled plans to reintroduce visa‑free travel for Canadians, fostering tourism and cultural exchange, although full details are yet to be outlined publicly.

Canada-China Trade Relations

• Bilateral Trade Volume: By 2024, overall Canada–China merchandise exchanges reached around US $118.4 billion, reaffirming China’s role as an essential yet secondary trade partner after the United States. Although China represented only about 4 % of Canada’s global exports, its much larger contribution to imports shows a clearly unbalanced pattern of trade dependence.
• Trade Balance and Deficit: Canada continued to experience a long-standing deficit in its commercial relationship with China. In 2024, imports were valued at nearly US $87 billion, while exports remained close to US $30 billion, leaving a gap of about US $57 billion. This imbalance is largely rooted in Canada’s sustained demand for China’s manufactured and processed goods.
• Merchandise Export Structure: Canada’s outbound trade to China is heavily centred on primary commodities, including energy, metal ores, minerals, and key agricultural items. During the first half of 2025, exports climbed to C$16 billion, growing 12 % year-over-year, supported mainly by an 81 % surge in energy shipments driven by stronger Asian demand.
• Merchandise Import Structure: Imports from China reached about C$48 billion in H1 2025, an 8 % annual rise, underscoring Canada’s reliance on Chinese production networks. Major import streams included consumer products (~C$15 billion), electronics and electrical devices (~C$10.3 billion), and industrial machinery (~C$6.5 billion), reflecting Canada’s dependence on competitively priced Chinese manufacturing.
• Service Trade Dynamics: Service-sector exchanges between the two countries amounted to roughly US $12 billion in 2024. Canada contributed US $7.9 billion in service exports—ranging from education to technological consulting—while imports reached US $4.2 billion. Though modest in scale compared with goods trade, this segment helps moderate the merchandise deficit and reflects growing professional and digital links.

Canada-China Trade Dispute

• Canada’s decision to defend its domestic industries in 2024 set the stage for the dispute. Ottawa introduced a 100% surtax on Chinese EVs from 1 October 2024, alongside 25% duties on Chinese steel and aluminum, citing market distortions and oversupply risks. These surcharges were applied in addition to the existing 6.1% MFN tariff, sharply raising barriers on Chinese manufacturing goods and signalling a tougher trade posture.
• Beijing countered by launching an anti-discrimination probe and on 8 March 2025 levied steep tariffs across Canadian farm exports. The measures included 100% duties on canola oil, canola meal and peas, and 25% tariffs on pork, fish and seafood, directly striking sectors heavily dependent on Chinese demand. These penalties disrupted long-standing agricultural supply chains and exposed Canada’s vulnerability in commodity-driven exports.
• China intensified pressure with a separate anti-dumping investigation focused on Canadian canola seed. The probe culminated on 12 August 2025 in the imposition of a provisional duty of around 75.8%, making Canadian seed commercially unviable in the Chinese market. This near-total shutdown of exports severely affected producers, given China’s historical role as a dominant buyer of Canada’s oilseed products.
• The agricultural restrictions pushed Canadian exporters out of their largest Asian market, while rival suppliers filled the gap. Both countries pursued cases at the World Trade Organization during 2024–2025, attempting to challenge each other’s measures through formal dispute channels. However, the momentum of retaliatory actions eventually outweighed the WTO process, with both sides turning instead toward direct negotiations that later produced the new bilateral settlement.

Significance of this Trade Deal

• Realignment of Middle-Power Diplomacy: The trade deal indicates a new diplomatic trend among middle powers, where countries like Canada seek balanced relations with both the U.S. and China. This signals that global trade leadership is becoming multipolar, with nations shaping policy based on economic necessity rather than bloc alignment.
• Boost to Global Agricultural Market Stability: By restoring China’s access to Canadian canola, peas, and seafood, the deal helps stabilize global agricultural supply chains. With China being the world’s largest commodity buyer, renewed access limits price volatility in oilseeds and protein crops, benefiting import-dependent economies in Africa and Southeast Asia.
• Impact on Global EV Competition: Reduced tariffs for Chinese EVs entering Canada strengthen China’s position in the global electric vehicle market, where it already holds a dominant manufacturing cost advantage. This intensifies competition for Western and Japanese automakers, pushing them to innovate faster and lower production costs to retain market share.

Implications for India

• As China resumes large-scale imports of Canadian canola, India may face reduced opportunities to expand its oilseed exports, particularly mustard and soy-based products, in the medium term.
• With China gaining access to the Canadian EV market, Chinese EV brands strengthen their global footprint, intensifying competition for Indian EV manufacturers aiming to enter Western markets.
• The calibrated settlement shows India the benefits of sector-linked, reciprocal tariff negotiations, useful for resolving its own disputes with China over electronics and pharmaceutical ingredients.
• As Canada diversifies to reduce reliance on Chinese manufacturing, India could position itself as an alternate production hub, especially for auto components, batteries, and agri-processing industries.
• Reduced Chinese duties on Canadian peas and oilseeds mean Indian exporters may face stiffer competition in Asian markets, requiring improved pricing and quality standards to maintain competitiveness.