Canada and China are working to reset their bilateral relationship following a recent meeting between Canadian Prime Minister Mark Carney and Chinese President Xi Jinping in Beijing. The leaders agreed to reduce tariffs on each other’s products, aiming to boost trade between the two countries, although the move may cause friction with the United States.
The agreement addresses near-term tariff levels, with both sides agreeing to lower tariffs on key items. Canada will permit up to 49,000 Chinese electric vehicles (EVs) into its market at a most-favoured-nation tariff rate of 6.1%. Meanwhile, China will reduce tariffs on Canadian canola seed from 85% to about 15%. Additionally, Canadian exports such as canola meal, lobsters, crabs, and peas will be exempt from anti-discrimination tariffs.
Canada has also set an ambitious target to increase exports to China by 50% by 2030. President Xi committed to visa-free travel for Canadians, further facilitating trade and travel between the countries. Both parties see two-way opportunities in sectors including batteries, solar, wind, and energy storage.
Regarding the auto tariff deal, the Prime Minister’s office clarified that the allowance corresponds to import volumes from the 2023–2024 period, before recent trade tensions. This quantity represents less than 3% of the Canadian new vehicle market. The agreement is expected to encourage substantial Chinese joint-venture investments in Canada over the next three years, aimed at protecting and creating automotive manufacturing jobs and developing Canada’s EV supply chain. Moreover, within five years, over half of these imported EVs are expected to be affordable models priced below $35,000, providing lower-cost options for Canadian consumers.
In a second announcement, Carney and Xi agreed to deepen strategic ties. Canada confirmed its commitment to the One China policy and signed a bilateral trade roadmap to address outstanding economic issues. They also launched a ministerial energy dialogue to promote cooperation in clean power and oil sectors. Additionally, the Bank of Canada renewed its currency swap arrangement with China.
Carney has prioritised diversification of Canadian trade away from the United States, especially as the US has recently increased tariffs and discussed the possibility of annexation. While the trade deal with China marks a significant step towards this goal, the lowering of auto tariffs on Chinese vehicles—though limited—may unsettle the domestic automotive industry and attract criticism from the White House.
The Canadian dollar showed no significant reaction to the deal, which was somewhat unexpected given that speculation about an agreement had seemed doubtful earlier in the week. Although the deal is favourable overall, it introduces new risks to the loonie should former US President Donald Trump respond negatively. As of the latest trading, USD/CAD remains steady at 1.3890.
Original Source: Adam Button of investinglive.com
