NextFin -- For decades, successive Canadian governments have talked about diversifying trade away from heavy reliance on the United States. Yet until now, those pronouncements yielded only modest results: Canada continues to send roughly 70% of its exports to the U.S., while other partners, especially China, have loomed large in potential but remained under-leveraged.
Canadian Prime Minister Mark Carney’s January 2026 visit to Beijing, the first by a Canadian leader in nearly a decade, appears to mark a practical first step toward changing that pattern. Rather than limiting his diplomacy to ceremonial head-of-state calls, Carney returned with what his office and media reporting are calling a preliminary trade and economic agreement with China, encompassing tariff reductions and broader cooperation across agriculture, energy, and industry.
Icebreaking Trip in the Spirit of Pragmatism
Given nearly a decade of strained relations in the wake of Huawei’s CFO Meng Wanzhou’s arrest in Vancouver at the extradition request from the U.S. government and China’s retaliatory detention of two Canadian nationals, Carney’s visit to Beijing is widely seen as icebreaking, signaling Canada’s pragmatic intent to re-engage with China while exploring new avenues for trade diversification.
At a Beijing press conference outlining a deal with China, Carney offered several key statements that reflect a pragmatic approach to Canada’s shifting trade strategy:
On the electric vehicle tariff arrangement:
“This is a return to levels prior to recent trade frictions, but under an agreement that promises much more for Canadians.”On the strategic logic behind the deal:
Carney emphasized the importance of learning from global partners and strengthening Canada’s competitive position:
“For Canada to build its own competitive EV sector, we will need to learn from innovative partners, access their supply chains, and increase local demand.”On the comparative reliability of China vs. the U.S. relationship:
Carney observed that the bilateral dialogue with Beijing has become more “predictable” than recent experiences with Washington, a pointed reflection on the economic uncertainty created by U.S. policy shifts.
Carney characterized the relationship between Canada and China in the past decade as strained and volatile.
“20 billion dollars in wages are earned each year by Canadians because of our existing trade relationship. This is a relationship that has been distant and uncertain for nearly a decade. That has held back investment, stalled business growth, and cost Canadian workers good opportunities,” he said at a press conference in Beijing.
These comments underscore Carney’s broader theme: Canada must adapt to what he has elsewhere described as a world “as it is, not as we wish it to be” — one marked by shifting alliances and strained traditional trade dynamics.
EVs, Canola and Cooperation
Under the China-Canada pact:
Canada will allow up to 49,000 Chinese electric vehicles (EVs) to enter annually at a reduced tariff of 6.1%, a significant rollback from 100% under the previous Liberal government’s policy.
China has agreed to reduce tariffs on key Canadian agricultural exports, including canola seed, seafood, peas, and lobsters, from punitive levels imposed during past disputes.
Both sides signaled cooperation in additional areas including energy, finance, and tourism, alongside a commitment to restore visa-free travel for Canadians.
Carney framed the deal as a “starting point,” designed to unlock new markets and diversify beyond the United States, on which Canada has historically been so dependent.
Tesla is set to become one of the first automakers to gain from Canada’s decision to lift its 100% tariffs on Chinese-made electric vehicles, leveraging its early shipments from Shanghai and its well-established Canadian sales network, according to industry experts.
Under an agreement announced last Friday, Canada will permit the annual import of up to 49,000 vehicles from China at a most-favoured-nation tariff rate of 6.1%. Prime Minister Mark Carney said the quota could increase to as many as 70,000 vehicles within five years.
The deal includes a key caveat: half of the quota will be reserved for vehicles priced below 35,000 Canadian dollars ($25,189). All current Tesla models are priced above that threshold, potentially limiting the company’s access to the lower-cost segment of the quota.
Even so, Tesla holds a structural advantage. In 2023, the U.S. automaker upgraded its Shanghai facility—its largest and most cost-efficient plant globally—to produce and export a Canada-specific version of the Model Y. That same year, Tesla began shipping the model from Shanghai to Canada, driving a 460% year-on-year surge in Canada’s automobile imports from China through the Port of Vancouver to 44,356 vehicles.
While Chinese automakers are expected to aggressively pursue the new export opportunity, Tesla’s early positioning and established logistics could allow it to move faster than many potential competitors.
Domestic Political Backlash
Not everyone in Canada welcomes the move. Ontario’s premier Doug Ford, who represents Canada’s main auto manufacturing province, criticized the tariff rollback, warning it could undercut Canadian workers and the domestic auto sector.
“The federal government is inviting a flood of cheap made-in-China electric vehicles without any real guarantee of equal or immediate investments in Canada’s economy, auto sector, or supply chain,” said Ford.
Ford’s concern reflects unease among some provincial leaders that trade diversification might come at the expense of existing industries deeply tied to North American supply chains.
Carney has sought to defuse these criticisms by casting the China opportunity as one for the auto sector and Ontario workers, not a threat. In a subsequent news conference, he described the China EV arrangement as “an opportunity” for Ontario.
“It’s an opportunity for Ontario workers, opportunity for Canada, done in a controlled way with a modest start,” he said.
He also noted investments from Chinese companies in potential partnerships with Canadian firms and possible local production.
Trump’s Support — With an Asterisk
Perhaps the most striking response came from U.S. President Donald Trump, whose own America-First trade agenda helped catalyze Ottawa’s pivot.
Trump publicly endorsed Canada’s right to strike a deal with China, telling reporters:
“That’s what he should be doing. It’s a good thing for him to sign a trade deal. If you can get a deal with China, you should do that.”
This is notable given Trump’s often-harsh approach to traditional U.S. allies on trade, including tariffs on Canadian steel, aluminum, and other goods, and his fractious rhetoric toward Ottawa.
However, U.S. trade officials, including the U.S. Trade Representative, warned Canada it may regret allowing more Chinese EVs into its market, framing the move as potentially harmful to North American industry.
The mixed U.S. messaging — public presidential support coupled with bureaucratic concern — mirrors the broader strategic dilemma Canada faces: balancing the desire to diversify with the reality that the U.S. remains Canada’s largest market and strategic partner.
A Shift in Canadian Trade Policy
Carney’s China visit signals a historic shift in Canadian economic diplomacy — one in which high-level trade diversification talk has finally yielded concrete action. China still buys a small fraction of Canadian exports (about 4% in 2024) compared to its southern neighbour (over 70% in 2024). But it is a symbolically significant first step toward diversifying trade and reducing vulnerability to unilateral U.S. pressure.
Canada first sought trade diversification under Pierre Trudeau’s administration between 1972 and 1974, following U.S. protectionist moves and rising Canadian economic nationalism. The government formally declared economic overdependence on the U.S. a real problem and adopted diversification as a national objective, aiming to increase trade with Europe and Japan.
This culminated in the “Third Option,” which meant Canada should not simply follow one of the two dominant global powers of the time — the United States and the Soviet Union — but instead pursue a more independent course. It was an attempt to reorient Canada’s economic trajectory, but it failed: economic dependence on the United States stayed, if not deepened.
Between the 1980s and 2000s, Canada’s economic overdependence on the United States increased, with the theme of integration rather than diversification. The Canada–U.S. Free Trade Agreement was reached in 1989, followed by the North American Free Trade Agreement in 1994. Exports to the U.S. surged, and Canada’s manufacturing and energy sectors became tightly integrated with the United States. By the early 2000s, over 85% of Canadian exports went to the U.S.
In July 2018, Justin Trudeau, the then prime minister, added “Diversification” to the international trade minister’s title, making it “Minister of International Trade Diversification” as a distinct focus. However, nothing substantial was achieved: Canada remained as fragile as it was before in the shadow of U.S. dominance in Canada’s foreign trade.
The ultimate success of trade diversification will depend on Ottawa’s ability to balance competing priorities: protecting domestic industries, engaging global markets, and navigating complex geopolitical tensions between Washington and Beijing.
