In a major demonstration of that policy, Canada and China reached a trade agreement in Beijing. This historic agreement has the potential to change their economic partnership for good. The agreement, announced in late March, represents a substantial shift from Canada’s historically hawkish protectionist defense, especially as it relates to electric vehicles (EVs). To offset these increasing pressures, Canada will remove its 100% import tax on Chinese EVs. In exchange, China will reduce tariffs on Canadian agricultural goods, especially canola seeds.
By 2024 China will start exporting an estimated 49,000 electric vehicles (EVs) to Canada at a discounted tariff rate of 6.1%. This figure is projected to increase dramatically, almost doubling in five years to nearly 70,000. This decision comes as China continues to be hailed for leading the way in delivering some of the cheapest and cleanest energy-efficient vehicles on the market. In response, Canada placed a 100% tariff on these vehicles. They worried that the tidal wave of cheap Chinese cars would kill American automakers in North America.
Mark Carney, Canada’s lead negotiator in the talks, admitted that the deal remains very much in its early stages. As he described it, he views this as an opportunity to negotiate more improvements if necessary. This flexibility is absolutely essential. It is doing so primarily because it can assure Canada has avoided raising tensions with the United States, its biggest trading partner.
“China’s strengths in the electric vehicle sector are undeniable,” – Mark Carney
The economic landscape behind this deal isn’t so cut and dry. Though Canada has historically walked in lockstep with U.S. trade policy, this agreement is an exception and an important one at that. This troubling reality puts U.S. officials in a place of fear for potential backlash of their own. In fact, this former President Donald Trump’s favorite dealmaker got lauded by none other than Mr.
“If you can get a deal with China, you should do that,” – Donald Trump
“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,” – Doug Ford
As discussions about the implications of this deal continue, economists and analysts note that Canadians now perceive the economic threat from the United States as more significant than that posed by China. We hope this change would have permanent effects. In particular, during USMCA negotiations the U.S. should press for changes in manufacturing practices and seek to bring production back to American soil.
Trade expert Edward Alden was struck by what this agreement means for Canada’s future economic relationship with the United States and Mexico.
“It’s a huge declaration of realignment in Canada’s economic relations,” – Edward Alden
Perhaps most importantly, he drew attention to just how difficult Carney had to fight to get this deal over the line, illustrating the agreement’s complexity and potentially lasting impacts.
“This was an extraordinarily difficult thing for Carney to do,” – Edward Alden
Critics claim the deal has exposed weaknesses in Canada’s manufacturing industry. They argue that even if lower tariffs on Canadian agricultural exports would be useful, these flaws are too important to overlook. By lowering its tariffs on Chinese EVs, Canada risks undermining its own domestic auto industry. This boom industry relies in large part on stable trade relations with our northern neighbor.
The deal presents a complicated backdrop as Canada sends 75% of its goods exports to the United States, making it an essential market for Canadian businesses. This settlement might have a profound effect on USMCA talks. U.S. officials would likely push for more favorable terms for American manufacturers than their Canadian counterparts.
