China and Canada Ease Tensions with Signing of Preliminary Trade Deal

The China-Canada preliminary trade deal marks a tentative reset in bilateral relations after years of diplomatic and trade friction. The agreement eases tariffs on Chinese EVs and Canadian agricultural products while reopening channels for investment, energy cooperation, and long-term trade growth. For businesses on both sides, it signals a more pragmatic approach to managing economic ties amid ongoing geopolitical uncertainty.

China and Canada have reached a preliminary agreement-in-principle, marking a significant step toward stabilizing a bilateral relationship that has been strained for much of the past decade.

The agreement, officially the “Canada-China Economic and Trade Cooperation Roadmap”, was signed during Prime Minister Mark Carney’s official visit to China from January 14 to 17, lifts or adjusts a range of trade restrictions affecting Chinese electric vehicles (EVs) and Canadian agricultural products, while also seeking to address several long-standing trade and regulatory disputes between the two sides.

Carney’s visit – the first by a Canadian prime minister since late 2017 – signals a notable thaw in relations that have remained tense since the arrest of Huawei executive Meng Wanzhou in December 2018 triggered a prolonged diplomatic crisis.

In a joint statement, the two governments committed to “expanding bilateral trade, strengthening two-way investment, and deepening cooperation in diverse sectors of mutual interest,” underscoring a shared interest in resetting the economic dimension of the relationship despite broader geopolitical headwinds.

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An official backgrounder from the Canadian government emphasized that “Canada must have a serious, focused, and pragmatic relationship with China,” reflecting Carney’s new dictum to “take the world as it is, not as we wish it to be.” While the prime minister reiterated this message in his historic speech at the World Economic Forum on January 20, he first articulated it during his visit to China in reference to the agreement, framing it as a necessary recalibration of Canada’s foreign economic policy.

President Xi Jinping echoed this sentiment, stating that “although China and Canada have different national conditions, both countries should respect each other’s sovereignty and territorial integrity, respect each other’s chosen political systems and development paths, and adhere to the correct way for countries to get along with one another.”

What has been agreed upon?

Canada to reduce tariffs on Chinese EVs, steel, and aluminum

Under the new agreement, Canada will restore the most-favored nation (MFN) tariff for a quota of Chinese EV imports, reducing the tariff rate from over 100 percent to just 6.1 percent.

In August 2024, following in the footsteps of the US and the EU, Canada announced a 100 percent import tariff on Chinese-made EVs, taking effect on October 1, addressing what it claimed were China’s “non-market support” of the industry, which could harm the domestic industry.

Canada will now allow “managed market entry” of affordable Chinese EVs by providing an initial annual quota of 49,000 EVs at the MFN rate. By 2030, 50 percent of this quota will be reserved for affordable EVs with an import price of CAD 35,000 (US$25,460) or less. According to the backgrounder, this strategy will allow for new Chinese joint-venture investment in Canada and build the country’s EV supply chain, while protecting and creating new auto manufacturing jobs. The new quota matches the volume of Chinese EV imports in the year prior to the “recent trade frictions” between 2023 and 2024, per the backgrounder.

In addition, Canada will extend the suspension of tariffs on certain Chinese steel and aluminum imports until the end of 2026. On the same day as the EV tariff announcement, Canada announced a 25 percent tariff on imports of steel and aluminum products from China, effective October 15, 2024. In January 2025, Canada granted a suspension on the collection of tariffs on some of the steel and aluminum products until December 31, 2025. A suspension was also granted for a small quota of imports of certain EVs.

The new extension will cover steel, aluminum, and derivative products that are in low supply or have no supply in Canada. A full suspension has been granted for 11 tariff lines and a partial suspension on 55 tariff lines. The suspension will also be expanded to cover an additional seven steel products, two aluminum products, and four steel derivative products.

According to data from Statistics Canada, Canada imported around US$977 million of the steel product categories covered by the tariffs in 2024, accounting for eight8 percent of total imports, and US$940 million worth of aluminum products covered by the tariffs in 2024, around 28 percent of the total.

The concessions made on EVs, as well as steel and aluminum tariffs, mark a significant breakthrough in a long-standing trade dispute between the two countries. Speaking on the new EV quotas, MOFCOM Spokesperson He Yongqian told reporters on January 22 that it was “a positive step in the right direction for Canada and good news for Chinese EVs’ expansion into the Canadian market”.

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However, Canada has been actively expanding its tariff regime in an effort to protect domestic industries in recent months. On December 26, 2025, it began levying a 25 percent tariff on certain steel derivative products from all countries to “address risks associated with persistent global overcapacity and non-market policies and practices in the steel sector”.

The global tariff, which does not stack with the China-specific duties, signals that tariffs are likely to remain a continuing tool for managing steel and aluminum imports from China and elsewhere, and that the suspension of the China-specific duties may be temporary and limited in scope.

Reduction of Chinese tariffs on Canadian agricultural goods

In return for Canada’s EV purchases, China will lower or remove discriminatory tariffs on Canadian agricultural products, including Canola seeds, canola meal, and various seafood products.

According to the backgrounder, Canada expects China to lower tariffs on Canadian canola seeds by a combined rate of around 15 percent by March 1, 2026, down from the current combined rate of 84.8 percent.

In addition to the tariff reduction on canola seeds, Canada expects China to remove anti-discrimination tariffs on Canadian canola meal, lobsters, peas, and crabs from March 1, 2026, to the end of the year. It also expects China to “accelerate the resumption” of imports of Canadian beef, pet food, animal genetics, and other products.

Since the 2018 diplomatic crisis, China and Canada have been embroiled in a tit-for-tat trade standoff, with Canadian canola becoming a key battleground.

As a result of the tensions, exports to China have undergone significant volatility in recent years. In 2019, China halted imports of canola seeds from major Canadian companies following the revocation of export licences by Chinese customs authorities. The ban was lifted in 2022, leading to an immediate uptick in exports in 2023 and 2024.

In September 2024, in retaliation for the EV tariffs announced the month prior, China launched an anti-dumping investigation into Canadian canola seeds. A year later, it announced a preliminary anti-dumping security deposit of 75.8 percent to be paid by Chinese importers of Canadian canola seeds, effective August 14, 2025, to be levied on top of the nine percent MFN rate.

Additionally, starting March 20, 2025, China imposed a 100 percent tariff on Canadian canola oil, canola meal, and peas, as well as a 25 percent tariff on aquatic products and pork.

According to data from the Canola Council of Canada, China accounts for 67.7 percent of Canada’s total canola seed exports in 2024, with a total of 5.86 million metric tons. Meanwhile, canola meal shipments to China exceeded 2 million metric tons in 2024 and accounted for 34.7 percent of total exports.

The positive trend in shipments in 2023 and 2024 has been completely reversed as a result of the latest tariffs, with Canadian canola exports to China plummeting over the course of 2025. In the first 10 months of the year, exports of canola seeds reached just over 2 million metric tons – just over a third of the 2024 full-year total – while exports of all major canola categories dropped to zero in September and October.

Beyond canola, China has also sporadically blocked the imports of Canadian beef over the years following the discovery of cases of bovine spongiform encephalopathy (BSE), also known as mad cow disease, on Canadian farms, and has suspended beef imports from Canada since December 2021 on these grounds.

In 2022, following an outbreak of avian influenza in Canada, China banned the import of products containing poultry from the country, including dry pet food. As a result, Canadian exports of pet food to China have nosedived.

In a post on social media, the Canadian agriculture minister announced that China has lifted market access restrictions on Canadian beef and has signed a pet food safety and sanitation requirements protocol, which will allow for the resumption of Canadian pet food exports to China.

These developments have not been publicly confirmed by the Chinese side. For beef exporters, it is unlikely that the lifting of the ban will have a significant impact on shipments due to insufficient domestic supply. Moreover, China is actively seeking to curb beef imports as part of wider efforts to boost production in the domestic meat market. At the end of 2025, China announced beef import quotas of 2.69 million metric tons for 2026, divided across seven major beef producers, with imports exceeding the quotas to be subject to an additional tariff of 55 percent.

While Canada was not among the countries subject to a quota at this time due to the import ban, it is likely to be included should exports increase significantly over the next few years.

Canadian pet food exporters, meanwhile, may see renewed opportunities if the ban is lifted, but will have to contend with new competition – in particular from New Zealand – that has taken hold in China’s import market over the last few years.

The commitment to lower combined tariffs to around 15 percent has also not been formally announced by the Chinese side, although it has confirmed that the two sides have agreed to reciprocal adjustments of tariffs on relevant goods. In an official Q&A, the Head of the Department of American and Oceanian Affairs of the Ministry of Commerce (MOFCOM) stated that, in response to Canada’s adjustment of tariffs on Chinese EVs, steel, and aluminum, as well as measures taken against individual Chinese companies operating in Canada, China will adjust its anti-dumping measures on canola seeds, as well as anti-discriminatory measures taken against some Canadian agricultural and aquatic products.

Increasing Canadian exports to China

Following the meetings, the Canadian government has set “an ambitious new goal to increase our exports to China by 50 percent% by 2030”, suggesting a strong commitment to improving relations and deepening trade ties with China over the next five years.

Despite the tensions, trade between China and Canada recovered in the years following the pandemic, although growth has been uneven. In 2024, total trade reached US$86.8 billion, decreasing 2.2 percent from 2023. Crucially, Canada’s exports to China have remained stubbornly low, and the country ran a trade deficit of US$43 billion in 2024.

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Increasing exports to China by 2030 would mean achieving a compound annual growth rate of almost seven percent from 2024 levels, when calculating in Canadian dollar terms.

Canada’s main exports to China are overwhelmingly dominated by raw commodities, in particular oil products, ores, oil seeds, and wood pulp. These four product categories alone accounted for almost half of Canada’s exports to China in 2024.

Against this backdrop, it appears improbable that Canada will achieve its export goal by addressing disputes regarding agricultural products alone. The country will need to pursue a broader trade deal that opens up new markets for Canadian producers, both for agricultural goods and energy products and petrochemicals. Notably, Canada’s mineral fuels exports to China have soared over the last few years, jumping by over 63 percent from 2023 to 2024 to reach US$3.9 billion, and exceeding US$4 billion in the first nine months of 2025 alone. This trend, driven in large part by the US-China trade war as well as efforts by China to diversify supply chains, indicates a strong and sustained demand for Canadian oil.

In the joint statement, the two sides committed to expanding collaboration in both clean and conventional energy, and launched a Ministerial Energy Dialogue to “outline key areas to support two-way investment and trade in clean and conventional energy”. If translated into concrete projects and long-term contracts, deeper energy cooperation could become a cornerstone of the bilateral relationship, helping Canada diversify its export markets while giving China access to a stable and politically reliable supplier.

What the agreement means for Chinese and Canadian businesses

The easing of tensions between China and Canada points to a pragmatic shift in Canada’s attitude toward trade and collaboration with its second-largest trade partner.

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While modest in scope, the agreement has already created tangible benefits for both Chinese and Canadian exporters, primarily those in the directly affected fields such as EVs and canola products. But perhaps more importantly, the agreement creates a more stable platform for further negotiations and collaboration, reducing uncertainty for businesses and signaling a willingness on both sides to compartmentalize trade from broader political frictions.

Beyond lowering trade barriers, the two sides also agreed to increase macroeconomic engagement and economic and trade cooperation, including through a renewed Canada–China Joint Economic and Trade Commission (JETC).

These commitments could yield benefits beyond increased trade over time. Further dialogue and future agreements may expand market access for a wider range of Canadian products, while also creating opportunities to make tangible improvements to operating conditions for Canadian exporters and investors in China. A more regularized engagement framework could also provide a channel to address recurring trade disputes, such as concerns over food safety, industrial overcapacity, and state subsidies, in a more structured and constructive manner.

While the progress made is encouraging, the path forward is unlikely to be smooth. Long-standing issues on both sides remain unresolved and will be difficult to address in the near term, including entrenched protective trade measures and domestic political sensitivities. Moreover, there is a continued risk that future geopolitical tensions could once again spill over into the economic sphere, constraining the depth and durability of renewed bilateral engagement.

At the same time, as we have previously argued, the recent breakthrough is a strong indicator that Canada’s deteriorating relations with its southern neighbor could pave the way for a revival of cooperation with China. As the continued shocks of the US’s various threats against Canada – from tariffs to all-out annexation – drive the country to diversify and seek more stable trade partners, China offers a compelling alternative.

Dezan Shira & Associates provides supply chain and tariff advisory to help businesses improve resilience, optimize sourcing, and manage cross-border exposure. From supplier consolidation in China to expansion into Vietnam, India, or ASEAN, we support partner identification, due diligence, tariff engineering, and continuity planning. To arrange a consultation, please contact China@dezshira.com. 

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