On 16 January 2026, Canadian Prime Minister Mark Carney announced a ‘preliminary but landmark trade agreement’ with China, after meeting with Chinese President Xi Jinping in Beijing. Under its terms, China will be allowed to export up to 49,000 electric vehicles (EVs) to Canada on Most Favoured Nation terms, entailing a tariff of 6.1%. This quota could rise to 70,000 by 2030. In exchange, China will lower its tariffs on Canadian canola seed to 15% from 84% by March 1 and will remove anti-discrimination tariffs on canola meal, lobsters, crabs, and peas by the same date.
The deal contrasts with prior commercial arrangements between the two states: all Chinese EVs had been subject to a Canadian tariff of 100%. The retaliatory tariffs imposed by China on Canadian agricultural produce in March 2025 and on canola seed in August led to a 10.4% year-on-year fall in Canada’s exports to China in 2025.
The tentative commercial rapprochement between the countries illustrates how the Trump Administration’s use of tariffs in pursuit of favourable political and commercial agreements strengthens incentives for large US trading partners to diversify. Prime Minister Carney’s praise of China’s ‘predictable … realistic and respectful dialogue, further demonstrates a keen desire to limit undue exposure to US commercial policy.
The agreement comes as part of an initiative to reduce the US’ share of Canadian exports to 50% from a historical norm of around 75%. The newly founded Major Projects Office aims to boost natural resource production and relevant infrastructure to lower the price of Canadian exports in alternative markets. Prior to his first trip to Asia as Prime Minister, Carney announced a target of increasing trade with non-US partners by over US$300bn by 2035.
Carney’s campaign aligns with shifts in Canadian public opinion since President Trump’s election. A survey conducted by the Pew Research Centre between January and April 2025 found that an equal share of Canadians (34%) reported favourable views of China and the US: where America’s favourability declined by 20 percentage points year-on-year, China’s rose by 13 points. According to the Angus Reid Institute, the share of Canadians who think that trade opportunity is more important than human rights in informing their country’s relationship with China has increased from 30% in 2021 to 48% in 2025. As such, the agreement between China and Canada suggests the potential risks of US commercial policy, which appears to have incentivised Canadian policymakers to diversify their trading relationships and may have, to an extent, legitimised these efforts in the eyes of Canadian voters.
The agreement also demonstrates the obstacles that face diversification by US trade partners. The deal itself is limited, with Canadian tariffs on Chinese steel and aluminium remaining in place. The retention of these barriers reflects internal and external constraints on re-engagement with China. Internally, concerns about Chinese overproduction undercutting domestic manufacturers persist: Doug Ford, the Premier of Ontario, denounced the deal as a risk to domestic EV makers.
Externally, although President Trump praised the deal, US Trade Representative Jamieson Greer expressed scepticism. Further engagement with China, especially the removal of steel and aluminium tariffs, could complicate USMCA renegotiation later this year. Ultimately, the US will remain the destination for most of Canada’s exports, even assuming that targets for non-US trade are met. The tentative agreement illustrates that, while US commerce policy has incentivised Canadian diversification, geo-economic realities encourage cautious engagement.
Further Reading
Brenes, M. (2025): https://www.foreignaffairs.com/united-states/transactional-trap
Paris, R. (2026): https://www.chathamhouse.org/2026/01/carney-visits-china-diversify-canadas-trade-donroe-doctrine-further-strains-us-relations
Gridneff, I. & Learner, S. (2026): https://www.ft.com/content/19169eb4-bb65-4887-bfbb-69a09ffa12aa