Canadian Prime Minister Mark Carney’s visit to China in January is the largest improvement in bilateral relations in almost a decade, though its significance extends beyond the relationship between Ottawa and Beijing. Canada, like many other US allies, is testing its ability to diversify its economic relations without undermining its strategic alignment with the US.
Canada initially aligned closely with US trade measures targeting Chinese industries. However, when Beijing targeted Canada’s agriculture sector in response, the trade-dependent economy was forced to confront its own limits. Ottawa has subsequently sought to restore ties, pivoting towards an economic diversification strategy to reduce its over-reliance on trade with the US.
The visit was carefully calibrated. Carney’s discussions with President Xi Jinping and Premier Li Qiang were focused less on political reconciliation than on restoring functional economic ties. The primary outcome was a revival of trade and economic co-operation that reversed several restrictive measures introduced by both sides in recent years.
Canada agreed to lower its tariffs on a limited volume of Chinese electric vehicles, while China significantly reduced duties on Canadian canola and removed restrictions on other agricultural exports, including seafood and pulses. Ottawa had previously placed restrictions on imports of Chinese electric vehicles in alignment with the US. However, Beijing’s retaliation on Canadian food exports hurt its farmers, placing huge pressure on the government to change course.
As such, the rollback of Chinese trade restrictions on Canadian agricultural products offered immediate relief to influential exporters who found themselves caught up in the growing rivalry between China and the US. Due to electoral mapping in rural areas, farmers are an important political demographic in Canada (despite representing only a small percentage of the overall population), as they often determine the result of tight election races.
In addition to the reduction in trade barriers, agreements covering food safety, energy, forestry and law enforcement reopened institutional channels of communication which had remained frozen after the arrest of the “Huawei princess”, Meng Wanzhou, for violating US sanctions on Iran. All charges were eventually dismissed. However, political ties between China and Canada remained strained, which explains Carney’s efforts to repair the relationship.
Considering the level of distrust that existed between the two states as a result of this incident, China’s decision to introduce visa-free travel for Canadian citizens is another positive indication of a return to normalised relations. The number of Chinese tourists visiting Canada dropped off dramatically after Meng’s arrest, and their return is another economic boost for Canada.
While Carney’s government has faced growing demands from provincial authorities, exporters and business groups to stabilise relations with China, 75% of Canadian exports still head to the US. Washington has subsequently threatened to leverage this vulnerability to prevent Canada and China from reaching further trade agreements.
By presenting its engagement with Beijing as narrowly economic and technical, Ottawa has attempted to address these specific concerns while limiting backlash from Washington. The approach allows the new government to demonstrate sound economic management without opening itself to accusations of strategic realignment with a systemic rival to the US.
Nevertheless, the timing of the visit placed it within a wider geopolitical context shaped by the second Trump administration’s markedly aggressive approach to allies and competitors, heightening the risks of defiance.
US officials have raised justifiable concerns about tariff coherence and supply chain integrity among allies. From Washington’s perspective, divergent trade regimes risk creating arbitrage opportunities and weakening collective leverage in dealings with China. However, Trump has also threatened to leverage trade relations to make Canada join the US as its 51st state.
Canadians understandably perceive this as a threat to their sovereignty and must seriously consider the risks associated with aligning even further with the US. While defying Washington could have major economic consequences, the US would also be hurt by a trade war with Canada, giving Ottawa a window of opportunity to diversify before it’s too late.
While Washington did not formally oppose Canada’s engagement with Beijing at first, Trump has subsequently warned that Canada will face tariffs of up to 100% if it reaches a trade deal with Beijing. This comes after the US president had previously remarked that China “will eat Canada up”, while claiming that Carney should be “more grateful” towards the US.
The ‘taco trade’
However, Trump also has a habit of making threats and then backing down shortly afterwards. Investors call it the “taco trade”, an acronym for “Trump always chickens out”. Canada may calculate that it has room to manoeuvre in this context. However, renewed scrutiny from the US still places Ottawa under severe pressure.
Aligning with the US now could reduce tensions in the short-term but make it impossible to resist further US pressure later on. Meanwhile, seeking pragmatic relations with China may come at the price of increased uncertainty in the near term, while helping Canada diversify its economy and ensure its political sovereignty over the long run.
More broadly, these tensions reflect the decline of unipolarity. The post-Cold War model of deep economic integration paired with strategic alignment has given way to a more fragmented order in which co-operation and competition coexist and alliances are less clear-cut than before. Now even close US allies are recalibrating their engagement with Brics bloc countries.
For the US, Canada’s approach serves as a reminder that alliance management in an era of strategic competition requires flexibility. Expecting policy uniformity across diverse allied economies may prove impractical when confronted with the realities of domestic politics. At the same time, Washington continues to wield substantial influence over Canada due to the size of its market and the security architecture of North America.
So while a thaw in China-Canada relations will test Canada’s capacity to navigate a multipolar economic environment without eroding its most important alliance, Washington’s willingness to use trade as a weapon could also come under scrutiny as the world waits to see whether Trump backs off or doubles down heading into the US midterm elections.
• Shubitz is an independent Brics analyst.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.