Canadian Prime Minister Mark Carney has defended his government's preliminary trade agreement with China in the face of escalating threats from President Donald Trump, who has warned of punishing 100% tariffs on Canadian imports if the deal proceeds further.
The dispute centers on a trade agreement announced on January 16 between Canada and China that lowers tariffs on certain goods and opens the Canadian market to 49,000 Chinese electric vehicles annually. Trump has responded by threatening severe trade consequences, framing the deal as a betrayal of North American trade relationships. Carney has rejected this characterization, insisting the agreement fixes specific trade problems and remains consistent with existing trade obligations.
Background
Canada and China have long maintained a tense trade relationship, with disputes over tariffs on agricultural products, electric vehicles, and other goods creating friction between the two countries. China is Canada's second-largest trading partner after the United States, with bilateral trade totaling roughly $130.9 billion in 2024. However, recent years have seen mounting trade barriers, particularly after Canada adopted a 100% tariff on Chinese electric vehicles in fall 2024 to match U.S. policy.
The preliminary agreement announced this month represents an effort to reset relations between Ottawa and Beijing after years of deteriorating ties. Prime Minister Carney traveled to China and met with President Xi Jinping to negotiate the deal, marking his first official visit to the country.
Key Details
What the Agreement Includes
Under the preliminary agreement, China has committed to lowering tariffs on Canadian canola seeds to approximately 15% by March 1, 2026, down from current combined rates of around 84%. This change is expected to unlock roughly $4 billion in annual canola seed exports to China.
Canada, in turn, agreed to allow up to 49,000 Chinese electric vehicles into the country annually at a reduced tariff rate of 6.1%. This represents less than 3% of Canada's new vehicle market and corresponds to import volumes from 2023 and 2024 before recent trade disputes escalated.
The agreement also includes relief for other Canadian agricultural exports. Canada expects that canola meal, lobsters, crabs, and peas will not face anti-discrimination tariffs from China starting March 1, 2026, through the end of the year. These measures are designed to improve market access for approximately $2.6 billion in Canadian agricultural goods.
Additionally, Canada extended remission measures for certain Chinese steel and aluminum products deemed in short supply domestically, covering dozens of product lines.
Trump's Response and Threats
Trump has responded with aggressive rhetoric, threatening to impose 100% tariffs on all Canadian exports to the United States if Carney pursues a broader free trade agreement with China. Treasury Secretary Scott Bessent echoed these warnings, suggesting the tariff threat was a real possibility.
The threat appears designed to pressure Canada during ongoing negotiations over the United States-Mexico-Canada Agreement (USMCA), the trilateral trade deal that replaced NAFTA. Trump has indicated he wants to renegotiate terms of that agreement.
Carney's Defense
Carney has repeatedly denied any intention to negotiate a full free trade agreement with China. He pointed to obligations under USMCA that require Canada to notify the United States before pursuing trade negotiations with non-market economies.
"We have commitments under CUSMA not to pursue free trade agreements with nonmarket economies without prior notification. We have no intention of doing that with China or any other nonmarket economy," Carney told reporters.
The Prime Minister characterized the agreement as resolving specific trade irritants that developed in recent years, particularly regarding electric vehicles. He argued the deal is entirely consistent with existing trade commitments and does not constitute a free trade agreement.
Canadian Cabinet ministers have also worked to reassure U.S. counterparts that no broader trade deal with China is being considered. Carney indicated his team has made this position clear to American officials.
What This Means
The dispute highlights growing tensions between Canada and the United States over trade policy and China strategy. While Trump has sought to maintain strict barriers against Chinese goods and investment, Canada has taken a more pragmatic approach, seeking to manage trade relationships with both the U.S. and China.
The agreement with China is expected to drive new investment in Canadian manufacturing, particularly in electric vehicles. Both governments anticipate that Chinese companies will establish joint ventures with Canadian partners to produce EVs domestically, creating manufacturing jobs and strengthening Canada's supply chain.
Canada has also set an ambitious goal to increase exports to China by 50% by 2030, signaling a long-term shift in trade strategy. The preliminary agreement includes a review mechanism allowing both countries to assess progress after three years.
The broader context involves renegotiation of the USMCA, which Trump has indicated he wants to revisit. Carney's navigation of these competing pressures—maintaining the U.S. relationship while pursuing new opportunities with China—will likely define trade policy discussions in coming months. Trump's tariff threats appear designed to constrain Canada's options and reassert U.S. use in upcoming trade talks.
