Key Takeaways:
- Canada has agreed to cut its 100% tariff on Chinese electric cars in exchange for lower tariffs on Canadian farm products
- China will reduce its total tariff on canola seeds from 84% to about 15%
- The initial annual cap on Chinese EV exports to Canada will be 49,000 vehicles, growing to about 70,000 over five years
- Canada and China aim to improve relations after years of acrimony, with a focus on cooperation in areas of common interest
- The agreement reflects a shift in Canada’s foreign policy, with a greater emphasis on building relationships with countries other than the US
Introduction to the Agreement
Canada has made a significant move to strengthen its economic ties with China, breaking with the United States in the process. Prime Minister Mark Carney announced that Canada will cut its 100% tariff on Chinese electric cars, in exchange for lower tariffs on Canadian farm products. This move is a result of two days of meetings with Chinese leaders, and is seen as a major breakthrough in improving relations between the two nations. Carney stated that the initial annual cap on Chinese EV exports to Canada will be 49,000 vehicles, growing to about 70,000 over five years.
Historic Meeting and Agreement
The agreement was announced after Carney met with Chinese leader Xi Jinping, where they pledged to improve relations between their two nations after years of acrimony. Xi noted that talks have been underway to restore and restart cooperation since their initial meeting in October, and that their meeting last year "opened a new chapter in turning China-Canada relations toward improvement." Carney emphasized the importance of understanding the differences between Canada and other countries, and focusing on areas where they can work together. The two leaders also discussed the need to improve global governance, which Carney described as being "under great strain."
Global Governance and Trade
Carney’s visit to China reflects a shift in Canada’s foreign policy, with a greater emphasis on building relationships with countries other than the US. The Canadian prime minister noted that the global governance system may give way to country-to-country or regional agreements, rather than the global ones that have underpinned economic growth in the post-World War II era. This is in part a response to the "America-first" approach of US President Donald Trump, which has imposed tariffs that have hit both the Canadian and Chinese economies. Carney stated that his government is focused on building an economy less reliant on the US, and that this agreement is a step in that direction.
Reaction from Business Leaders
The agreement has been welcomed by Canadian business leaders, who see it as a game-changer for the relationship between the two nations. Jacob Cooke, the CEO of WPIC Marketing + Technologies, noted that the visit re-establishes dialogue, respect, and a framework between the two nations, which had been lacking in recent years. Carney also tried to address the concerns of Canadian automakers and auto workers, by noting that the initial cap on Chinese EV imports is relatively small, and that China is expected to begin investing in the Canadian auto industry within three years.
Tariffs and Trade
Canada had previously followed the US in imposing tariffs on Chinese goods, including a 100% tariff on EVs and a 25% tariff on steel and aluminum. China responded by imposing duties on Canadian canola oil and meal, pork, and seafood. The new agreement reduces the tariff on canola seeds from 84% to about 15%, which is expected to boost Canadian exports to China. Carney noted that more than half of the Chinese EVs exported to Canada would have an import price of less than 35,000 Canadian dollars ($25,000) within five years, making them accessible to consumers.
Conclusion and Future Prospects
The agreement between Canada and China marks a significant shift in their relationship, and reflects a new era of cooperation and engagement. While there are still areas of disagreement, such as human rights, the two nations are seeking to work together on areas of common interest. Carney’s visit to China is seen as a major breakthrough, and paves the way for future cooperation and investment between the two nations. As Canada continues to navigate the complexities of global trade and governance, this agreement is an important step in building a more diverse and resilient economy.
