Key Takeaways:
- The Canadian government, led by Prime Minister Mark Carney, has signed a trade deal with China, which includes a tariff-quota arrangement on electric vehicles and lowers tariffs on canola products.
- The deal has been met with a mixed reaction from the US, with President Donald Trump saying it’s a "good thing" but some US officials expressing concerns about Chinese cars entering the Canadian market.
- The deal is seen as a test of the US’s red lines on trade with China, and may provide a reference point for future US-China trade negotiations.
- The Canadian government had to walk a fine line to avoid upsetting the US, particularly with the renewal of the Canada-US-Mexico Agreement (CUSMA) looming later this year.
- The deal is expected to have a limited impact on Canada-US relations, but may provide valuable insights for the US in its own trade negotiations with China.
Introduction to the Deal
The recent trade deal between Canada and China has sparked a range of reactions from the US, with President Donald Trump seemingly unfazed by the agreement. When asked about the deal, Trump stated that it was a "good thing" for Canada to sign a trade deal with China, and that it made sense for the country to do so. However, not all US officials shared the same sentiment, with some expressing concerns about the potential impact of Chinese cars entering the Canadian market.
Walking a Fine Line
The Canadian government had to navigate a delicate balance in negotiating the deal, as they sought to avoid upsetting the US, particularly with the renewal of the Canada-US-Mexico Agreement (CUSMA) looming later this year. According to Goldy Hyder, president and CEO of the Business Council of Canada, the Canadian delegation’s approach was to "do no harm" to the review and renewal of CUSMA, and to avoid being seen as abandoning North America in favor of other trade partners. This approach was evident in the terms of the deal, which only allows 49,000 electric vehicles into Canada to start, and lowers Beijing’s tariffs on canola products but does not eliminate them.
US Reaction
The US reaction to the deal has been mixed, with some officials expressing concerns about the potential impact on the US auto industry. US Trade Representative Jamieson Greer stated that the deal was "problematic for Canada," and that the US has tariffs in place to protect American auto workers and consumers from Chinese vehicles. However, other officials, such as US Transportation Secretary Sean Duffy, seemed less concerned, stating that the deal would not disrupt American supply into Canada. Despite these concerns, none of the US officials appeared worried that the deal would upend Canada-US relations.
A Litmus Test
The Canada-China deal can be seen as a litmus test for the US’s red lines on trade with China, and may provide a useful reference point for future US-China trade negotiations. According to Jim Thorne, chief market strategist at Wellington Altus, the deal does not cross any red lines for the US administration, and may even be seen as a useful example for the US to follow in its own trade negotiations with China. Karl Schamotta, chief market strategist at Corpay, agrees, stating that the Canadian government avoided the issues that are likely to spark backlash from the US, such as agricultural products and electric vehicles.
Implications and Future Developments
The deal is expected to have a limited impact on Canada-US relations, but may provide valuable insights for the US in its own trade negotiations with China. As Goldy Hyder noted, it will take time for the Americans to absorb the news out of China and to see how the president actually feels about the deal. However, Hyder also wonders if the Americans are hoping to glean important information for their own trade deal, and whether the US president will come back with something similar on cars during his upcoming visit to China. Ultimately, the deal marks an important step in Canada’s efforts to diversify its trade relationships and reduce its dependence on the US, and may pave the way for future trade agreements with other countries.
