As the U.S. trade war drags, calls grow for Canada to cautiously improve ties with China

As Prime Minister Mark Carney's government works to reshape its economic policies amid an unpredictable administration south of the border, Canadian businesses that trade with China say Ottawa needs to find ways to expand exports there — and fast.

While the Canada-China relationship has been stymied in recent years, there are signals of relations improving.

Following the first ministers' meeting in Saskatoon earlier this month, Carney said Canada and China were meeting at the ministerial level to address a tit-for-tat trade war between the two countries that saw Canada place 100 per cent tariffs on Chinese-made electric vehicles and China retaliate with similar levies on canola meal and seed, pork and seafood.

Carney called negotiations with China "a top priority for us," as the federal government seeks to have the counter-tariffs on the agricultural products removed, and the two countries recently agreed to regularize communications.

The potential thaw comes as U.S. President Donald Trump has imposed shifting tariffs on much of the world, including 50 per cent on Canadian steel and aluminum imports, and 25 per cent on many cars and auto parts.

That's left businesses and analysts calling for Ottawa to fortify Canada's economy, including by overcoming political and infrastructure challenges to increase trade with China.

In fact, there are signs it's already happening, for various reasons.

According to Statistics Canada, as Canadian exports to the U.S. were down 15.7 per cent in April, exports to countries other than the U.S. increased 2.9 per cent that same month, led by exports to China, the U.K., Algeria and Brazil.

Notably, oil exports to China have risen since the Trans Mountain Pipeline started operating in May 2024. In the last few months, it has emerged as the top customer for Canadian crude.

According to the Conference Board of Canada, Canada's trade with the world's second-largest economy is currently hampered by political tensions that, if overcome, will continue to be "a key export market."

"There's clearly demand. And Chinese demand is willing to step in and fill that gap that's been left by the closing of access to American markets," said Conference Board senior economist Liam Daly.

Even though China is Canada's second-biggest trading partner, there's room for growth; Canada exported $30 billion worth of products to China in 2024 — a fraction of the whopping $500 billion shipped to the U.S., said Daly.

Canada is also running an increasing trade deficit with China — $57 billion in 2024.

If and when the tariffs and counter-tariffs are removed, the growth in exports could come in the form of raw goods, like timber, wheat, lentils and energy, according to Josipa Petrunic, president and CEO of the Canadian Urban Transit Research & Innovation Consortium (CUTRIC), an industry organization that is staunch advocate of Canada removing Canada's EV tariffs on China.

"That's the low-hanging fruit," she said, since there are long-standing concerns over intellectual property infringement.

"There's not a lot of IP in a shrimp, right?"

WATCH | U.S., China agree to 90-day tariff pause. What it means for some Canadian businesses:

The United States and China have reached a 90-day tariff truce. The U.S. is cutting tariffs on China down to 30 per cent, and China is responding by cutting its U.S. tariffs down to 10 per cent. Teresa Lake, the CEO of a Vancouver clothing company, talks to Hanomansing Tonight about what the tariff pause means for her business.

Some businesses are also calling for improved relations with China, hoping for a more "predictable and stable" environment, says Bijan Ahmadi, executive director of the Canada China Business Council, a non-profit that acts as a voice for Canadian businesses in China.

"China represents significant opportunities for Canadian companies," he said.

That's true for Laneway Distillers, a small gin and vodka company based in Toronto, which imports its custom bottles from China and started exporting its alcohol to sell on Chinese e-commerce platforms in 2023.

"We find doing business in China easier than doing business here in Ontario," said co-founder and CEO Jessica Chester. "I'm always blown away by the efficiency of their systems."

On the other hand, Chester says she finds navigating Ontario's red tape "very complex," while interprovincial trade barriers in Canada prevent her from selling to other provinces.

While Chester is hoping the provinces will work to quickly lift those barriers, which both Ottawa and the premiers have vowed to do, she is buoyed by what appears to be Canada's willingness to bolster trade relations with China, despite difficulties she's encountered.

"The infrastructure has been neglected for too long," she said, noting that her current shipment of gin to China has been delayed by a month, stuck on a rail line somewhere between Toronto and Vancouver.

"The reality is I run out of stock," she said. "I've spent a huge amount of time building up my clientele, my brand, and to run out of stock on an online store is devastating."

China is also known to artificially subsidize its industries, like steel, which creates unfair competition. Tariffs are theoretically supposed to address this, but some businesses say it simply reroutes shipments through other countries.

And despite China being a massive market, some analysts say the country is suffering from low consumption and growth.

"How much they can absorb is a bit of an issue," said Jan Ian Chong, an associate professor of political science at the National University of Singapore.

"Chinese consumers aren't buying very much. So, in theory, they look like an attractive market, but in practice, that could be a little complicated."

There are also political tensions, partly due to Canada's allyship with the U.S.

Given the three-year imprisonment of Michael Spavor and Michael Kovrig — widely considered a retaliatory move after the 2018 arrest of Chinese Huawei executive Meng Wangzhou in Vancouver at Washington's request — Petrunic says any talks with China need to have this history baked in.

"That's the elephant in the room," she said. "We're concerned Canadians are taken as prisoners. That needs to be front and centre in any dialogue with China."

WATCH | Ottawa and Washington working toward trade and security deal:

Sources tell CBC News that Canada and the U.S. are trading a document on potential trade deal terms, but a final agreement remains distant — with the Trump administration reportedly distracted by Los Angeles protests and negotiations with China.

Growing the relationship also means Canada needs to protect itself in other ways, said Nicolas Lamp, an associate professor in the faculty of law at Queen's University in Kingston, Ont.

"We want to make sure we don't open ourselves up to espionage or blackmail or sabotage," he said.

Expanding Canada's trade with China also risks drawing the ire of Trump, considering his rhetoric against the country, and how he's stacked his cabinet with China critics and recently raised tariffs as high as 145 per cent on Chinese imports. (Though most are currently at 30 per cent, following talks last month behind the two sides.)

Because Canada likely can't entirely ignore its largest trading partner as a result of its deep economic ties and geographic proximity, there's a fine line to walk.

"I think there's a path forward … to increase trade with China, while not falling afoul of what is an increasingly punitive administration in Washington," said Daly, with the Conference Board of Canada.