Why Canada’s China Pivot Makes US Tariff Relief Harder

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For much of the past year, Canada and the United States have been stuck in a familiar cycle: trade tensions and competing narratives about who’s to blame. What used to look like one of the world’s closest alliances now looks strained, and increasingly unpredictable.

Under these conditions, Ottawa has moved in a direction that would have been hard to imagine not long ago: cutting a trade arrangement with Beijing, even after Prime Minister Mark Carney said only months prior that China is Canada’s “biggest security threat.”

President Donald Trump on Jan. 24 threatened to impose 100 percent tariffs on all Canadian goods if Ottawa proceeded with a trade deal with China, arguing it would let Beijing use Canada as a “drop-off port” to evade U.S. duties and undermine U.S. economic interests.

The bigger picture, though, hasn’t changed. Ottawa and Washington remain locked in a rolling dispute that looks no closer to a durable trade understanding—and some analysts say the reasons go beyond tariffs.

The problem, said Frank Tian Xie, a business professor at the University of South Carolina Aiken, is that Canada is trying to manage its standoff with Washington with a “miscalibrated foreign policy approach” while being the most U.S.-dependent economy in the developed world.

The China deal, as some analysts put it, sharpens that contradiction: It gives Beijing a foothold in a sensitive sector with few hard guardrails, hands Washington an easy pretext for friction with Canada, and arrives just ahead of the July 1 review of the United States, Mexico, and Canada Agreement (USMCA)—when the United States has maximum leverage and Canada has the most to lose.

Days later, in his Jan. 20 address at the World Economic Forum in Davos, Switzerland, Carney declared that the international “rules-based order” is facing a “rupture,” increasingly replaced by “great power rivalry” and economic coercion.

He said major powers are increasingly “weaponizing economic integration”—using tariffs, financial systems, and supply-chain dependence as tools of pressure.

His government says it has little choice but to diversify.

“That’s a very challenging world,” Hodgson said, adding that Ottawa’s answer is to “build new trading lanes and new partners.”

In Davos, he pointed to efforts to deepen trade ties with the EU, China, India, ASEAN nations, Mercosur, Qatar, and other partners, describing a “dense web of connections.”

“The logic is straightforward: if Washington is going to squeeze Canada, Ottawa needs options,” said Shen Rongqin, an international business professor at Canada’s York University.

“But the problem is that options take time—and can backfire,” Shen told The Epoch Times.

“Canada has never dealt with a U.S. administration like Trump 2.0,” he said. “Trump isn’t a typical politician. He’s strictly America-first.”

For Canada, he added, that’s a “system shock” after decades of close partnership since World War II, and “Ottawa is still figuring out how to respond to [Trump’s] negotiation style.”

“It hands the U.S. a pretext to squeeze Canada right before the USMCA review on July 1, when U.S. leverage is at its peak and Canada has the most to lose,” he said.

He also warned that Canada’s tilt toward China could become an issue in those negotiations.

U.S. Treasury Secretary Scott Bessent reiterated that message on Feb. 5.

He said that Washington cannot allow its northern border to be used as a way for Chinese electric vehicles (EV) to come into the United States—a sign that the Canada–China deal has become a fresh point of contention.

Under the USMCA, 85 percent of Canadian goods are exempt from tariffs, while products that don’t comply with the trilateral deal currently face tariffs of 35 percent. Mexico’s non-USMCA products are subject to 25 percent tariffs.

Canada’s vulnerability, Xie said, comes down to simple math.

In 2024, the United States took about 76 percent of Canada’s total exports—roughly C$596 billion (about $420 billion). The auto sector is even more exposed: Roughly 94 percent of Canada’s motor vehicles and parts exports go south of the border. China, by contrast, accounts for only about 4 percent of Canadian exports, or about C$30 billion (roughly $21 billion).

“With that baseline, Ottawa doesn’t have much room to play chicken with Washington,” Xie said. “No matter how good a deal Canada gets from Beijing, it can’t come close to offsetting the nearly half-trillion dollars in trade it does with the United States.”

“Canada is picking a fight with the one partner that can cripple its economy on short notice—and it’s doing it when U.S. leverage is maximum,” he added.

Xie contrasted Canada’s approach with Mexico’s, which he said appears more focused on reassuring Washington on trade and China.