Prime Minister Mark Carney is in Beijing this week for a four-day visit with China’s leaders. The visit aims to bolster Canada’s trade ties as the United States becomes more unreliable as an economic partner.
“At a time of global trade disruption, Canada is focused on building a more competitive, sustainable, and independent economy,” said Carney in a Jan. 7 press release.
But experts say the defining feature of the countries’ economic relationship — Canada’s persistent trade deficits — challenges the notion that closer trade ties will make our economy more competitive or independent.
China’s economy relies on ”excess competition … [and] cutting all sorts of wages and input costs whenever possible,” said Lynette Ong, China Governance Lab director at the University of Toronto.
While that economic approach can benefit Canadian consumers through lower prices on imported goods, it also limits Canada’s ability to compete.
Michael Pettis, a senior associate at the Carnegie Endowment for International Peace, made a similar point in a written statement to Canadian Affairs.
“Canadians didn’t decide that they wanted Canada’s share of global manufacturing to decline,” said the Beijing-based economist.
“But by maintaining open trade and capital accounts in a world in which surplus countries aggressively manage theirs, [Canada] effectively ‘decided’ that its economy would accommodate the industrial and trade policies of China, Germany, Japan, South Korea and other surplus countries that exerted more control over their trade and capital accounts.”
Macro math
Canada exported $30 billion of goods to China in 2024 while importing nearly $90 billion, representing a trade deficit of $60 billion.
Canada has run persistent and growing trade deficits with China for decades.
Margaret McCuaig-Johnston, a senior fellow at the University of Ottawa’s Institute for Science, Society and Policy, described the imbalanced trade relationship bluntly.
“Really, we can only adjust [the relationship] at the margin,” she said, noting how easily Chinese firms can undercut Canadian competitors.
China’s industrial model, Ong says, has compounded the trade imbalance between China and Canada and other countries. She points to what Chinese policymakers describe as “involution” — intense competition within China that drives costs and prices down aggressively. This model also produces more goods than domestic demand can absorb, particularly given low Chinese household incomes.
“They have been exporting this sort of industrial overcapacity overseas in order to get rid of excess supply,” Ong said, citing electric vehicles as one product that China produces at a significantly lower cost than European and North American competitors.
Ottawa took steps to counter this overproduction in 2024 by placing a 100 per cent import tariff on Chinese-made electric vehicles.
“Canadian workers and critical sectors, including steel and aluminum … are facing an intentional, state-directed policy of overcapacity, undermining Canada’s ability to compete in domestic and global markets,” said then-deputy prime minister Chrystia Freeland in a statement announcing the tariffs.
“That is why our government is moving forward with decisive action to level the playing field, protect Canadian workers, and match measures taken by key trading partners,” she said, referencing identical tariffs imposed by the Biden administration just months earlier.
At press time, Canada had announced a reduction of the 100 per cent tariffs to 6.1 per cent on 50,000 Chinese-made electric vehicles. This represents about three per cent of Canada’s annual auto purchases.
Do trade deficits matter?
The topic of trade deficits has been brought to the fore by the Trump administration.
Many economists reject President Donald Trump’s claim that high trade deficits are cause for concern. They note that trade deficits can be seen as the natural result of comparative advantage, where countries export the goods and services they can produce most efficiently. They can also be seen as a natural consequence of foreign investment in a country, which many see as a positive.
Others, including Pettis, believe persistent trade deficits reflect enduring, asymmetrical vulnerabilities for net-importing nations.
“In a truly open world … one with no directed credit, no currency intervention, no restrictions on trade and capital flows, and minimal government intervention in output … trade would be broadly balanced, with countries pursuing comparative advantages and exporting to pay for imports that maximized domestic welfare,” Pettis wrote in a November 2025 article for Foreign Affairs magazine.
“But in the real world, some major economies actively intervene in their trade and capital accounts, producing persistent surpluses caused by distortions in domestic demand and production, whereas other economies don’t. Little wonder, then, that the present trading system is so unstable.”
U.S. Secretary of Commerce Howard Lutnick has expressed deep concern regarding China’s trade strategy.
“With respect to China, if we blink, they will sell below cost in America and drive our domestic companies out of business,” he said during a recent podcast interview. “And then we will be beholden to them.”
Tariff triangle
Carney’s China visit comes as Canada maneuvers between the U.S. and China. With the long-term fate of Canada’s free trade agreement with the U.S. in question, Ottawa is urgently seeking to diversify away from its only neighbour and top trading partner.
But Canada’s interest in deepening ties with other markets reflects U.S. instability rather than a reassessment of China itself, says McCuaig-Johnston.
“We need new [export] markets because our markets in the U.S. are threatened,” she said, while noting that China is “just one” of many alternatives.
Other Asian markets represent an opportunity to minimize exposure to China, which is currently Canada’s second largest trading partner. McCuaig-Johnston points to Canada’s resumption of canola exports to Pakistan as a prudent response to retaliatory tariffs of 100 per cent imposed by China in March 2025.
“ This is exactly what we need,” said McCuaig-Johnston, a former vice-president of the Canada-China Friendship Society. “We need our canola farmers … to diversify.”
‘New government’
This week, China agreed to reduce tariffs on Canadian canola, from 84 per cent down to 15 per cent. The reduction would begin March 1 and last until the end of 2026.
The lifting of EV and canola tariffs would “signal goodwill,” says Ong, before the tariff reductions were announced. But doing so would do little to change the underlying fundamentals of the trade relationship between Canada and China.
McCuaig-Johnston is more circumspect.
Removing EV tariffs on China could carry longer-term costs, she cautioned. Giving Chinese firms a commercial foothold in North America would drive a wedge even further between American and Canadian trade negotiators.
“ To the extent that Beijing can do that, they’re thrilled,” she said. “And to the extent that we fall for that tactic, we will have much bigger problems down the road.”
Speaking to reporters in Beijing on Jan. 14, Foreign Affairs Minister Anita Anand backtracked on the Trudeau government’s 2024 assessment that “China is an increasingly disruptive global power,” one that disregards “international rules and norms.”
“This is a new government with a new prime minister, a new foreign policy, in a new geopolitical environment,” said Anand.
“In this moment of economic stress for our country, it is necessary for us to diversify our trading partners, and to grow non-U.S. trade by at least 50 per cent over the next 10 years.”
McCuaig-Johnston says that, if she were prime minister, she would take a different tack:
“I would minimize our exposure to trade risk, and I would focus on human rights,” she said. “And I would even deprive China of the minerals and resources that they’ve been getting [in light of their] human rights issues and the geopolitical risk …
“I wouldn’t last very long as a politician if I took that kind of impassioned stand, because especially in the Liberal Party, the business community is very, very pro-China,” she added.
“And that pressure, I’m sure, has been placed on Prime Minister Carney really hard over the last year to get back to business as usual with China.”
