Canada Declines Free Trade Agreement with China Amid U.S. Tariff Threats

Prime Minister Mark Carney announced that Canada has "no intention" of pursuing a free trade agreement with China, following U.S. President Donald Trump's threat to impose 100% tariffs on Canadian imports if such a deal were made. Carney clarified that recent actions involve temporary tariff reductions on selected Chinese sectors, not a full trade agreement. This move allowed lower tariffs on Canadian exports like canola oil and pork in exchange for reduced tariffs on Chinese electric vehicles (EVs), which will be subject to an import cap starting at 49,000 vehicles annually.

Trump accused Canada of potentially serving as a backdoor for Chinese goods into the U.S., reversing his earlier praise for the deal. U.S. Treasury Secretary Scott Bessent echoed these concerns, questioning Carney’s motives amid pending renegotiation of the U.S.-Mexico-Canada Agreement (USMCA).

Tensions between Trump and Carney have intensified, including Trump floating controversial ideas such as absorbing Canada into the U.S. and posting provocative altered maps, while Carney has publicly criticized coercion by major powers, suggesting coordinated responses from middle powers.

In response to U.S. tariffs, Canada announced a $155 billion tariff package targeting U.S. goods, effective February 4, 2025. The list includes products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper.

Carney emphasized the urgent need to reduce Canada’s heavy reliance on the U.S. market, as 90% of Canada’s steel, aluminum, and lumber exports typically go to the U.S. The Canadian government will now restrict steel imports from non-free-trade countries to 20% of 2024 levels and will provide an additional CAD $500 million (US $356 million) in loan guarantees to bolster the lumber industry. Ottawa will also subsidize freight costs for domestic rail shipments to boost internal trade and support Canadian materials in construction.

Despite these tensions, trade between the U.S. and Canada remains vital, with billions in cross-border commerce daily and Canada serving as a leading supplier of natural resources critical to U.S. national security.