Jeff Mahon
Published in the Financial Post
March 13, 2025
Tit-for-tat exchange of tariffs with China makes it harder for us to use it as a diversification threat in tariff war with the U.S.
Canada can’t catch a trade break. After six weeks of being slapped around by the Trump administration (with more coming), now China has decided to pile on, too. Its new tariffs on Canadian canola-related products, peas, pork and seafood are delayed retaliation for the tariffs we imposed on its EVs, steel and aluminium products last fall. But the timing couldn’t be worse — for both countries.
From a strategic view, China’s actions are puzzling. Tit-for-tat is standard in international trade politics and these tariffs apply to only about five per cent of our exports to China. But China has been looking for a rapprochement with Canada since the September 2021 resolution of the crisis involving the two Michaels and Huawei’s Meng Wanzhou. That episode soured Canadian public opinion, however. Add a steady stream of reports alleging Chinese interference in our politics and engagement was not politically palatable.
Instead, Canada joined the Biden administration’s crusade to further tighten the screws on China. But administrations change. Now Canada is facing unprecedented economic attacks from the United States This has led politicians and the public alike to clamour for diversification away from overdependence on the U.S. Economic complementarities between Canada and China present the most plausible vehicle for such a plan. And China seemed willing to step in.
Though Canada’s traditional allies have been relatively quiet about Trump’s bullying, Chinese Ambassador Wang Di used his recent Lunar New Year greeting to express a desire to improve “bilateral ties and mutually beneficial cooperation” amidst “unilateralism and protectionism.” By hitting food and agricultural trade that benefits both countries, however, China has added new challenges to improving relations.
China’s tariffs are counterproductive for several reasons. It already runs a $60-billion trade surplus with us, partly because of barriers that limit the competitiveness of Canadian exports. Indeed, last fall’s tariffs were intended to level the playing field in sectors where subsidies and state supports have long protected Chinese development and jobs. On the other hand, China’s retaliatory tariffs hit trade that’s largely driven by market forces.
Another oddity: the country that may benefit most from China’s poorly timed retaliation against Canada is the U.S. It’s watching our diversification discussion closely and would not want to see us drift into China’s orbit. These latest tariffs undermine trust that is weak to begin with and further reduces Canadians’ desire to have China be a pillar of our new diversification agenda. The Americans can only be pleased.
This isn’t the first time China has made a strategic error by botching triangulation with Canada and the U.S. When Justin Trudeau went to Beijing in 2017 seeking free trade negotiations, China turned him away because he wanted to include elements of his “progressive trade policy agenda.” For abundant political, cultural and economic reasons, it wasn’t a shock that China had no interest in them. But as most wouldn’t have been hard obligations subject to dispute settlement, the initial rejection was probably a bargaining strategy aimed at extracting more serious concessions later on.
That day never came, however, as only a few days later the first Trump administration released its National Security Strategy, which elevated economic security to national security and labelled China an adversary and revisionist power. Three months after that the U.S.-China trade war officially began and the subsequent CUSMA agreement put down a marker that a Canada-China trade agreement was off the table.
Had Canada-China negotiations proceeded, Canada might have helped mediate growing trade tensions between the U.S. and China. As the only country in the world in simultaneous negotiation with both superpowers, we could have proposed new precedents to deal with trade conflicts that were already taking shape.
Does the timing of these latest tariffs mean China has miscalculated again or is something worse brewing? Could it be the message here is not for Canada but for the Trump administration? Is China sending a subtle signal that it supports a new Great Power dynamic where major countries carve up spheres of influence? Is blowing up a couple of commercial bridges with Canada a way of showing the U.S. it won’t play in the Americans’ backyard even in Canada’s time of need?
For our sake, let’s hope China’s earlier overtures were in good faith and it will soon recognize its latest strategic blunder. The two countries should look to escape the spiral of tit-for-tat retaliation and begin the tough work of agreeing on a new way of getting along.
Jeff Mahon, director of StrategyCorp’s geopolitical and international business advisory practice and an executive-in-residence at the Canada West Foundation, previously served as deputy director at Global Affairs Canada’s China division.