Canada’s Trade War Detente
On June 6, 2025, Canadian Prime Minister Mark Carney and Chinese Premier Li Qiang held a pivotal phone call to address escalating trade tensions and explore avenues for restoring bilateral relations. This dialogue follows a series of tit-for-tat tariffs that have significantly impacted key sectors in both countries. In October 2024, Canada imposed a 100% tariff on Chinese electric vehicles (EVs) and a 25% tariff on Chinese steel and aluminum, citing unfair trade practices and the need to protect domestic industries supporting over 255,000 jobs . In retaliation, China announced in March 2025 tariffs on over $2.6 billion worth of Canadian agricultural and food products, including a 100% tariff on canola oil, oil cakes, and peas, and a 25% tariff on aquatic products and pork.
The leaders agreed to resume high-level exchanges and strengthen cooperation in areas such as clean energy, climate change mitigation, scientific and technological innovation, and people-to-people exchanges. They also committed to upholding multilateralism and free trade amid rising global protectionism. This renewed dialogue aims to stabilize a bilateral trade relationship that saw Canadian exports to China reach $21.76 billion in 2024 .
Base Case (60% likelihood): Gradual Normalization
Following the June 6 call, Canada and China steadily restore diplomatic and trade channels. Canada begins scaling back tariffs on Chinese EVs and metals, while China eases its $2.6 billion tariffs on Canadian agri-food exports. Key sectors like clean energy, hydrogen, and climate tech see modest cooperation and targeted investment. By mid-2026, Canada recovers $1.2–$1.5 billion in lost agri exports, and bilateral talks resume in forums like the WTO and COP summits. Trust improves slowly, but core geopolitical frictions remain unresolved.
Upside Case (25% likelihood): Strategic Reinvigoration
Both sides act decisively to reverse all trade penalties. A bilateral clean tech framework is signed, boosting Canadian exports beyond $25 billion by late 2026. China reopens its markets fully to Canadian agriculture and green tech firms, while Canada supports Beijing’s reintegration into Indo-Pacific economic platforms. Scientific collaboration, FDI, and cultural exchanges rebound strongly, setting the foundation for a modernized, cooperative partnership in global governance.
Downside Case (15% likelihood): Strategic Decoupling
External shocks—such as Taiwan tensions or renewed U.S.-China tech sanctions—halt progress. Tariffs remain or intensify, cutting bilateral trade by 10–15%. Canadian firms accelerate diversification away from China, especially in agri-food and tech supply chains. Diplomatic engagement stalls, public opinion hardens, and China’s role in Canada’s Indo-Pacific strategy is minimized.
