By Researcher Shatha Kalel
Canada’s trade relationship with China is undergoing a strategic shift that reflects changes in global economic power, growing concerns about supply-chain security, and rising geopolitical tensions. After years of mutual dependence and expanding trade, Canada has begun reassessing its economic ties with China, particularly amid political pressures, global technological competition, and domestic economic changes. This article provides a structured analysis of the current shifts, their impact on the Canadian economy, and the likely trends in the near and medium future.
1. China’s Importance in Canada’s Trade Structure
For many years, China was Canada’s second-largest trading partner after the United States. Canada benefited from China’s vast market to export natural resources such as lumber, minerals, oilseeds, meat, and seafood. Meanwhile, Canadian consumers relied heavily on low-cost Chinese goods, which helped stabilize prices and reduce living costs.
However, this deep economic integration also created a high degree of dependence, especially for electronics, consumer goods, and industrial equipment — dependence that began to be seen as a vulnerability after the COVID-19 pandemic.
2. Political Tensions and the Reshaping of Economic Relations
Trade relations deteriorated significantly after the 2018 arrest of Huawei’s CFO in Vancouver, followed by China’s detention of two Canadian citizens. Since then, Canadian-Chinese economic engagement has been increasingly shaped by political caution, and Canada has shown interest in reducing reliance on China in sensitive sectors.
The pandemic further reshaped global thinking about “economic security,” pushing Canada to diversify its import sources and reduce dependence on a single country for essential goods like medical supplies and pharmaceuticals.
3. Actual Shifts in Trade
1. Decline in Certain Traditional Exports
Canadian canola exports to China declined due to Chinese quality restrictions and political tensions. Exports of meat and seafood also suffered from stricter inspections and slower customs approvals.
2. Imports Continue, but with Gradual Diversification
Canada has not yet been able to replace low-cost Chinese products, so imports continue. However, the country is gradually looking to diversify through Vietnam, India, South Korea, and Mexico.
3. Tighter Controls on Chinese Investment
Canada has imposed stricter regulations on foreign investment in critical minerals and strategic technologies, reflecting its desire to protect key future industries such as batteries, artificial intelligence, and electric vehicles.
4. Economic Impacts on Canada
1. Higher Production and Consumer Costs
Shifting supply chains to other countries increases production costs and raises the price of imported goods, contributing to higher living expenses for Canadian households.
2. Risks for Small and Medium-Sized Businesses
Many Canadian companies depend on Chinese components. Any sudden change in the trade relationship raises their costs and threatens their competitiveness.
3. New Economic Opportunities
At the same time, Canada has opportunities to develop strategic domestic industries, strengthen trade partnerships with lower-cost countries, and build more stable supply chains.
5. The Future of Canada–China Trade
1. Toward “Strategic Balance”
Canada is unlikely to completely disengage from China — China’s production scale is irreplaceable. However, Canada will pursue a less dependent, more diversified, and more closely regulated trade relationship.
2. Continued Cooperation in Low-Risk Sectors
Trade will continue in areas such as agriculture, natural resources, and consumer goods, where national security concerns are minimal.
3. Intense Competition in Technology and Energy
The real competition will occur in advanced technologies and critical minerals. Canada owns substantial reserves of lithium, nickel, and cobalt, giving it a competitive advantage in the global battery and electric vehicle sectors.
4. Strong Influence of U.S. Policy
Canada’s approach will remain closely tied to U.S. strategy toward China, particularly in technology, AI, and defense.
Conclusion
The transformation of Canada–China trade is not a temporary event but part of a broader restructuring of the global trading system. Despite the risks associated with gradual economic decoupling, Canada also has significant opportunities to build a more independent, resilient economy that aligns more closely with its long-term strategic interests.
Economic Studies Unit / North America Office
Al-Rabetat Center for Research and Strategic Studies