Canada strikes tariff deal with China on agriculture and electric vehicles

Canada and China are re-setting ties after leaders Mark Carney and Xi Jinping met in Beijing.

The leaders agreed to lower tariffs on each others products in a move that could boost bi-lateral trade but risks irking the United States.

The main deal dealt with near-term tariff levels and saw both sides dropping tariffs:

• Canada will allow up to 49,000 Chinese electric vehicles into the
  Canadian market, with the most-favoured-nation tariff rate of 6.1%
• China will lower tariffs on Canadian canola seed to a combined rate of approximately 15% from 85%
• Canadian canola meal, lobsters, crabs, and peas will not be subject to relevant anti-discrimination tariffs
• Canada has set a goal to increase exports to China by 50% by 2030
• Xi Jinping commits to visa-free travel for Canadians
• Canada cites two-way opportunities batteries, solar, wind, and energy storage

As for the auto deal, here is how the Prime Minister’s office framed it:

This amount corresponds to volumes in the year prior to recent trade
frictions on these imports (2023-2024), representing less than 3% of the
Canadian market for new vehicles sold in Canada. It is expected that
within three years, this agreement will drive considerable new Chinese
joint-venture investment in Canada with trusted partners to protect and
create new auto manufacturing careers for Canadian workers, and ensure a
robust build-out of Canada’s EV supply chain. With this agreement, it
is also anticipated that, in five years, more than 50% of these vehicles
will be affordable EVs with an import price of less than $35,000,
creating new lower-cost options for Canadian consumers.

There were two separate releases, the second dealt with the larger strategic picture:

• Carney and Xi Jinping agree to deepen strategic ties

• Canada reaffirms One China policy during official visit

• bilateral trade roadmap signed to resolve economic issues

• ministerial energy dialogue launched for clean power and oil

• Bank of Canada renews currency swap with China

Carney has made it a political cornerstone to diversify trade away from the United States after the US raised tariffs and talked of annexation. This is a big step in that direction but the lowered China auto tariffs — even on a limited set of cars — will irk the domestic auto manufacturing industry and the White House.

The Canadian dollar is unmoved on this deal, which comes as a modest surprise. There has been some talk of a deal but it looked like it wasn’t going to happen earlier this week. While the deal itself is good, it adds some fresh risks for the loonie if Trump throws a tantrum.

USD/CAD was last flat on the day at 1.3890.

This article was written by Adam Button at investinglive.com.