China is able to take advantage due to Trump's trade protectionism

Global Trade Shifts in Response to U.S. Tariff Policies

WASHINGTON (AP) — Major U.S. trading partners are adjusting their economic strategies as President Donald Trump’s aggressive and unpredictable trade measures prompt them to seek new markets.

On Friday, Canada diverged from the United States by reducing its 100% import duty on Chinese electric vehicles, securing in exchange lower tariffs on Canadian agricultural exports, especially canola.

Edward Alden, a senior fellow at the Council on Foreign Relations, remarked, “This marks a significant shift in Canada’s economic alliances. Canadians now view the U.S. as a greater economic threat than China, making this a pivotal moment.”

Canada has often found itself the focus of Trump’s unpredictable trade actions. For example, last October, Trump announced a 10% tariff on Canadian goods in retaliation for a critical advertisement from Ontario’s government. Although he did not implement the increase, tariffs remain on key sectors such as steel and aluminum.

However, the recent agreement with China presents a risky move for Canadian Prime Minister Mark Carney, as it could provoke a backlash from Trump just as talks to renew the vital North American trade agreement approach.

Trading Partners Seek New Opportunities

Canada is not alone in exploring alternatives to the vast American market. Trump’s sweeping tariffs are pushing other nations to diversify their trade relationships.

The European Union is set to officially sign a trade agreement with Mercosur—the South American bloc including Brazil and Argentina—and is also negotiating with India.

China, having faced U.S. tariffs since Trump’s first term, has shifted its export focus to Europe and Southeast Asia. This strategy appears successful, as China’s trade surplus with the rest of the world soared to a record $1.2 trillion in 2025, despite declining sales to the U.S.

Since returning to office in January, Trump has reversed decades of U.S. policy favoring free trade, imposing substantial tariffs on imports from nearly every country and targeting industries like steel and automobiles with additional levies.

Trump argues that these tariffs will generate revenue for the U.S. Treasury, shield domestic industries, and attract investment. For instance, Taiwan agreed to invest $250 billion in the U.S. after Trump lowered tariffs on its products from 20% to 15%.

Unpredictable Tariff Actions

The president’s tariff decisions have often been sudden and inconsistent. For example, he targeted Brazil after its government prosecuted his ally, former President Jair Bolsonaro. Recently, he threatened tariffs on nations that do not support his efforts to acquire Greenland from Denmark.

Canada’s Complex Ties with China

The agreement reached in Beijing on Friday represents a notable change in Canadian policy. In 2024, Canada had mirrored U.S. policy by imposing 100% tariffs on Chinese electric vehicles, citing concerns that affordable Chinese cars could flood the North American market.

Yet, the new deal with China brings tangible benefits for Canada. For one, canola farmers will gain improved access to Chinese markets, as tariffs on canola drop from 84% to 15%. Producers are optimistic that this will revive exports of the vital crop.

Additionally, the Trump administration’s preference for fossil fuels over clean energy has made it “actively hostile to EV production in North America,” according to economist Mary Lovely of the Peterson Institute for International Economics. She warns that U.S. resistance could render the North American auto industry outdated, while China advances in electric vehicle technology.

“China’s leadership in electric vehicles is clear,” Carney stated. “They manufacture some of the world’s most cost-effective and energy-efficient vehicles. For Canada to build a competitive EV sector, we must collaborate with innovative partners, tap into their supply chains, and stimulate domestic demand.”

However, Carney’s outreach to Beijing is not without risk. Alden noted, “This was an extremely tough decision for Carney. Canada’s relationship with China has been highly strained.”

In 2018, China detained two Canadians in response to Canada’s arrest of a Huawei executive at the U.S.’s request. All parties were released in a 2021 exchange. Canada has also investigated alleged Chinese interference in its 2019 and 2021 elections.

The agreement has faced criticism for potentially exposing Canadian autoworkers to competition from low-cost Chinese EVs. Ontario Premier Doug Ford, whose province is the hub of Canada’s auto industry, condemned the deal, warning, “China now has a foothold in the Canadian market and will exploit it to the detriment of Canadian workers. Worse, by lowering tariffs on Chinese EVs, this unbalanced agreement could shut Canadian automakers out of the U.S. market, our largest export destination.”

Carney responded by emphasizing the deal’s limitations: China can export only 49,000 EVs to Canada at the reduced 6.1% tariff, with a cap rising to about 70,000 over five years.

Implications for North American Trade

Canada’s greatest vulnerability remains its relationship with the United States. The U.S.-Mexico-Canada Agreement (USMCA), which allows for duty-free trade across North America, is up for renewal this year. Trump is expected to push for changes that would favor U.S. manufacturing, and he may even threaten to withdraw from the pact, particularly if he wishes to penalize Carney for his shift toward China.

This is a major concern for Canada, which sends three-quarters of its exports to the U.S.

William Reinsch, a former U.S. trade official now at the Center for Strategic and International Studies, commented, “The Canada-China deal will complicate negotiations. Trump is unlikely to approve of Canada’s move, may retaliate—likely targeting the Canadian auto sector—and will certainly raise the issue during USMCA talks.”

Despite this, Trump praised Carney on Friday, saying, “If you can reach an agreement with China, you should.” Carney also noted that the arrangement with China is preliminary, allowing room for adjustments to avoid conflict with the U.S.

Carney may also be relying on support from American businesses. U.S. automakers, which operate across the continent, are expected to strongly defend the USMCA. American farmers and tech firms also benefit from the agreement’s provisions on agricultural and digital trade.

For now, as Mary Lovely observed, Carney’s deal with China signals that Canada is exploring new partnerships and has alternatives that could allow it to exit the USMCA rather than accept unfavorable terms dictated by the U.S.

Reporting contributed by Ken Moritsugu in Beijing, Rob Gillies in Toronto, and Chan Ho-him in Hong Kong.