Canada has effectively abandoned the idea of a free trade deal with China after President Donald Trump issued a blunt warning that such a move would trigger severe consequences. Prime Minister Mark Carney has now publicly confirmed that Ottawa has no plans to pursue a free trade agreement with Beijing, backing away from what critics say would have been a major strategic mistake.
From the perspective of the Trump administration, China was attempting to use Canada as a back door into the United States, undermining U.S. tariffs and trade enforcement. Canada’s reversal signals that Washington’s warning was taken seriously.
What Was on the Table Between Canada and China
Earlier this month, Canada and China reached a narrow trade arrangement that stopped short of a full free trade agreement. The deal focused on reducing specific tariffs rather than opening markets broadly.
Under the arrangement, Canada agreed to lower its tariff on Chinese electric vehicles. Ottawa was prepared to allow up to 49,000 Chinese electric vehicles into Canada at a tariff rate of 6.1 percent. This was a dramatic shift from the 100 percent tariff Canada had previously imposed to mirror U.S. policy.
In return, China agreed to reduce its retaliatory tariffs on Canadian agricultural products, particularly canola seeds and meal. Beijing had earlier imposed 100 percent tariffs on Canadian canola oil and meal and 25 percent tariffs on pork and seafood after Canada followed U.S. trade actions against Chinese exports.
While limited in scope, the deal raised alarms in Washington because it created a potential pathway for Chinese goods to move from Canada into the U.S. market.
Why Trump Saw the Deal as Dangerous
President Trump made clear that his concern was not Canada trading with China in isolation, but the risk that Canada would become what he called a “drop off port” for Chinese goods destined for the United States.
Trump warned that if Canada moved forward with a broader trade deal with China, the U.S. would respond with a 100 percent tariff on Canadian imports. He argued that China would exploit any opening to flood North America with subsidized products, especially electric vehicles, steel, and manufactured goods.
Trump also warned that China’s economic practices could devastate Canada itself, saying Beijing would “eat Canada alive” by hollowing out its industries, social fabric, and way of life.
From the Trump administration’s perspective, allowing China a workaround through Canada would undermine years of tariff enforcement aimed at countering Chinese state driven trade advantages.
What Canada Did to Shut the Door on a Deal
Following Trump’s warning, Carney publicly stated that Canada has no intention of pursuing a free trade agreement with China or any other nonmarket economy. He acknowledged that such a deal would jeopardize Canada’s critical trade relationship with the United States.
Carney also pointed to the United States Mexico Canada Agreement, which requires member countries to notify partners if they enter free trade negotiations with a nonmarket economy. Failure to do so could put the agreement itself at risk, something Canada has no desire to test.
Canadian Cabinet ministers reinforced this position in conversations with U.S. officials, emphasizing that the China arrangement was narrow and did not amount to a free trade deal.
What Carney Has Said Publicly
Carney has tried to downplay the escalating rhetoric while making it clear that Canada is not moving toward a full trade pact with Beijing. He described Trump as a strong negotiator and suggested that some of the president’s comments should be viewed in that context.
At the same time, Carney admitted it was obvious that any free trade deal with China would damage Canada’s relationship with Washington. He stressed that U.S. officials would know immediately if such talks were underway and that Canada has no intention of triggering that kind of conflict.
What Trump and His Team Have Said
Trump initially reacted positively when Canada began talks with China, saying it was good for Carney to seek a deal. That tone changed quickly after Carney delivered a high profile speech in Davos calling for a new global order that pushed back against major powers.
After that, Trump hardened his stance, threatening sweeping tariffs and revoking Carney’s invitation to a new U.S. led international initiative known as the Board of Peace.
Treasury Secretary Scott Bessent echoed Trump’s position, warning that a free trade agreement with China could result in a 100 percent tariff on Canadian goods. U.S. trade officials also made clear that any deal with a nonmarket economy would trigger serious consequences under existing trade rules.
Canadian trade officials have since worked to reassure Washington that the China arrangement is limited and does not threaten the North American trade framework. Canada’s trade minister said U.S. officials understood the difference between a narrow tariff adjustment and a full free trade agreement.
Analysts note that China remains Canada’s second largest trading partner, but the United States is by far its most important. Billions of dollars in goods cross the U.S. Canada border every day, and Canada supplies the majority of U.S. crude oil imports as well as large shares of electricity, steel, aluminum, uranium, and critical minerals.
Risking that relationship for a deal with China was widely seen as a gamble Canada could not afford.
From the Trump administration’s perspective, the situation confirmed long standing concerns about China’s trade strategy. By lowering tariffs on Chinese electric vehicles, Canada risked becoming a transit point for goods ultimately bound for the U.S. market.
Trump’s warning forced Canada to confront that reality. By stepping back from a free trade deal, Ottawa avoided a major clash with Washington and shut down a pathway China could have used to bypass U.S. trade defenses.
In the end, Canada’s retreat underscores the central issue Trump raised from the start. Any deal that gives China indirect access to the U.S. market is not a harmless trade adjustment. It is a strategic vulnerability. On that point, Trump was clear, and Canada ultimately agreed.
