Canada and China have reached a landmark trade agreement easing tariffs on electric vehicles and agricultural products. The deal signals a recalibration of bilateral trade relations following a period of escalating retaliation and market disruption, particularly in Canada’s agri-food sector.
Prime Minister Mark Carney has announced that Canada will reduce its 100% tariff on Chinese-made EVs in exchange for sharply lower Chinese tariffs on Canadian farm goods, most notably canola. The agreement reflects a more transactional approach to trade policy, prioritizing export market access and domestic economic stability over strict alignment with U.S.-led restrictions.
The agreement did not address canola oil, which remains subject to a 100% tariff. Though China exports very little of the finished product, with most oil exports going to the US. Under the agreement, Chinese EV exports to Canada will be capped at 49,000 vehicles initially, rising to 70,000 units over five years–representing about 26% of light-duty ZEV sales in 2024 and less than 5% of all LDV sales. China will cut its tariff on Canadian canola seed from roughly 84% to about 15%, reopening access to a critical export market.
While the canola oil exclusion limits relief for downstream processors, the reduction in seed tariffs is economically significant. Canola seed exports have historically been more sensitive to Chinese demand, and restoring access improves price discovery and export optionality for Canadian producers. For farmers, the deal eases pressure at a time when alternative export markets have struggled to fully absorb displaced volumes.
This marks a shift away from Canada’s earlier alignment with US-led trade restrictions, which prompted Chinese retaliatory tariffs and drove a 10.4% year-on-year drop in Chinese imports from Canada. That decline was felt unevenly across commodities, but canola, peas, and seafood exports were among the most affected, underscoring the asymmetric exposure of Canadian agriculture to trade policy shocks.
From a broader market perspective, the agreement reduces one of the more acute sources of uncertainty facing Canadian grain and oilseed markets over the past year. Re-establishing a pathway into China does not guarantee a return to prior trade volumes, but it materially improves negotiating leverage and reduces reliance on a narrower set of alternative buyers.
From a CFR perspective, lower canola seed tariffs improve export optionality and could modestly tighten domestic feedstocks over time, while the exclusion of canola oil keeps downstream relief limited and still largely depends on US trade and North America biofuel policies. In practice, this means that while some additional seed may flow offshore as margins improve, domestic crushers and fuel producers are unlikely to see abrupt feedstock shortages.
In the near term, this supports stable feedstock flows into biodiesel and renewable diesel, limiting downside risk to CFR-linked supply. Existing supply chains remain intact, and the absence of immediate pressure on canola oil pricing helps preserve cost predictability for obligated parties and fuel producers alike.
Overall, the deal does not change CFR compliance mechanics but reduces feedstock volatility risk and eases pressure on farmers without materially weakening the domestic biofuel supply base. However, by reducing volatility risk on a key agricultural input, the deal indirectly supports smoother compliance planning and hedging strategies. The balance struck in the agreement reflects a policy preference for stability rather than structural market intervention.
The lower tariffs on capped Chinese EV imports introduce additional competition in the Canadian market but remain constrained in scale. Even at the upper end of the quota range, Chinese EVs would represent a small share of annual vehicle sales, particularly when measured against Canada’s total light-duty fleet turnover.
As a result, impacts on gasoline and diesel demand should remain modest, and any incremental shift in vehicle sales is unlikely to materially alter near-term fuel demand trajectories or baseline compliance dynamics under the CFR. That said, the relevance of even marginal changes in ZEV penetration is heightened in the current market context, where credit supply has already tightened materially.
ZEV sales declined sharply in 2025 amid reduced rebate support at both the federal and provincial levels, translating into weaker credit generation from zero-emission vehicles under the CFR. This softness in supply has emerged just as credit prices approach the de facto ceiling and compliance costs escalate. In this environment, the introduction of lower-cost EVs, while unlikely to shift fuel demand meaningfully, could modestly expand the pool of affordable ZEVs and represent one of several levers to ease CFR compliance costs over the near to medium term.
This agreement represents a targeted de-escalation rather than a wholesale realignment of trade or climate policy. In summary, the agreement favours stability over structural change , easing trade and feedstock volatility. By restoring canola seeds access and limiting downstream exposure and capping EV imports it looks at more predictable compliance planning while reducing near-term tail risks. Any impacts on fuel demand or credit balances are likely to be marginal, leaving core dynamics largely unchanged.
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