Selling more to China makes economic sense, but relying too heavily on Beijing could put our vital U.S. relationship at risk

On July 20, the White House proclaimed additional 50-per-cent tariffs on selected Canadian goods under Section 338 of the Tariff Act of 1930, a provision allowing tariffs against countries that disadvantage U.S. commerce. They are scheduled to take effect at 12:01 a.m. ET on Aug. 19.

The legal complaints concern Canadian treatment of American vehicles, alcohol and dairy. But the administration’s political message went further. Its fact sheet placed Canada beside the People’s Republic of China as the only countries that retaliated against U.S. President Donald Trump’s tariffs rather than negotiate a deal.

That comparison matters. Washington is increasingly treating Canada’s relationship with China not simply as a matter of Canadian trade policy but as an issue of North American economic security.

Selling Canadian goods to China is very different from allowing Chinese state-supported capital, technology, components and data systems to become embedded in industries that depend on preferential access to the United States.

Two days after the July 20 announcement, U.S. Trade Representative Jamieson Greer repeated the comparison with China to the Senate Finance Committee while describing a broader effort to reduce reliance on China and rebuild North American supply chains. Greer was reinforcing an administration position already stated in writing, not introducing a new concern.

The structure of the tariffs reinforces that message. They apply to goods even when those goods qualify for preferential treatment under the United States-Mexico-Canada Agreement, which would ordinarily provide tariff-free or preferential access.

Yet Washington exempted energy, potash and critical minerals, as well as certain other products. The U.S. is prepared to set aside USMCA tariff preferences when it believes its economic security is at stake, while protecting access to Canadian resources it cannot readily replace. That is where Canada’s leverage lies.

There are legitimate reasons, of course, for Canada to expand trade with China. The January Canada-China trade agreement is one example. Ottawa announced that it expected China to reduce the combined tariff on Canadian canola seed to about 15 per cent from roughly 84 to 85 per cent. The government describes China as an approximately $4-billion market for Canadian canola seed.

Saskatchewan Premier Scott Moe endorsed the agreement, noting that canola employs more than 200,000 Canadians and represents a $44-billion industry.

Those gains should be acknowledged rather than dismissed. Selling more Canadian canola, seafood, energy or minerals abroad can reduce exposure to American protectionism. That is diversification.

Strategic dependency is something else.

That distinction is clearest in automobiles. Ottawa will permit up to 49,000 Chinese electric vehicles annually at the 6.1-per-cent most-favoured-nation tariff. The federal government says that represents less than three per cent of Canada’s new-vehicle market and expects the arrangement may encourage joint-venture investment in Canadian manufacturing. Lower-cost vehicles and new factories could benefit Canadians.

But Washington will ask a different question. Will a vehicle built in Canada remain dependent on Chinese subsidies, batteries, software, data systems, components or strategic direction? If so, Washington may see Canada as an indirect route for Chinese interests into the American market.

Simply incorporating a company in Canada will not answer that concern. Nor will invoking sovereignty while ignoring how deeply Canadian manufacturing, defence, intelligence and infrastructure are integrated with the U.S.

Washington’s concerns extend beyond ownership and supply chains. In June, the Office of the U.S. Trade Representative concluded that Canada had failed to effectively enforce its prohibition on forced-labour imports.

On July 23, USTR imposed a 10-per-cent duty on Canada under Section 301, a U.S. trade-law mechanism used to respond to foreign practices that burden American commerce.

The larger message is clear. When Washington believes gaps in Canadian enforcement threaten its interests, it is prepared to impose trade penalties.

That concern now hangs over the Aug. 19 deadline. On Aug. 6, Trade Minister Dominic LeBlanc and chief negotiator Janice Charette were in Washington seeking relief from the tariffs. Their effort should focus not only on the immediate duties but also on the security concerns shaping Washington’s broader trade policy.

Canada need not copy every American measure. Washington can be protectionist, transactional and willing to pressure allies. Ottawa should challenge unjustified tariffs and defend the rules-based trade system.

But Canada should not confuse resisting American protectionism with ignoring American security concerns. If strategic Chinese interests become embedded in Canadian industries integrated with the U.S., Ottawa should expect Washington to respond.

The answer is not to stop trading with China or to treat every Chinese company as hostile. It is to distinguish ordinary commerce from dependency on a party-state able to coordinate regulators, banks, industrial policy, procurement and market access for political purposes.

Canada should sell canola, seafood, energy, minerals and other goods wherever willing buyers can be found. It should also apply credible safeguards to Chinese investment and inputs in vehicles, ports, energy, telecommunications and critical minerals.

The Aug. 19 deadline is therefore more than a tariff date. It is a warning that Washington now treats Canada’s China policy as part of the continental trade negotiation.

Canada cannot hedge indefinitely between economic systems that are becoming less compatible. Strategic ambiguity is not independence; it is an invitation for stronger powers to define Canada’s choices for it.

Scott A. McGregor is a senior fellow with the Frontier Centre for Public Policy and managing partner of Close Hold Intelligence Consulting Ltd. He is co-author of The Mosaic Effect: How the Chinese Communist Party Started a Hybrid War in America’s Backyard.