Canada’s trade war with the world’s largest economy is a serious threat to its stability. In fact, it’s such an economic threat that almost no one is paying attention to another significant one—the trade war with the world’s second-largest economy, China. RBC Economics warns that China has finally responded to Canada’s import tariffs on Chinese EVs and metals. China’s recent announcement will hit agricultural exports, potentially compounding pressure from American tariffs. The bank doesn’t see all provinces impacted, but that’s not the good news we think it is. RBC warns the blow is concentrated, delivering a precision hit to specific industries with Atlantic Canada and the Prairies in the eye of the tariff storm.
Canada-China Trade War Went Into High Gear With EV & Steel Tariffs
Last fall Canada hit China with 100% tariffs on EVs and certain steel products. Using the excuse of “national security,” the country claimed an oversupply of those materials could force prices lower, threatening jobs. China has a history of dumping, but our analysis at the time showed Chinese steel was trading at a price similar to global markets such as Germany. American and Canadian steel products were trading significantly higher, with tariffs attempting to prevent any correction from the 2020-boost to prices.
China threatened to retaliate if the tariffs persisted, and 6-months later they have. “China retaliated with tariffs of its own on various Canadian agricultural exports in response to Ottawa’s tariffs last fall on Chinese electric vehicles and metals,” explains Salim Zanzana, an economist at RBC.
China has now imposed a 100% tariff on Canadian exports of canola oil, canola oil-cake, and pork imports. In addition, they’ve implemented a 25% tariff on pork and aquatic products. The latter tariffs are expected to hit some provinces particularly hard, according to the bank.
“The new tariffs mark an escalation in trade tensions between Canada and China, with the risk tilted to the upside [amplifying the risks Canada faces]. It comes as the agriculture sector is already experiencing challenges posed by the trade uncertainty with the United States,” says Zanzana.
Chinese Trade War To Hit Atlantic & Prairie Provinces Hardest
Canada’s Chinese trade war is nowhere near the scale of the American trade war. However, it’s still significant—Chinese tariffs would have impacted $2.9 billion of Canadian exports in 2024. The bank says the biggest hit would be seafood products ($1.2 billion in 2024), followed by canola oil and cake ($938 million), and pork products ($467 million). They further note that China is Canada’s second-largest export market for pea products ($306 million), though that hasn’t been impacted.
Looking at just the direct macro impact, it’s easy to gloss over how serious of a blow this will be. The tariffs would have only impacted 0.4% of domestic merchandise exports in 2024. However, the precision of the impact will deliver concentrated blows to a handful of provinces.
The biggest shock will be to Atlantic provinces, which the bank warns is “in the eye of the storm.”
“Among provinces, Nova Scotia is most exposed to these tariffs. The affected goods account for approximately 9.2% of the province’s total domestic exports. Notably, China is Nova Scotia’s second-largest export market for lobsters, which amounted to nearly $452 million in export value in 2024,” explains Zanzana.
The lobster export value is equivalent to over a point of GDP for Nova Scotia. That’s before any velocity impacts, nor considering secondary or tertiary impacts. We’ll come back to this point.
A distant second for impact is Newfoundland (1.7% of exports in 2024), exporting $105 million in shrimp to China. It would be followed by Saskatchewan (1.5% in 2024), which exported $515 million of canola and cake to the region. Once again, not a death blow but industries that are important to the domestic economy of these provinces.
Atlantic Canada In The “Eye of The Storm” From Chinese Tariffs
Share of exports to be tariffed as a share of total exports (2024).
Source: RBC, Industry Canada.
One can’t help but notice which provinces are not impacted by the tariff retaliation. When Canada hit China with tariffs last fall, it was to protect industries mostly in Ontario, and to a lesser extent Quebec. China’s tariffs only hit a small share of exports from Quebec (0.2%), and Ontario (0.03%). Atlantic Canada and the Prairies are paying the bill for Ontario’s economic edge. That’s not going to go over well if the impact persists.
Canada’s Real “Threat” Is Indirect Consequences, Potential Escalation
The direct hit from tariffs pales in comparison to the second and tertiary impacts. These are hard-to-quantify indirect consequences, but we have some data from the last trade conflict with China. RBC reminds investors of the 2019 canola tariffs, which the Canola Council of Canada says cost the domestic industry between $1.54 billion and $2.35 billion via weaker sales and falling prices.
Afterall, tariffs aren’t just designed to slow imports from the country being hit. They’re also designed to leave the tariffed country with an oversupply of goods, resulting in falling prices. The indirect consequences will be much higher, especially if Canada’s largest trade partner is still in a conflict itself.
“While the new tariffs could trigger losses for the targeted industries, the more significant risk stems from the potential escalation of the trade conflict,” warns RBC.
The bank explains the latest round of tariffs came in response to China’s anti-discrimination investigation into Chinese EVs and metals. They still have an ongoing anti-dumping investigation into Canadian canola and chemical products. If they determine that government assistance has helped those industries provide cheaper exports, additional tariffs could arrive.
“Given that China remains Canada’s largest export market for canola seeds – valued at approximately $4 billion in 2024 – any further restrictions could have significant economic repercussions on the industry,” says Zanzana.
Those consequences are potentially made worse by the American trade conflict. The US isn’t just the world’s largest economy, but also Canada’s biggest trade partner. Simultaneous engagement on the same industries are likely to amplify the impact of the conflicts.
