Trade tensions between Canada and China have eased, benefitting Canadian agricultural exporters. China is reducing tariffs on Canadian seafood, peas, and canola meal, and Canada will decrease tariffs on Chinese electric vehicle imports.
This reduction is expected to aid the Prairies, parts of Atlantic Canada, and British Columbia, areas that have struggled to offset previous export losses. The tariff on canola seed will drop from 75.8% to 15%, which offers improvement, but some friction remains.
Boost Of Confidence In Trade
The tariff changes give a boost of confidence for the 2026 seeding season. Canola prices are likely to remain consistent with levels seen last year. However, uncertainties about the truce’s longevity and impact on the Canadian auto sector persist.
The recent de-escalation of trade tensions with China is a clear positive signal, especially for our agricultural sector. We are looking closely at canola futures on the ICE exchange, as the tariff reduction from nearly 76% to 15% is a major development ahead of the 2026 seeding season. With canola exports to China representing over $2 billion annually before the dispute began back in 2019, restoring even part of that flow suggests a firm floor for prices.
This news leads us to consider call options on companies integral to the Prairie export economy, particularly railways like CN Rail and CPKC Rail. Looking back at 2019-2022 data, we saw a direct correlation between stalled agricultural shipments and weaker rail volumes, so a reversal should provide a tailwind for their earnings. We anticipate increased transport demand for not just canola meal and peas, but also for seafood moving out of British Columbia and Atlantic Canada.
Impact On Canadian Dollar And Auto Sector
This development should also provide support for the Canadian dollar. An improvement in our trade balance, particularly from high-value agricultural exports, tends to strengthen the loonie against the US dollar. We are therefore watching for opportunities to position for a move lower in the USD/CAD pair, which has been hovering near the 1.35 level for the past month.
On the other hand, the tariff reduction on Chinese electric vehicles introduces a potential long-term risk that we must monitor. We saw how Chinese EV brands captured nearly 10% of the European market in 2025, up from just 6% the year prior, by competing aggressively on price. This could eventually pressure Canadian auto parts manufacturers, so we are keeping an eye on put option activity in that sector as a potential hedge.
