Risks of working with China outweigh the benefits, Michael Kovrig warns

WASHINGTON, D.C. — Prime Minister Mark Carney’s trade deal with China has ruffled feathers, especially in Washington, and left many wondering whether the risk of exploitation and retaliation is worth the reward of increased trade.

National Post decided it would be a good time to share insights from China expert Michael Kovrig, a former Canadian diplomat who was wrongfully detained for nearly three years in China in retaliation for the arrest of Meng Wanzhou in Vancouver. Kovrig has long stressed that China uses economic and political coercion in its dealings with partners.

This interview has been edited for length and clarity.

You’ve referred to Canada’s new China deal as pragmatic but risky. Is the risk of a partnership with China worth the lifted trade barriers?

If I had to give a one-word answer, it would be “no.” But it’s hard to give a categorical answer because there are still many uncertainties and pieces in play, and it depends on how Canada manages the two sides of the deal, and how China and the U.S. react. It might work out favourably, it might not.

One essential premise to understand is that the Chinese Communist Party is a strategic and systemic rival to Western countries. It actively seeks to undermine them and gain advantage over them, and to increase other countries’ dependence on China while reducing and diversifying its own dependence on others. Any deal the CCP agrees to, it presumably considers advantageous. So why make any deals with China that benefit the CCP, unless the assessment is that the net benefit to Canada is greater? Otherwise, you’re just selling them more of the rope they want to hang you with.

Let’s break down the Canola-EV deal. 

Carney, I think, may be reacting in part from an emotional and political aversion to Trumpian chaos on one side, and a Davos elite’s affinity for the technocratic order of the Chinese Communist Party on the other. And economically, his strategy reflects the mentality of a banker in a financialized economy that is relatively indifferent to how money gets made. It’s like that old line about whether it matters if we sell computer chips or potato chips. Yes, it matters a lot.

Canola farmers got partially restored market access, which will benefit the whole economy, and particularly a politically influential sector. That provides political capital in Western Canada for the Liberal Party, which may help it advance other policies. But all of them remain vulnerable to further coercion by the CCP. If I were a betting man, I’d put money on China weaponizing that trade again one day. So they should work out and implement a plan to diversify what they produce and the markets they sell it to, so as to reduce that leverage. Government officials say those companies understand that now. We should check each year to see what progress they’re making.

As for the “strategic partnership” with China, that’s really just a scaled-down and updated version of a broad agreement that’s been in place since 2005. China has similar accords with over 80 countries, and more “comprehensive” pacts with several Canadian allies and partners, so the agreement is more a signal of a return to full political recognition and normalized diplomatic relations. 

The key risks there lie in what Canada does with it. If businesses take it as a signal that they have political top-cover to do more trade and investment with China — which I expect some will — then it undoubtedly increases the risks because it widens the attack surface for potential problems, foreign influence, interference, and capture. The more entwined Canada is with China, the greater the risks. It may still be worthwhile, but it requires mitigation measures. My personal view is that it’s strategically unwise to increase relative dependence on authoritarian great powers, because they routinely abuse it.

The “gray rhino” risk is to Canada’s automotive industry specifically, and Canadian manufacturing more broadly. Carney traded immediate pain relief in agri-food for opening a strategic vulnerability into one of Canada’s most politically and economically sensitive sectors. The mechanics of this specific bargain create asymmetric certainty: Canada’s concession on market access is immediate, and China can bank it. The industrial benefits are speculative “expectations,” not enforceable obligations. Jim Stanford’s recent op-ed in the Toronto Star is good on this.

To be clear, if there has to be a deal on EVs, this is a smart deal, because it caps imports and incentivizes investment in Canada. But the deal only makes sense if Canada treats it as limited, conditional, and easy to undo — because once short-term relief turns into long-term dependence, the risk outweighs the benefit. This is about managing danger, not building trust.

The agricultural trade is the most classic form of access to China’s market access: staples. As Stanford says, the strategic problem for a middle power is not only where you sell, but what you sell. This reflects a long-term Canadian pattern of drifting back toward dependence on commodities, which creates vulnerabilities and economic problems.

In the short term, the deal looks manageable because only a small number of vehicles will be able to enter Canada, at first from already-certified carmakers such as Tesla, Polestar, Volvo, Ford, GM, and BYD. They won’t be able to export those cars to the U.S., so the market is limited, unless President Donald Trump makes a deal with China and changes U.S. policy. I think that’s probably part of Carney’s gamble — that eventually the U.S. market will open to these vehicles, and Canada will then be better positioned, because otherwise Mexico will eat that lunch.

The important economic question is what happens over time. Those automakers will have a strong incentive to win over customers with quality at unbeatable prices, and as they do, consumer demand pressure may drive any price floor down and quota wider. If that happens more quickly than domestic carmakers can adapt, they will be driven out of business.

I think there’s a very real risk that Canada loses its auto industry if this is not managed very carefully. The government says this will lead to investment by Chinese carmakers, but the potential rewards there are marginal and uncertain, while the risk is structural and durable. That doesn’t look to me like effective hedging. It is importing exposure at a moment of maximum fragility. 

Absent binding local content rules, procurement leverage, or strict agreements on joint ventures and such, with enforcement, the default outcome of opening a smaller market to a massively over-capacity producer is import penetration, not building new ecosystems, especially when the producer’s strategic interest is cracking markets to absorb its domestic surplus.

If Canada allows Chinese automakers to establish assembly plants in Canada and use PRC workers, assembling automobile components that have already been manufactured in China using low-cost labor, I expect we’ll see a significant “price shock” for existing Canadian local assembly plants.

Meanwhile, Chinese carmakers’ problem is they’re trapped in a domestic cycle of overproduction and vicious competition and negligible profits. That only ends when the fittest survive and the rest die. They need to export. Building cars in Canada doesn’t fix that.

Look how quickly Chinese EVs are gaining market share in Britain — 15 per cent last year, projected to 30 per cent by 2027.

The only reason Chinese automakers would invest in Canada is on the expectation that it will be a base from which to export to the U.S. one day. There’s a risk they promise future manufacturing but then find it hard to follow through. In the meantime, they will create a beachhead of imports.

Carney’s betting he can use quotas to incentivize Chinese manufacturers to open plants in Canada. But their incentives will be to promise token investments that take a long time to materialize while front-loading all the imported cars they can squeeze in. The handful of examples from other countries isn’t encouraging. Such investments have been limited to assembly plants that get around trade barriers by putting together components made in China. Employment is limited and there’s no transfer of core technology or creation of a wider ecosystem of suppliers. Same for battery plants. The end result is likely to be China dominating the market with imports and a few token assembly plants for political optics, and Canada becoming strategically dependent on Chinese supply chains and technology for mobility and the lifeblood of advanced industry. In that scenario, why wouldn’t Ottawa dance when Beijing calls a tune? From a national security perspective, that’s insane.

Then there’s the geoeconomic risk that this deal affects CUSMA negotiations and Canada-US relations more broadly. Much of what Canada sells to the U.S. is advanced manufacturing goods that make Canada an advanced economy. Is it really worth putting that at risk to sell more commodities to China? I don’t think so. Joe Varner made a similar argument in your pages last week: “American policy-makers increasingly divide allies into two categories: those who are aligned with Washington, and those who hedge.” 

Carney’s logic is that increasing ties with China provides a hedge against the U.S. and potential leverage in negotiations. Part of Carney’s goal seems to have been demonstrating his skills as a dealmaker to Trump and earning some respect as a worthy competitor. That’s a calculated risk to improve his negotiating position. Maybe it’ll help. But it could be seen as Canadian willingness to trade away manufacturing under pressure, which is completely counter to the Trump administration’s agenda. And on a personal level, if Trump starts to view Carney the way he does his American political and ideological opponents, it could lead to even rougher treatment. What if this deal with Beijing just worsened the potential outcomes from negotiations with Washington? So a lot will ride on how well those negotiations go. Hey, it’s Trump, what could go wrong?

So the main risks are not immediate. The real problems start to arise over the long term.

How is China’s industrial policy contributing to global de-industrialization, and what does that mean for Canada?

The CCP is using industrial policy, including massive state support, trade barriers and currency manipulation, to make China the leading manufacturing power in the world. It’s been dumping heavily subsidized exports on world markets. That destroys other countries’ manufacturers, because they can’t compete with Chinese scale and state support. Once a factory’s gone, it’s not coming back. This is driving a process of unprecedented de-industrialization. See my Substack post on China Shock 2.0 for details and links. It’s been taking advantage of free-market trading rules under the WTO to do this for 25 years now. Last year, it had an unprecedented $1.2-trillion trade surplus, and it’ll probably be even higher.

Meanwhile, the CCP has a long track record of using a combination of economic coercion and inducements like trade agreements and infrastructure investments to cultivate political and business leaders and incentivize them to align with its own interests and preferences. It’s a subtle form of elite capture. So what I really worry about is a critical mass of Canadian sectors becoming sufficiently dependent on China that they oppose any policies against it, and Canada becomes subordinate to China in some respects.

Australia followed that model. Result? It now has no car industry and depends on imports. People keep talking about Japan in the 1980s like it’s a meaningful comparison. It’s not. The technology is different and, more importantly, the geopolitics are different. China’s government is a hostile adversary that’s using economic entanglement as a weapon of control and seeks strategic dominance.

So, this deal looks to me like industrial policy in reverse. To simplify, the purpose of industrial policy is to make domestic producers more productive and technologically advanced, and have them move up the value chain. By increasing the added value in exports, you make more money and employ more people. Less exports of raw materials, and more finished goods. Indonesia’s law forbidding the export of raw nickel is a good example of trying to do that. 

The end result of this process will be countries like Canada making almost nothing domestically, exporting commodities, and depending on China for their advanced technology. That will give China even more control over them through supply chains and market access. Ask yourself, would Canada have had more leverage with China this month if it still made more advanced technology the Chinese needed to buy?

One key difference between a developing and a developed country is added value. This move encourages a trend of Canada exporting raw materials rather than finished products. Resources are now over half of Canada’s exports. Long term, does Canada want to be a carmaker or a gas station? It’s not a good political signal. 

It’s also ironic that Canada wants to sell China more fossil fuels while importing from China the same tech that makes those fuels eventually obsolete. Maybe OK in the short term, but economic development can become path-dependent. A vicious political economy cycle. Deindustrialization acquires self-reinforcing momentum. As manufacturing shrinks and commodities grow, the latter become more politically powerful and important to the economy, and so politicians increasingly craft policies to benefit natural resources. The center of lobbying gravity shifts towards commodity producers, and businesses and consumers who use Chinese products. They’ll just want cheap imports and not care that Canada doesn’t make anything anymore. How does that story turn out in a few decades? That way lies Argentina. As Stanford says, “We must do everything possible to keep those industries viable, even as we diversify where they sell their products.”

Finally, there’s the long-term geopolitical risk: Canada just taught the CCP that pressure on politically influential food and agriculture producers works. That has ramifications beyond Canada: China uses the same tactics with the U.S. [on soybeans] and the European Union [on dairy and cognac, for example]. When coercion works, it’s likely to be used again. So Canada just undermined deterrence. Wasn’t Carney’s Davos speech all about banding together to prevent that kind of bullying?

  The commanding heights of 21st-century geopolitics, geoeconomics, and global security are going to be shaped by the countries with the capacity to innovate, increase productivity, bring new technologies to market, and produce them at scale. Canada is currently the 10th-largest economy in the world. Do you think it’s going to be able to hold onto that position only by selling commodities, or will it be relegated to becoming the Argentina of this century, a once top-tier country struggling with economic stagnation? Is that the approach other natural resource economies are taking? Look at the widening trade balance between China and Canada over the past two decades and you have a good indication of that trajectory. Is that what we want?

If Canada loses its automotive sector, that will rip the backbone out of the advanced manufacturing sector. How’s it going to maintain any kind of industrial ecosystem without it? And if there’s a crisis like the COVID-19 pandemic or a war, and Canada no longer has factories and assembly lines, and a skilled workforce with process knowledge that can make things quickly, at scale, is that not likely to be a problem?

One final concern is that the more entangled the Chinese and Canadian economies become, the more influence the CCP is likely to have over Canada and Canadians. Do Canadians want that? 

Should Prime Minister Mark Carney draw specific red lines with China to avoid coercive measures from Beijing later?

Yes. It’s necessary to be clear about where Canada is willing to work with Chinese counterparts and where it’s not. Those lines need to be enforced consistently. Canada doesn’t need grand speeches; it needs clear rules baked into how the deal is carried out: automatic reversals if China backtracks, firm limits on access, exclusions for sensitive sectors, and a clear refusal to trade silence on political or security issues for market access. China tests its limits step by step. Mixed signals invite pressure; steady behavior discourages it.

That applies to EVs and other imports, too. Experience shows that price floors drift downward, quotas expand under consumer pressure, and “temporary” market access hardens into permanence. Without clearly defined limits on volume, data governance, technology transfer, and retaliation thresholds, Canada risks importing not just vehicles but leverage. Beijing has repeatedly demonstrated its willingness to weaponize trade when political conditions change. Engagement without pre-set guardrails and exit ramps is not pragmatic diplomacy; it’s just deferred coercion.

EVs-for-canola will lead to trouble unless Ottawa adds real teeth in the form of binding investment and content requirements, enforceable timelines, penalties, and a security posture suitable for all of North America, including the U.S. 

How can Canada diversify its trade partnerships without risking future coercion or CUSMA?

Diversification can’t be about swapping one dependency for another, especially ahead of the Canada-U.S.-Mexico Agreement renegotiation. Canada’s auto sector survives because it has continental scale, anchor investments, and deeply integrated supply chains. That’s why Canada’s push into batteries, critical minerals, and clean power worked — placing it second globally, behind only China, as a destination for battery supply-chain investment. Real diversification means deepening those ecosystems with trusted partners in Europe and Asia, not introducing a China-shaped vulnerability that Washington will interpret as strategic drift at exactly the wrong moment.

Diversification isn’t simply a matter of finding new favourite trading partners. It’s about avoiding overexposure by spreading trade across many countries, avoiding reliance on a single buyer in sensitive industries, and investing at home so shocks don’t hit the same regions again and again. Diversification should aim to strengthen CUSMA, not weaken it. Canada can expand globally while staying anchored in North America, but only if trade with China stays narrow, limited, and unglamorous.

President Donald Trump has threatened 100 per cent tariffs to prevent Canada from being China’s EV “Drop Off Port.” How should Carney respond? Do you think his team already has a concession planned?

Trump’s threat should be taken seriously because it reflects political instinct rather than trade logic, and instinct drives Trump-era trade policy. My impression is Ottawa didn’t fully anticipate this reaction. 

I am not a Canada-US policy expert, but it seems to me Carney could narrow, clarify, and firewall the China EV deal with strict quotas, high certification, and car dealership barriers, in addition to a clear statement that Canada will not serve as a backdoor into the U.S. market. Any concession to Washington should reinforce continental integration, not weaken it. If a concession is already planned, it should be framed as risk mitigation, not retreat, and executed quickly before Trump’s perceptions harden. Underline repeatedly that there’s no free trade deal with China and that Canada isn’t seeking one. Obviously, keep U.S. officials closely informed as the deal rolls out.

What achievements, in a few years, would mean the China deal was a success for Canada?

Success would not be measured by import volumes or lower sticker prices. It would mean no further erosion of Canada’s auto manufacturing base, no retaliation from either Beijing or Washington, sustained battery and EV-supply-chain investment in Canada, and a China relationship that remains transactional, limited, and reversible. If quotas expand, price floors collapse, or political pressure mounts to normalize the import of Chinese autos, the deal should be judged a failure — even if consumers benefit at the margins in the short term.

More broadly, a boring relationship would constitute success: fewer trade shocks, working lines of communication when problems arise, canola exports moving steadily without drama. EV imports remain within reasonable limits. No long-term contracts or ownership deals that Canada can’t easily unwind. And no expectation that Canada will keep quiet on security, Taiwan, or foreign interference. If the relationship stays manageable, the deal has done its job. 

I would be very happy and could forget about this stuff and move on to more fun things!

Between Carney’s Beijing visit and his speech at Davos, what would you say were his biggest moral and strategic wins vs. losses?

That’s a heavy question. The moral win was rejecting comforting myths and speaking honestly about how power really works. 

The moral loss was acknowledging that acute economic pressure compelled deeper engagement on China’s terms with an authoritarian power that has already used Canadians as leverage. That ranged from deferential language and endorsement of Chinese narratives to the gesture of pulling MPs out of Taiwan. Beijing notices those signals. So does Washington.

The short-term strategic win was reopening high-level communication channels and negotiation mechanisms without pretending old problems were solved.

The strategic loss is underestimating how concentrated pain in autos could cascade through jobs, supply chains, and alliance politics.

A longer-term strategic win is that Canada still possesses one of the world’s most competitive clean-energy and battery platforms, built precisely to preserve industrial sovereignty in an era of geopolitical fracture. The unresolved question is whether that platform is going to be protected or traded away under the banner of pragmatism. Will Mélanie Joly be able to carry on François Phlippe-Champagne’s legacy at Innovation, Science and Economic Development?

What could put Canadians at risk again of “hostage diplomacy”?

Making the CCP angry about something, but particularly arresting a Chinese citizen. That risk rises when people become bargaining chips in unresolved political disputes. It grows if Canada builds heavy dependence in a few areas, postpones difficult conversations until after deals are signed, or treats silence on hard issues as the price of calm relations. The protection isn’t goodwill — it’s resilience, coordination with allies, and making clear that intimidation only damages the relationship. I’ve written more on this here . 

National Post

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