Canada-China Trade: Q2 2024

The China Institute’s quarterly and annual trade reports aim at providing unique insights into the current state of play in the Canada-China commercial relationship, by not only taking a deep dive into Canada-China trade data, but also offering an analysis of the broader economic and political trends that drive these results.

As Canada’s engagement with China becomes ever more complex and multifaceted, this analysis is a key tool for examining how our relations with China evolve over time, given the important place that trade occupies in the bilateral relationship.

For Q2 2024, while Canada-China trade flows were very unpredictable and subject to volatility in 2023 when looking at trade on a month-to-month basis, the first six months of 2024 have seen trade mostly stabilize month-to-month, albeit at a cumulatively subdued level when compared to last year. The decrease in bilateral trade has occurred in the context of prolonged macroeconomic headwinds in both countries, and the continuation of geopolitical tensions both between Canada and China, and throughout the world more broadly. The exacerbation of bilateral disputes between Ottawa and Beijing subsequent to Q2 2024 in the form of a brewing trade dispute pertaining to concerns of Chinese industrial overcapacity introduces greater uncertainty into commercial ties between Canada and China moving forward, and will likely have an adverse effect on trade flows in the near future. For a detailed analysis of the potential impact of this new trade spat linking Canadian tariffs on Chinese EVs and Canadian exports of canola to China, and for a look at other emerging trends related to Canadian exports of oil, imports of Chinese-made Teslas, and more, please refer to the Trends and Topics section of this report.

 

Year-End Data

A granular analysis of trade flows between Canada and China indicate that while many goods related to industrial activity have performed well in the data for the first half of 2024, trade in consumer goods has been lackluster. This is reflected by robust performance throughout the manufacturing sectors in both countries over the same period, which coincided with faltering consumer spending in Canada and China.

The contents of the Q2 2024 Canada-China Trade Report are as follows:

1. Canadian Exports to China An overview of Canadian exports to China in Q2 2024, with a focus on the top exported products.
2. Canadian Imports from China An overview of Canadian imports from China in Q2 2024, with a focus on the top imported products.
3. Canada-China Trade: A Two-Year Perspective An analysis of the prevailing macro trends in bilateral trade over the course of the last 24 months preceding June 2024.
4. Provincial Data An overview of bilateral trade between all Canadian provinces and territories with China, with analysis of some factors that may influence quarterly trade flows in each jurisdiction.
5. Trends and Topics A qualitative analysis of possible factors influencing Canada-China trade flows in Q2 2024, and the highlighting of factors that could potentially affect bilateral trade moving forward throughout the rest of the year.

The following draws on Statistics Canada data for goods (merchandise) trade with China, presented on an unadjusted customs basis in Canadian dollars (CAD). The relevant HS 4-digit identification codes are used to identify product groups. All values are in Canadian dollars (CAD).

 

1. Canadian Exports to China

The first six months of 2024 have seen Canadian exports to China contract more sharply than exports to many of Canada’s other large trading partners, standing in contrast with 2023, which witnessed exports to China growing while exports to the United States and all countries total decreased. Canadian exports to China have decreased by 7.59% YoY in Q2 2024, amounting to $14.07 billion. Meanwhile, exports to Canada’s largest trade partner, the United States, stood at $294.30 billion in Q2 2024, exhibiting a modest decline of 0.33% YoY. The value of Canadian exports to all countries – including China and the United States – totaled $382.68 billion by June 2024, reflecting a contraction of 0.12% YoY.

The underperformance of Canadian exports to China relative to other points of comparison thus far in 2024 can be viewed as a continuation of a trend that began to manifest throughout 2023, which saw exports decline steadily each quarter despite cumulative year-end growth reaching 6.17% YoY. It was expected that exports would continue to decline due to mounting macroeconomic and geopolitical headwinds that placed downward pressure on export growth. The enduring resilience of these factors has continued into 2024, and is reflected in the Q2 2024 export data. It is also worth noting that strong growth in Canadian exports to China in Q1 2023, which was influenced by the end of China’s Zero-COVID policy, was an outlier that buoyed the 2023 year-end export growth numbers. The export numbers for Q2 2024 are indicative of the prevailing trend of China’s uneven post-pandemic economic recovery and geoeconomic tensions adversely affecting export growth that was noted throughout the last nine months of 2023.

 

 

In Q2 2024, the top Canadian export to China was canola, which reached a total value of $1.86 billion and declined 18.58% YoY. Canola retained its spot as the largest product exported from Canada to China in the first six months of the year, but lower canola prices have decreased the total value of canola exports. Furthermore, efforts by Beijing to increase domestic vegetable seed/oil production, the low domestic cost for canola substitutes, and abundant inventories of vegetable/seed oils have potentially decreased demand for new canola shipments to China.

The second-largest Canadian export to China in Q2 2024 was coal, which contracted by 1.18% YoY, amounting to $1.48 billion. The decrease in coal exports is reflective of a broader trend of China’s overall declining coal imports in the first half of 2024, which may be partially caused by a sharp drop in new coal plant approvals by the Chinese government over the same time period. Nonetheless, China’s continued reliance on coal is reflected by the fact that Canadian coal exports to other large trading partners, such as the European Union, declined by a much sharper rate in Q2 2024.

Chemical wood pulp ranked as Canada’s third most exported product to China in Q2 2024, totaling $1.13 billion while witnessing decrease of 3.57% YoY. China was not an outlier in this regard, as total Canadian exports of chemical wood pulp to the entire world declined by 7.00% in the first six months of 2024. Further illustrating this, exports of chemical wood pulp from Canada to the ASEAN nations have contracted by 4.80% YoY in Q2 2024. This is likely reflective of global chemical pulp inventories being at a record high and lowered demand for the product.

Canada’s fourth-largest exported product to China in Q2 2024 was iron, which grew by 2.70% YoY and reached a total value of $1.13 billion. This is in line with China’s long-standing status as the world’s largest importer of iron. Growing imports of Canadian iron may have been driven by growth in China’s manufacturing sector in the first half of 2024, with high-tech manufacturing industries exhibiting a particularly robust performance. Another potential cause of increased iron exports to China is that Chinese steel producers are re-exporting steel to other markets with robust demand – such as India – which has contributed to China importing the most steel since 2016 thus far in 2024.

Finally, copper was Canada’s fifth-largest export to China in Q2 2024, with a total value of $1.01 billion and exhibiting an impressive growth of 57.63% YoY. Global copper prices reached a record high in May 2024, which may account for declining Canadian copper exports to other large overseas markets such as the ASEAN countries and the European Union over the course of Q2 2024. China represents an outlier possibly due to the country’s substantial investments in its burgeoning green technology-manufacturing sector, which requires large quantities of copper.

The profile of major Canadian exports to China in Q2 2024 is in line with the historical dominance of commodities over Canada’s exports to China. This introduces unpredictability into the bilateral trade relationship, given the volatility of global commodity pricing patterns, competition from other commodity-exporting countries, and the increasing securitization of many commodities by governments amid a global atmosphere of geoeconomic fragmentation. The first half of 2024 exemplifies these challenges, as overall Canadian exports to China have experienced a downturn due to a multitude of factors.

 

 

2. Canadian Imports from China

Just as in 2023, Canadian imports from China have been subdued throughout the first six months of 2024, with the decrease in imports from China standing out when compared to Canadian imports from the United States and all countries overall. Canadian imports of Chinese goods stood at $41.56 billion in Q2 2024, which represented a decline of 4.20% YoY. Contrastingly, Canadian imports from our largest trading partner, the United States, expanded by 0.73% YoY in Q2 2024, totaling $189.37 billion. Canadian imports from all countries – including China and the United States – amounted to $375.90 billion in the first six months of 2024, and contracted by a mere 0.14% YoY.

Just as with exports, the data for Canadian imports from China represents the continuation of the trend of decline noted throughout 2023. Potential reasons for this, namely ailing consumer confidence in Canada having an adverse effect on Chinese import flows, have endured into the first half of 2024. A protracted decrease in discretionary consumer spending in Canada disproportionately affects flows of Chinese products into Canada due to Canadian imports from China being predominantly consumer goods. Furthermore, supply chain shifts away from China for the production of many consumer goods has contributed to a decrease in some products imported from the country, potentially inducing a resulting increase in the import of these products from other countries, notably those in the ASEAN grouping.

 

The largest Canadian import from China in Q2 2024 was cellphones, which stood at $3.42 billion and posted a decline of 11.98% YoY. China was not necessarily an outlier in this regard, as Canadian imports of cellphones from all countries total decreased over the same period by 7.50% YoY. Notably, Canadian cellphone imports from the ASEAN countries contracted by 17.4% YoY in the first six months of 2024. This indicates that while cellphones are increasingly manufactured for import to Western markets in countries such as Vietnam due to ongoing supply chain shifts, it cannot be said that this is the primary factor driving the decline in Canadian imports of cellphones from China in Q2 2024. Instead, it is likely that decreased consumer spending has resulted in decreased Canadian cellphone imports across the board. It is still the fact that despite supply chain diversification, approximately ¾ of Canadian cellphone imports are from China. It is also worth mentioning that, as in 2023, these cellphone imports from China are likely overwhelmingly Western brands produced in China, such as Apple, as opposed to Chinese brands, including Xiaomi and Huawei.

The second-largest Chinese import category to Canada was automatic data processing machines (e.g., computers), which decreased by 12.35% YoY, amounting to $2.70 billion in Q2 2024. Unlike cellphones, automatic data processing machines from China did represent a noteworthy decline, given that Canadian imports of them from all countries total experienced a concurrent increase of 1.1% YoY in the first half of 2024. The ASEAN nations, which have benefited greatly from manufacturing of consumer electronics relocating away from China in recent years, experienced a considerable growth of 112.1% YoY in their exports of automatic data processing machines to Canada in Q2 2024. This indicates that, unlike cellphones, supply chain reorientation away from China for automatic data processing machines is likely reflected in import data for Q2 2024.

Vehicle parts ranked as the third most-imported product from China to Canada in the first half of 2024, which contracted by 0.46% YoY and totaled $1.17 billion. This figure, although technically a contraction, is perhaps more accurately viewed as a stagnation relative to the same period of 2023, given that the nominal difference between the two periods is only $5.42 million. This slight decline in vehicle part imports from China is possibly accounted for by the retooling and modernization several Ontario automotive manufacturers underwent in the first half of 2024, which caused a dip in domestic vehicle manufacturing.  

Canadian imports of Chinese passenger vehicles were the fourth-largest import category in Q2 2024, reaching $968.29 million and increasing by 17.87% YoY. Similar to 2023, Tesla EVs produced in Shanghai, which exhibited remarkable figures last year, likely drive this almost entirely. However, as will be elaborated in the trends and topics section of this trade report, the Canadian government’s imposition of steep tariffs on Chinese EV imports in Q3 2024 will likely harken the end of this phenomenon moving forward.

Finally, Chinese-produced furniture imported by Canada were the fifth most-imported product category in Q2 2024, totaling $901.64 million and exhibiting a growth rate of 10.93% YoY. This upward trend is in line with healthy projected growth in the Canadian furniture market for 2024.

Consumer goods continue to reign dominant in the top ranks of merchandise imported by Canada from China. Trends in Canadian imports of Chinese cellphones illustrate the enduring dominance of Chinese products in the Canadian cellphone market, even when compared to other cellphone-producing nations. Conversely, while China remains Canada’s main overseas producer of automatic data processing machines, trends indicate that emerging nodes within the global cellphone supply chain, such as Vietnam, are increasing their share within the Canadian market. Overall, Canada continues to source many consumer goods predominantly from China, which highlights China’s importance to the Canadian economy.

 

3. Canada-China Trade: A Two-Year Perspective

Growth in bilateral Canada-China trade on a month-to-month basis has been relatively stagnant over the first six months of 2024. While this is true of both imports and exports, it can be ascertained that imports are on a slightly more positive trajectory than exports. Consequently, the trade balance has remained quite stable throughout the first half of 2024.

Just as occurred throughout much of 2023, Canadian exports to China have remained quite flat on a month-to-month basis in the first half of 2024, notwithstanding occasional fluctuations of small magnitude that hardly alter this prevailing trend. Overall export numbers are down in Q2 2024 when compared to 2023, largely due to a spike in exports in Q1 2023, following the end of China’s Zero-COVID policy and the Chinese economy’s subsequent reopening. The trend line of Canadian exports to China has been quite consistent with the subdued level of exports seen through most of 2023 on a month-to-month basis, especially when measured relative to the 24-month high of $3.56 billion seen in October 2022. Exports in the first half of 2024 have been subject to greater month-to-month fluctuations than imports, with monthly values ranging between a low of $1.97 billion in January 2024 to a high of $2.64 billion in June 2024. The month-to-month variance in Canadian exports to China is likely reflective of the volatility of commodity pricing mechanisms, given that commodities make up the bulk of Canadian products shipped to China.

Canadian imports from China fluctuated quite unpredictably throughout 2023, and entered a prevailingly downward trajectory beginning in November 2023. This nosedive culminated in imports for January 2024 reaching a 6-month low of $6.44 billion before slightly recovering over the period of February-June 2024. The monthly import figures for the first six months of 2024 have remained within the relatively constricted range of $6.44 billion to $7.29 billion; in contrast, monthly import figures throughout the entirety of 2023 fluctuated between a low of $6.37 billion in July 2023 and a high of $8.47 billion in September 2023. This illustrates that import patterns have fluctuated far less thus far in 2024 than they did in 2023. While the overall pattern of imports has been more stable in 2024, imports have also not reached levels as high as they did in 2023, which indicates that there has been a de facto tradeoff between month-to-month stability and the sheer quantity of imports, given that Canadian imports from China were higher overall in Q2 2023 than Q2 2024.

The relatively positive trajectory that imports have been on following a seeming bottoming out in January 2024 could be interpreted as indicative of the slow, but sure, rebound in Canadian consumer confidence, but a few factors temper such an analysis. Firstly, the sharp dip that imports experienced in July 2023 was ultimately an outlier, the causes of which did not necessarily reflect the fundamental forces that affect trade such as supply and demand, but rather was likely induced by the strikes that closed BC ports in July 2023. Therefore, it is clear that notwithstanding this outlier, imports were on an overwhelmingly positive trajectory from at least May 2023 until the autumn of that year. Despite slight month-to-month growth over the first six months of 2024, the overall subdued level of imports is a continuation of the downward trend starting with the sharp decline that started to manifest in November 2023. The endurance of this trend implies that Canadian demand for Chinese goods has not rebounded substantially. Furthermore, a probable key component required for demand for Chinese goods to recover would be for consumer confidence to improve, which has proven difficult amid an environment of high interest rates coupled with elevated debt levels, and a high cost of living. One of the main ways that the debt burden of Canadian consumers could be lowered is via a reduction of high borrowing costs, thus likely spurring increased consumer spending. However, the Bank of Canada did not implement its first interest rate cut until June 2024, and it will take a while for consumers to feel relief from this monetary loosening. Therefore, it is likely more accurate to state that Canadian imports from China in the first half of 2024 have remained stable, if not on a marginally upward trend, on a month-to-month basis, but overall their level is subdued when looking at the long-term trends over the past 24 months. Nevertheless, this does not preclude the possibility of imports rebounding in the remainder of 2024, as a similar prolonged contraction occurred in October 2022 that continued until April 2023 prior to the upturn in imports that started in May 2023.

As the trade balance is a function of total exports and total imports, the overall flatness of both the export and import curves has led to the trade balance experiencing very little month-to-month change through the first half of 2024. Given that imports are on a slightly more positive trajectory than exports, it is possible that we will see a slight expansion of Canada’s trade deficit with China in the near-term.

Some key factors introduce unpredictability into the trade dynamic moving forward. For example, both Canada and China continue to be confronted by unique macroeconomic headwinds that apply downward pressure on trade flows between the two countries. Furthermore, following Ottawa’s decision to introduce 100% tariffs on Chinese-produced EVs, Beijing has retaliated by opening an anti-dumping investigation into Canadian canola exports. Given that these goods are both figure extremely prominently in bilateral trade flows, these policies could have a very pronounced negative effect on Canada-China trade in the near future. Ultimately, as commercial ties are increasingly held under the sway of geopolitical considerations, the trade relationship will experience greater uncertainty.

 

4. Provincial Data

 

Most of the provinces and territories across Canada in Q2 2024 have experienced contraction in their exports to China on an annualized basis, with the exceptions of British Columbia (+8.68% YoY), Newfoundland and Labrador (+7.05% YoY), Prince Edward Island (+12.32% YoY), and the Northwest Territories (+12.09% YoY).

British Columbia, ranking at the top of the list in terms of exports value, totaling $4.29 billion, has experienced a healthy grow rate of 8.68% YoY in the first six months of 2024. This has largely been driven by robust growth in large commodity exports to China, including coal (+23.4% YoY), chemical wood pulp (+4.5% YoY), and copper (+48.1% YoY). Growth in British Columbia’s exports to China (+8.68% YoY) has outranked that of their exports to the world at large (+1.1% YoY) thus far this year. Interestingly, unlike some of the Atlantic Provinces, BC seafood exports to China, while totaling impressive amounts, have contracted in Q2 2024 on an annualized basis.

Albertan exports to China have decreased by 4.89% YoY in Q2 2024, despite amounting to a considerable $2.72 billion. In line with national trends, commodity exports drove exports to China from Alberta in the first half of the year. The largest exports were canola (-16.2% YoY), acyclic alcohols (+0.7% YoY), vegetable oils (+26.1% YoY), wheat (+26.1% YoY), and chemical wood pulp (+1.0% YoY). Notably, petroleum exports to China were the second-largest Albertan export to China in the first six months of 2024, totaling $593.13 million. There are no growth figures for petroleum since this product category was not exported to China in 2023. This is likely a reflection of the recent completion of the Trans Mountain Pipeline expansion project in 2024, which will allow large quantities of Albertan petroleum to be exported directly via Pacific Ocean ports in British Columbia. While this is promising for the future of Alberta’s exports to China, the province’s exports have decreased overall in Q2 2024 largely due to a broader trend of declining agricultural exports to China. As Alberta’s exports to China shrank by 4.89% YoY, exports from Alberta to all countries total have increased by 4.3% YoY over the same period.

Exports to China from Saskatchewan have declined quite significantly in Q2 2024, posting a contraction of 23.51% YoY amounting to $2.11 billion for the period. Meanwhile, exports from Saskatchewan to all countries total increased by 2.0% YoY in the first half of 2024, which indicates a decreased demand for Canadian agricultural goods in China thus far this year given the predominance of agriculture in the province’s overall exports. This trend of decreased exports of many agricultural products to China has been seen across all of the Prairie Provinces in the first half of the year, with canola being particularly hard hit. The largest exports from Saskatchewan to China were canola (-16.2% YoY), wheat (+26.7%), vegetable oils (+8.0%), potash (-41.3% YoY), and barley (-38.5% YoY).

Quebec ranked as the province with the fourth-most exports to China in Q2 2024, totaling $1.78 billion, which represented a modest contraction of 4.45% YoY. For comparison, Quebec’s exports to all countries total expanded by 5.4% YoY over the same interval. The largest exports to China from Quebec were iron (+9.2% YoY), ores (+60.0% YoY), passenger vehicles (+5.0% YoY), edible meat (-13.4% YoY), and wood pulp (-15.9% YoY). The robust performance of the majority of the top performing exports has been balanced out contractions in export categories with lower nominal value, such as pork (-67.2% YoY). Nonetheless, it is clear that Quebec’s mining sector and automotive industry has enjoyed success in the Chinese market thus far in 2024.

Ontario had the fifth largest value of exports to China in Q2 2024, with a value of $1.47 billion, which was a decrease of 26.08% YoY. While Ontario’s exports to the world as a whole also declined by 0.6% YoY in the first half of 2024, the province’s exports to China performed weakly compared to this baseline. Ontario’s largest exports to China in terms of value were medication (+3.2% YoY), scrap copper (+1.7% YoY), passenger vehicles (-38.1% YoY), scrap aluminum (+90.0% YoY), and machinery for producing rubber/plastic (+190.2% YoY). Similar to Quebec, although the largest export categories performed well broadly in Q2 2024, declines in smaller exports, such as unwrought nickel (-59.3% YoY), dragged down overall export numbers.

Manitoba ranked after Ontario, exporting a total of $810.17 million in merchandise to China in the first half of 2024, representing a contraction of 6.32% YoY. Over the same period, Manitoba’s exports to all countries total decreased by 14.6% YoY, meaning that Manitoban exports to China actually performed better compared to the baseline. The top exports from Manitoba to China in Q2 2024 were canola (-16.2% YoY), soya beans (+8.9% YoY), wheat (+25.9% YoY), pork (-7.2% YoY), and ores (-14.4%). It is worth noting that the dominant position historically held by canola in Manitoban exports to China has meant that its decline in this period has contributed significantly to the overall contraction in the province’s exports to China.

Nova Scotia exported $378.39 million of goods to China in Q2 2024, declining by 16.72% YoY. In the first six months of 2024, Nova Scotian exports to all countries total expanded by 2.4% YoY, indicating that China performed worse than other large export markets. The largest exports to China from Nova Scotia in this period were crustaceans (-14.7% YoY), mollusks (-23.8% YoY), copper (-0.6% YoY), fish (-74.7% YoY), and scrap copper (+92.6% YoY). It is of interest that seafood exports to China have declined in Nova Scotia in Q2 2024, given the great success that this sector of the province’s economy has enjoyed in the Chinese market in recent years. This is likely reflective of decreased demand for Nova Scotian lobster in China, as the country imports greater quantities of lobster from countries in the Indo-Pacific region, such as Vietnam. This analysis is reinforced by the fact that Nova Scotia’s crustacean exports to the US (+9.8% YoY) and South Korea (+13.2%) increased over the same period, which indicates that this could be reflective of decreased Chinese demand due to increased availability of substitutes. Furthermore, high prices for snow crab in 2024 have led to decreased demand for this product. The decrease in crustacean exports were the main cause of decreased Nova Scotian exports to China in Q2 2024, given that this product category represented 91.46% of exports, with crustacean exports to China from Nova Scotia totaling $336.84 million in the first half of the year.

Newfoundland and Labrador was able to buck the national trend in the first half of 2024, with the province’s exports to China increasing by 7.05% YoY, for a total of $368.31 million of merchandise. However, this growth was still overshadowed by the province’s booming global exports, with exports to all countries total expanding by 10.3% YoY in Q2 2024. The largest exports from Newfoundland and Labrador to China in the first six months of 2024 were iron (-3.7% YoY), crustaceans (+50.6% YoY), unwrought nickel (+4.2% YoY), fish (+167.3% YoY), and mollusks (+2.7% YoY). Newfoundland and Labrador’s seafood exports to China increased, while those in Nova Scotia and other provinces declined. This may be attributed to a low-base effect in the case of Newfoundland and Labrador, wherein exports of seafood netted a lower value in 2023 due to low prices and supply was interrupted due to a pricing dispute between fishers and seafood processors in the province, which was resolved in 2024. One potential source of future growth in exports to China and Newfoundland and Labrador was Ottawa’s decision in July 2024 to end a 32-year moratorium on increasing cod fishing limits in the province, which will ostensibly increase the supply of cod moving forward.

New Brunswick ranked after Newfoundland and Labrador, with the province exporting $120.10 million of goods to China in Q2 2024, which represented a decline of 3.74% YoY. Meanwhile, New Brunswick’s exports to all countries total increased by 0.5% YoY over the same period. The largest exports from New Brunswick to China in the first six months of 2024 were chemical wood pulp (+50.0% YoY), fish (+2555.4% YoY), crustaceans (-60.3% YoY), newsprint (-78.2% YoY), and non-dissolving grade chemical wood pulp (-45.7%). The meteoric increase in fish exports may be partially explained by the New Brunswick provincial government’s continued strong support for the province’s salmon farming industry.

Prince Edward Island’s exports to China in Q2 2024 increased by 12.32% YoY, for a total of $16.05 million. The province’s exports to China outperformed its exports to all countries total, which increased by 9.2% YoY over the same period. The top exports from Prince Edward Island to China in the first half of 2024 were crustaceans (+35.8% YoY), gas turbines (+250.1% YoY), organo-sulphur compounds (+237.6% YoY), vegetable oils (+605.9% YoY), and laboratory reagents (+29.4% YoY). While these growth numbers are undoubtedly impressive, the low-base effect may be a factor in explaining these figures, as the province’s economy has exhibited strong economic growth as of recent, with forecasts predicting the provincial GDP to expand by 4.0% in 2024. This economic expansion has likely been driven by strong population growth in the last two years, meaning that this trend may not persist into the future as the population growth rate slows.

Finally, the territories, which exported negligible amounts of goods to China in Q2 2024, rank last in terms of value. The growth in the Northwest Territory’s exports to China was driven entirely by a $165,000 shipment of archeological artifacts. Nunavut’s exports to China were more diversified, including archeological artifacts ($54,000), lumber ($48,780), fur-skin clothing and accessories ($21,010), and whalebone ($8620). Finally, Yukon’s only export to China in Q2 2024 was a $50 shipment of surveying instruments.

Just as with provincial exports to China, the majority of Canadian provinces and territories experienced downturns in their imports from China on an annualized basis in Q2 2024, with the exceptions of Nova Scotia (+68.12% YoY) and Newfoundland and Labrador (+185.10% YoY).

Ontario, as Canada’s most populous province and largest economy, imported the most goods from China in Q2 2024, totaling $23.10 billion, which represented a decrease of 0.74% YoY. Meanwhile, Ontario’s imports from all other countries total increased by 0.9% YoY through the first six months of 2024. The largest Ontarian imports from China were cellphones (-10.8% YoY), automatic data processing machines (-13.0% YoY), vehicle parts (+2.6% YoY), electrical batteries (+386.1% YoY), and furniture (+7.2% YoY). In many ways, these import patterns mirror those of Canada as a whole. The slight decrease in imports is likely reflective of two separate phenomena: heavily indebted Ontarian households cutting back on consumption, and government spending last year providing some relief to businesses. While the former can explain decreases in imports of many consumer goods (e.g., cellphones), the latter can account for increases in imports of many other goods, such as electrical machinery (+33.7% YoY) and fuses (+6.8% YoY).

British Columbia imported the second-most merchandise from China in the first half of 2024, with the province’s imports from China declining by 15.60% YoY, which amounted to $8.35 billion. British Columbia’s imports from all countries total for Q2 2024 decreased by 2.5% YoY. The top imports from China to British Columbia in this period were passenger vehicles (-12.5% YoY), automatic data processing machines (-6.1% YoY), furniture (+19.1% YoY), seats and chairs (+25.3% YoY), and toys (-7.0% YoY). These figures are not remarkable as they conform quite closely to prevailing national trend, which can be interpreted as a reflection of highly indebted households cutting back on discretionary spending. This is reinforced by the fact that consumer spending in British Columbia contracted in the first six months of 2024.

Quebec ranked as the province with the third-largest value of imports from China in Q2 2024, with a total of $6.20 billion, which was a contraction of 1.07% YoY. In the first six months of 2024, Quebec’s imports from all countries total expanded by 1.9% YoY, thus illustrating a slight underperformance by Chinese imports in the province. The largest imports from China to Quebec in this period were airplane parts (+57.5% YoY), aluminum plating and sheets (+32.2% YoY), vehicle parts (+3.6% YoY), furniture (+19.5% YoY), and seats and chairs (+4.2% YoY). These robust growth numbers, with the exception of the latter two import categories, are reflective of business spending as opposed to household consumption in Quebec. While consumer spending continues to lag in Quebec, aerospace and automotive industries are performing quite well, which helps to account for the increase in imports of merchandise pertinent to manufacturing in these sectors. For example, aerospace firm Bombardier, a titan of Quebec industry, reported a 32% YoY increase in its revenue by the end of Q2 2024. Quebec’s aerospace industry has also attracted large amounts of investment capital in 2024, notably including a $415 million investment involving Boeing.

Following Quebec, Alberta imported the fourth-most merchandise from China in Q2 2024, amounting to $2.28 billion, which was a 5.05% YoY contraction. Through the first half of 2024, Alberta’s imports from all countries total declined by 2.7% YoY. The largest imports from China to Alberta in this period were pressure reducing valves (-6.4% YoY), seats and chairs (+33.5% YoY), vehicle parts (+33.5% YoY), furniture (+33.5% YoY), and steel pipes/tubes (-46.4% YoY). The declines seen in goods likely purchased by businesses, such as pressure reducing valves and steel pipes/tubes, is likely a reflection of the underperformance of Alberta’s economy relative to expectations so far in 2024. However, concurrent increases in consumer goods such as seats and chairs, vehicle parts, and furniture are probably influenced at least in part by Alberta's high population growth, largely driven by high interprovincial and international migration to the province. A steady influx of new residents to Alberta means that they need to buy basic household goods such as furniture. However, overall, consumer spending in Alberta in the first six months of 2024 has been tepid, which has acted as a downward pressure on other goods imported by the province from China in Q2 2024, such as cellphones (-39.6% YoY) and automatic data processing machines (-50.7% YoY).

In the first half of 2024, Manitoba imported $803.77 million in goods from China, which represented a decline of 8.58% YoY. Over the same period, Manitoba’s imports from all countries total grew by 1.7% YoY, thus indicating a particularly weak performance by Chinese goods in the Manitoban market. The top five goods imported by Manitoba from China in Q2 2024 were electric motor parts (+17.0% YoY), drills and pneumatic tools (-5.4% YoY), automatic data processing machines (-17.9% YoY), tractor parts (+20.3% YoY), and electrical batteries (+54.3% YoY). The expansion seen in imports of many industrial goods in Manitoba in the first six months of the year was likely driven by the province’s robust economy, which is expected to outperform the national average this year. The low rate of inflation in Manitoba has also given households more purchasing power, which is perhaps salient in explaining the province’s increased imports of consumer goods from China such as sports equipment (+19.5% YoY), toys (+4.0% YoY), and bags (+23.9% YoY) over this period. However, pessimistic sentiment in the province’s agricultural sector is potentially reflected in decreased imports of insecticides (-6.6% YoY) in Q2 2024.

Nova Scotia was an outlier in the first six months of 2024, seeing its imports from China grow by an impressive 68.12% YoY, with a total value of $491.55 million. For comparison, Nova Scotia’s imports from all countries total declined by 2.1% YoY in Q2 2024. The largest imports from China to Nova Scotia over this period were ships (N/A), fish fillets (-25.0% YoY), tires (+26.2% YoY), air conditioners (-7.9% YoY), and smoked fish (-54.7% YoY). Most imported goods, particularly those intended for consumption by households, declined on an annualized basis, which was potentially driven by low population growth and lukewarm consumer spending in the province in the first half of 2024. The main outlier in the pattern of imported goods from China is that of ships, which were the largest import with a total value of $251.94 million; there were no growth statistics since there were no imports of Chinese-produced ships in the first six months of 2023. The value of ships imported from China dwarfed other imports, given that the second-largest import, fish fillets, totaled $26.83 million, or approximately 1/10 the value of ships. Therefore, it can be said that the impressive performance of overall imports from China to Nova Scotia in Q2 2024 was disproportionately driven by the purchase of ships, whereas other imported goods performed relatively poorly across the board.

Saskatchewan imported $268.47 million in merchandise from China in the first half of 2024, which represented a decline of 12.65% YoY. Meanwhile, Saskatchewan’s imports from all countries total increased by 9.3% YoY by the end of Q2 2024. The largest imported products by Saskatchewan from China in Q2 2024 were insecticides (-38.8% YoY), tires (+9.9% YoY), industrial machinery parts (-9.8% YoY), pressure reducing valves (+117.2% YoY), and agricultural equipment (+7.1%). Strong growth in imports of many industrial goods was likely induced by strong economic performance by the province, which includes the provincial construction sector growing by its fastest pace in 15 years. Consumer spending remains strong in the province, in large part due to Saskatchewan’s low cost of living, which is reflected in a growth of 46.2% YoY in cellphones imported from China. However, a significant decline in imports of insecticides from China, which is the province’s largest import from China, has dragged down overall import numbers despite growth in other imported products.

New Brunswick’s imports from China contracted by 17.72% in Q2 2024, amounting to a total of $49.14 million. For comparison, New Brunswick’s imports from all countries total grew by 3.4% YoY in the first half of 2024. The largest imports from China to New Brunswick over this period were clothing (+7.3% YoY), furniture (+12.4%), air conditioners (-24.4% YoY), vehicle parts (-22.6% YoY), and bulldozers (-18.0% YoY). New Brunswick’s economy is performing moderately well, with large population growth and low household debt levels supporting growth. Although healthy spending on consumer goods such as clothing and furniture is reflected in the pattern of imports from China in the first half of 2024, declining imports of more expensive and durable goods from China has been seen in the province, such as with air conditioners and bulldozers.

Following New Brunswick, Newfoundland and Labrador imported a total of $14.13 million in merchandise from China in Q2 2024, which represented a considerable growth of 185.10% YoY. At the same time, the province’s imports from all countries total increased by 21.8% YoY, illustrating the outperformance of Chinese goods in the Newfoundland and Labrador market. The largest imports from China to Newfoundland and Labrador in the first six months of 2024 were mineral processing machinery (N/A), handling machinery (N/A), iron chains (+2401.2% YoY), iron/steel (+138.6% YoY), and tubes/pipes (N/A). Not only did imported goods directly related to extractive industries such as mining grow by considerable amounts, but products not previously imported in Q2 2023 (e.g., mineral processing machinery and handling machinery) have become the largest imports from China into the province this year. This development is likely driven by the rebound in the province’s mining sector, which is buttressed by increased mineral expenditure expenditures provided by the provincial Critical Minerals Plan.

Prince Edward Island imported a total of $23,550 in goods from China in Q2 2024, which was a decline of 91.62% YoY. Over the same period, the province’s imports from all countries total contracted by 41.1% YoY. The only four goods categories imported from China in the first half of 2024 were instruments for chemical analysis (+176.4% YoY), saturated acyclic monocarboxylic acids (N/A), organo-inorganic compounds (N/A), and carbonates (N/A). The relatively low value of imports from China compared to other provinces, coupled with the small range of applications for the goods imported from China by Prince Edward Island, indicates that province’s imports from China in Q2 2024 were probably driven by niche business demand as opposed to reflective of broader economic trends.

Among the territories, the Yukon Territory was the only one of the three to import any goods from China in the first half of the year. The Yukon Territory’s total imports from China totaled a mere $8720, which represented a contraction of 98.09% YoY. Only three goods categories were imported by the Yukon Territory from China in Q2 2024, which were pressure reducing valves (N/A), ball/roller bearings (N/A), and vulcanized rubber (N/A). Similar to Prince Edward Island, the low value of total imports coupled with the nature of the goods imported indicates that the Yukon Territory’s imports from China in the first half of 2024 are likely influenced by specialized business needs as opposed to the jurisdiction’s macroeconomic trends.

  

5. Trends and Topics

A Tale of Two Economies: Macroeconomic Headwinds in Canada and China Persist into Q2 2024

The first six months of 2024 have seen the continuation of a trend that persistently influenced Canada-China bilateral trade throughout 2023, which were protracted macroeconomic headwinds in both countries exerting adverse influence over the volume of exports and imports traded between the two countries. Although some positive developments have taken hold in both economies, the prevailing mood throughout the first half of 2024 has been pessimistic. In particular, subdued consumer spending in both Canada and China - which stem from different circumstances – has likely been a major factor in contributing to the lower level of traded goods when compared to last year.

China was able to achieve a GDP growth rate of 5.2% in 2023, which was in line with Beijing’s growth targets for last year. Nevertheless, major structural challenges acted as an impediment on growth following the conclusion of the country’s Zero-COVID restrictions, and these constraints on economic expansion have lingered into 2024. The core issue facing the Chinese economy is the ongoing downturn in the property market, which, in turn, has had a far-reaching economic ripple effect, due in large part to the real estate sector’s disproportionately high contribution to the country’s total economic output.

The central government set an ambitious growth target of “around 5%” at the National People’s Congress in March 2024 and has unveiled a range of conservative stimulus measures to reverse the downturn in the real estate market, including funding for local governments to buy unsold homes and reducing barriers to potential homebuyers acquiring mortgages. The logic was that these measures would increase the prices of real estate, thus spurring positive knock-on effects in other areas of economic activity, such as the stock market and consumption. Despite these efforts, the first half of 2024 saw China’s economic headwinds persist, as exemplified by developments such as May 2024 seeing the 12^th consecutive month of foreign investment into China falling, property investment dropping 10.1% YoY in the first six months of the year, and enduring weak consumption.

The impact of the current real estate crisis in China on consumers in particular potentially contributes to the downturn in Canadian exports to China seen in the first six months of 2024. As households witness the depreciation of their wealth due to the downward spiral of real estate prices, they have cut back on discretionary spending and increased their savings to mitigate this loss. This in turn leads to lower output by many firms, as they anticipate lower domestic demand. This domino effect adversely affects Canadian exports, as Canada primarily ships raw materials such as coal and iron to China that are used in industrial manufacturing. This decreased demand for Canadian commodities exports is exacerbated by large inventories of unsold stock by many firms, which, for example, was likely a factor in Canada’s declining exports of canola to China in Q2 2024.

Canadian exports to China did not experience an across-the-board downturn in Q2 2024 however, which is likely largely due to the continued healthy performance of export-oriented industries. Although the real estate crisis has weighed on many Chinese producers of goods intended primarily for domestic consumption through the mechanism of depressed consumption, export-focused manufacturers are more insulated from this. Increases in major industrial input materials shipped from Canada to China such as iron and copper have coincided with expansions in export-oriented industries in the first half of 2024. In particular, high-tech manufacturing experienced especially strong growth, which is reflective of that sector’s strong exports in this period.

Overall, while certain exports from China to Canada grew in the first half of 2024, likely due to strong performance in export-oriented manufacturing sectors, subdued consumption stemming from the property crisis in China has likely contributed to the decline in total Canadian exports to China. This was quite in line with the pattern of China’s trade with all countries, given that China posted a record $99 billion trade surplus in June 2024, which was a result of the country’s booming exports coupled with China’s sluggish imports.

In Canada, a combination of high interest rates, high household debt levels, a high cost of living, low productivity, and low investment have contributed to low consumer spending and the proliferation of pessimism within the country’s current economic situation. While the Canadian economy continues to narrowly avoid a technical recession, largely due to the country’s significant population growth, per capita GDP has been declining consistently for over a year and many Canadians feel that the economy is performing poorly.

Despite these factors exerting downward pressure on the Canadian economy, the country’s GDP grew by 1.8% YoY in Q1 2024 and 2.1% YoY in Q2 2024, which indicates, at least superficially, that the country’s economy is in decent shape. However, a deeper analysis of the factors contributing to this growth indicates that government spending, business fixed-asset investment and spending on services drove growth, while consumer spending contracted over the course of the first six months of 2024. This is clear evidence of the deleterious impact that Canada’s current macroeconomic environment is having on domestic demand for many household goods.

This dynamic carries clear implications for the Canada’s imports from China, as the majority of Canadian imports from the world’s second-largest economy constitutes consumer goods. Just as in 2023, Canadians have less demand for many consumer goods that are imported predominantly from China, such as cellphones and computers, which is likely a function of households tightening their financial belts. Conversely, many Canadian imports of machinery and materials used for industrial applications from China have increased in the first six months of 2024, which is likely driven by an increase in fixed-asset investment by firms.

Although the decrease in Canadian exports to China was larger than concurrent contractions in Canada’s exports to all countries total and to the US, the trend of lagging exports is quite consistent with broader trends in the country in the first half of 2024. As a result of a combination of increased trade barriers stemming from geopolitical tensions, rising shipping costs, and worries about a potential global recession, Canadian exporter sentiment remains below the historical average. Indeed, this is reflected in trade statistics, as Canada’s total exports of goods and services to all countries contracted by 0.4% in Q2, a decline that was primarily moderated by increased oil exports. Interestingly, a survey of 1500 Canadian exporters indicated that China was not viewed as a particularly attractive market for their products, with the five most-attractive export destinations being the US, Mexico, Germany, France, and the Netherlands. This is likely quite similar to the phenomenon of souring investor sentiment in China, with the country’s economic downturn spurring pessimism regarding the viability of the Chinese market.

 

Tumultuous Times: Geopolitics Continue to Exert Pressure on Trade Ties

As the world finds itself embroiled in a multitude of geopolitical conflicts, ranging from diplomatic tensions to full-out military conflicts, the commercial ties between countries that characterized the post-Cold War international order have come under strain. This was particularly pronounced in 2023, when global merchandise flows contracted by 1.2% YoY by the end of the year against a backdrop of high commodity prices and shipping costs, which were largely driven by the ongoing conflicts in Ukraine and the Middle East. While global trade is expected to rebound in 2024 due in large part to cooling inflation in developed economies, geopolitical factors continue to exert pressure on many trading relationships. Bilateral trade between Canada and China has been affected adversely by geopolitics through two main channels. Firstly, commercial ties between the two countries themselves have become one of the most prominent dimensions of mounting bilateral tensions. Secondly, the persistence of geopolitical conflict around the world has increased the price of many commodities, which places downward pressure on Canada-China trade due to higher shipping costs and therefore decreased demand for imported goods.

Canada, like many other Western countries, has attempted to minimize its perceived dependence on China as a trading partner in recent years. This is largely due to fears that reliance on China as a source of imports – and, to a lesser extent, a destination for exports – could be used to coerce Western countries should relations deteriorate further. Canada’s Indo-Pacific Strategy, which describes China as “disruptive”, was implemented as a major strategic initiative to not only facilitate supply chain reorientation away from China, but to diversify Canada’s international commercial portfolio more broadly.

The first six months of 2024 have seen Canada attempt to step up its efforts to establish commercial ties with emerging economies in the Indo-Pacific as a means of accomplishing this goal. In March, Canadian Minister of Trade Mary Ng led a trade mission to Vietnam and Malaysia, which centered on discussions of how to increase bilateral trade and investment. Notably, this included commitments to advance negotiations towards an ASEAN-Canada free trade agreement. Undoubtedly, such an agreement with the ASEAN grouping would facilitate the strengthening of commercial ties with many of the most vibrant and dynamic emerging economies in the Indo-Pacific region. However, Canada has also encountered problems in its efforts to diversify its trade relations over the first half of 2024. Ottawa’s attempts to negotiate free trade agreements with Indonesia, the UK, and India have faced significant hurdles, with discussions between Canada and the latter two countries being paused entirely.

It is important to note that despite Canada’s desire to “de-risk” its trade relations with China via the cultivation of stronger commercial ties elsewhere, the Canadian economy will likely continue to rely on China for the foreseeable future. The fact remains that China is still our second-largest trade partner after the US. Perhaps even more importantly, even if Canada successfully relocates its supply chains for many goods to other emerging economies, many manufacturing industries in such countries are controlled by Chinese investors, reliant on Chinese components in their production of goods, or depend on infrastructure developed by China. This means that even if Canadian trade with China superficially appears to be increasingly siphoned off by other countries (such as those in the ASEAN bloc), this obscures the fact that China will continue to play an important role in Canada’s economic future, whether directly or indirectly.

Geopolitical conflicts around the world have played a significant role in increasing the price of many commodities in the first six months of 2024, with oil prices remaining elevated throughout the period. Several geopolitical flashpoints have contributed to high oil prices over the first half of 2024.

Notably, the continuation of conflict throughout the Middle East stemming from the Israel-Hamas conflict has led to regular attacks on shipping vessels in the Strait of Hormuz and the Red Sea, which has interfered with the transit of oil from the region to the rest of the world and also created a risk premium in global shipping prices. Furthermore, periodically heightened tensions in the Middle East, such as the exchange of airstrikes between Israel and Iran in April 2024, have led to increased oil prices.

Furthermore, the Russo-Ukrainian War, which entered its third year in Q1 2024, has continued to apply upward pressure on oil prices due to Russia’s position as a major oil producing country. While this has been a persistent theme since the beginning of the war in 2022, Ukraine has exhibited a greater propensity to attack Russian oil refineries in the first half of 2024, which in turn has caused oil prices to surge.

Heightened oil prices stemming from conflict in major oil-producing regions have contributed significantly to higher shipping costs in the first six months of 2024. This, in turn, decreases demand for trade, due to higher costs of imported goods for consumers. While this is not unique to Canada-China trade, as it is a worldwide phenomenon, it is an important factor to take into account when analyzing the pattern of bilateral trade between Canada and China in the first half of 2024.

 

The Road Forward: Potential Factors Influencing Bilateral Trade for the Remainder of 2024

If anything, Canada-China bilateral trade in the first half of 2024 will probably appear idyllic and calm when compared to the latter half of the year, despite the many challenges present in commercial relations between Ottawa and Beijing up to Q2 2024. Trade tensions between China and the West have become significantly inflamed, which has precipitated a potential trade war between Canada and China. Furthermore, global uncertainties abound, with a deteriorating security situation in the Middle East introducing even greater instability into an already volatile international economic environment.

As China has grappled with low domestic demand, many Chinese industries have relied increasingly on exports as a means of generating revenue. This has been particularly true of high-tech manufacturers, such as EV companies. As such, the world has seen a surge of exports of Chinese EVs, which in turn has led to accusations by many governments that China is implementing unfair trade practices, particularly with regard to state-subsidized exporting industries allegedly dumping cheap products in foreign markets. This culminated in the US implementing steep 100% tariffs on Chinese EV imports in May 2024. In its desire to maintain policy harmony with the US, Ottawa followed Washington’s lead and, after a short consultation period, announced in August 2024 that Canadian imports of Chinese EVs would be subject to a 100% tariff effective October 1, 2024.

This policy decision by Ottawa will have significant implications for Canada-China trade moving forward. It is likely that we will see Canadian imports of Chinese vehicles decline precipitously, if not evaporate entirely, once the tariffs come into effect. Given that passenger vehicles have become one of Canada’s largest imports from China – as noted earlier in this report – we can expect that this will likely cause a further contraction in the total value of Canadian imports from China. An important caveat is that prior to Canadian tariffs on Chinese EV imports coming into effect, it is possible that there will be a spike in imports of Chinese EVs, as Canadian dealerships may seek to fortify their inventories within a brief window of opportunity. The China Institute has provided analysis on Ottawa’s tariffs on Chinese EVs, highlighting the potential motives driving, and effects of, this policy.

This move will probably not only have an adverse effect on the flow of goods from China to Canada, but also cause a further downturn in Canadian exports to China. In response to Ottawa’s announcement regarding the EV tariffs, Beijing announced that it was initiating an anti-dumping investigation into Canadian canola exports to China. Although the investigation is ongoing, if Beijing ultimately decides to apply retaliatory tariffs on Canadian canola, it could lead to a considerable decline in Canada’s overall exports to China given that canola is our largest export to the world’s second-largest economy. Low demand for canola in China at the moment indicates that there may not be an uptick in shipments of Canadian canola to China in anticipation of potential tariffs, which is exacerbated by large Chinese inventories of canola at the moment.

Nevertheless, one potential countervailing influence on this brewing trade war between Ottawa and Beijing is that Canadian Foreign Minister Mélanie Joly and her Chinese counterpart Wang Yi had a meeting in July 2024, which reiterated Canada’s commitment to “pragmatic diplomacy”. This indicates that there is appetite in Ottawa for constructive engagement with China, despite significant points of contention in the bilateral relationship. This renewed attempt at extending a proverbial olive branch to Beijing may act to prevent the blossoming of a trade war as seen in the past, although it is yet to be seen whether this will be the case.

Recent developments in the Middle East indicate that heightened global oil prices, and thus shipping costs, are unlikely to abate for the rest of the year. September 2024 saw Israel expand the scope of its regional war, with Tel Aviv targeting its longtime rival in Lebanon, the militant group Hezbollah. After a wave of attacks that effectively decapitated Hezbollah’s leadership, Iran, as the state patron of Hezbollah, launched a series of retaliatory attacks on Israel. Following this, there has been discussion by American and Israeli policymakers of targeting Iranian oil production infrastructure. These inflamed tensions, and the seeming reality that Iran and Israel are teetering on the edge of war, have led to an increase in oil prices. Even though it is far from guaranteed that war will indeed erupt, the continuing volatility seen in the Middle East stemming from this conflict is unlikely to end and will probably engender elevated oil prices for the rest of the year. This, in turn, will make shipping more expensive, which will place downward pressure on demand for imports around the world, including in Canada and China.

The recent re-election of Donald Trump as US President will likely further add to downward pressure on Canada-China trade moving forward, largely due to the unpredictability surrounding his second term in the White House. President-elect Trump has placed trade protectionism at the forefront of his campaign, seeking to implement wide-reaching tariffs on practically all imports into the US. China has been the target of the greatest criticism by Trump, as he has stated that he may seek to put tariffs of 60% at minimum on all American imports of Chinese goods. If Trump does actualize the vision he articulated in his campaign, it will likely have an overwhelmingly disruptive effect on global trade flows, including Canada-China trade.

Despite the overwhelmingly negative influence that these factors will likely hold over bilateral trade for the remainder of 2024, there are other developments that are cause for optimism. In particular, policies have been unveiled by Ottawa and Beijing subsequent to Q2 2024 that could have a positive effect on both countries’ macroeconomic outlooks. Furthermore, the completion of the Trans Mountain pipeline expansion project could induce a bright future for Canadian oil exports to China moving forward.

The Bank of Canada has embarked on a cycle of interest rate cuts, with three consecutive cuts bringing the benchmark rate down to 4.25%. This is extremely welcome news for households, who have had to cut back on discretionary spending to cope with the high cost of debt associated with high interest rates. This is particularly important considering the wave of mortgage renewals that will begin in 2025, which could see many Canadians paying far more for their mortgages than they currently do. When interest rates are lowered, the cost of servicing debt diminishes as a result, which in turn will allow Canadians to spend more on consumer goods. Given that China is a major source of such goods, this development has the potential to induce increased imports from the world’s second-largest economy. Nevertheless, the positive effect that interest rate cuts could have on Canadian consumer spending is unlikely to be seen in the second half of 2024, given the lag between the implementation of rate cuts and their manifestation within the economy at large.

Amidst the persistent challenges presented by the downturn in China’s real estate market, policymakers in Beijing at long last unveiled a package of aggressive stimulus measures aimed to increasing liquidity, spurring domestic consumption, and increasing property prices. These long-awaited comprehensive stimulus measures have spurred significant optimistic sentiment regarding the Chinese economy, with China’s stock market experiencing a surge of 25% following the announcement of the policies. If Beijing’s stimulus accomplishes the goals it intends to, Canadian exports to China could increase quite markedly. This is because a rebound in domestic consumption would prompt Chinese manufacturers to ramp up production, which would require increased industrial inputs such as coal and iron, which are major Canadian exports to China. However, this is not a foregone conclusion, as it remains to be seen whether the stimulus measures will indeed have a substantive positive impact on the Chinese economy broadly.

Finally, the completion of the Trans Mountain pipeline expansion has resulted in a staggering increase in Canadian crude oil imports to China. This is likely to continue, and it is possible that crude oil could become one of Canada’s top exports to China in the future. Even though Chinese oil demand has likely peaked, the country’s highly sophisticated refineries will ensure that it will be a destination for unrefined crude oil in the future, as Chinese refineries can capture added value by further refining oil and shipping it to other markets. The China Institute will provide detailed analysis of this emerging paradigm shift in Canadian oil exports to Asia - and China in particular - as it continues to develop.