Canada Markets

China shocked the Canadian canola industry Friday evening with the announcement that it was going to essentially block Canadian canola oil and meal imports with a 100% tariff, effective March 20. The move was the result of an anti-discrimination investigation initiated against Canada in September 2024 into the federal governments implementation of 100% tariffs on imports of Chinese electric vehicles, followed by 25% tariffs on imports of Chinese steel and aluminum.

A critical point in all this mess is that the action taken is "separate and distinct from China's anti-dumping investigation into imports of Canadian canola seed which is ongoing" according to a joint press release from the Canola Council of Canada and the Canadian Canola Growers Association. This means canola seed could still be hit with 100% tariffs as well.

But why now, amongst the turmoil caused by the tariffs that United States President Donald Trump has applied against both countries? At a time when some comradery between defendants would make more sense, given the likely reduction in Chinese imports of U.S. soybeans that could be expected. And the fact that the canola anti-dumping investigation announced by China was widely considered to be the retaliation yet to come. So again, why now? And does the answer provide direction for moving forward?

There are many possibilities, but the most optimistic for the industry could be that this is a test -- an opportunity for Canada to prove itself as a reasonable trading partner going forward as trade tensions with the U.S. are surely to escalate for both countries.

Hopefully Canadian Prime Minister Justin Trudeau's replacement is wise enough to quit trying to protect an industry that has been proven to be flawed (electric vehicles in a frigid climate with expansive distances to travel are not reasonable) and arrive at a solution that satisfies China's concerns.

Another positive (but highly unlikely) possibility is that China wants to ensure availability of canola seed supplies by reducing the competition from canola crushers. I have been suggesting for some time that there is not enough canola to satisfy both the export market and domestic crush at the pace we are going. Is it possible that China just eliminated canola oil and meal imports because it wants the canola seed to crush there itself? This is especially true if China expects fewer U.S. soybeans to crush at a time when a lack of meal has recently driven its price sharply higher, making canola seed imports much more attractive than canola oil.

The greatest clue supporting such a possibility is the January export data from Statistics Canada (seen in the accompanying chart). China surprisingly returned as the top destination for canola seed exports by far. At 393,046 metric ton (mt), it was almost four times December's 104,890 mt total. It now could be assumed that the strong exports for February may have been dominated by China as well.

Given the Chinese track record of taking 18 months to complete the anti-dumping investigation into Australian barley exports and impose 100% tariffs, there's plenty of time remaining to see strong canola shipments before 18 months has past (Sept. 2024 to March 2026). With prices breaking sharply on the current surprising tariff news, China could be aggressively buying the break if it is confident the seed can be shipped in time.

Another possibility is that there was pushback from within China, with too many canola oil imports into the country to start 2025, making alternative oilseed crush difficult economically and leading to a tight meal supply. That thought comes from the other surprising statistic found in the January trade data, with China emerging as the top destination for crude canola oil by far: 50,473 metric tons (mt) was shipped to China in the one month alone compared to 665 kilograms in all of 2024, 121,287 mt shipped in 2023, and 185,109 mt shipped in 2022. China could have received a year's worth of crude canola oil already this year, paving the way for industry pushback. Unfortunately, we won't know for sure until the trade data to the end of March is available on May 6.

Given the timing of the surprise announcement, an attempt to get relief from the threat of drastically higher port fees being imposed on Chinese-related vessels can't be ruled out -- especially with Elon Musk being a common denominator in all of it (it was a surge in imports of Tesla Model 3 and Model Ys produced in the Shanghai Tesla factory starting in 2023 that inspired the 100% EV tariffs that Canada introduced in the first place). This one will be easy to track with it being a hot button issue currently in the news.

A politically inspired strategy of some sort could be behind the timing, given the election of Mark Carney as the new Liberal Party leader on March 9 with the threat of a national election looming. Besides driving a wedge between Western Canadians who are paying the price (literally on canola) for actions taken by Ottawa to protect industries in Eastern Canada, expecting a greater chance of progress could be a motive. With Carney being a well-known climate activist, having more electric vehicles instead of fewer might outweigh protecting an industry regardless of where the vehicles come from.

Last, but not least, a spade may just be a spade. China may just be attacking an enemy in a trade war when it is most vulnerable and overwhelmed -- for China's own good, and to triumph.

Regardless of the actual motive, the worst thing for Canada about the development is the implication that China can be expected to be an aggressive adversary instead of a potential ally in the developing trade war with the U.S. During previous trade tensions between China and the U.S., Canada was fighting with China over the Huawei CFO affair (https://www.dtnpf.com/…)and missed the benefits that South America experienced from added Chinese business. It looked like this time could be different but clearly not.

So now what? There really is little choice but for the canola industry to try to convince Ottawa to negotiate to resolve China's concerns. Also, to demonstrate to Carney that there is no more important time than right now to build bridges instead of walls and work with China in case this is in fact a test. If successful, that might also help minimize damage from the anti-dumping investigation results yet to come. The only other option appears to be accepting the indefinite loss of canola product exports to China and focus on ensuring access to U.S. markets.

Given the stakes being ramped up, it will be much more important for the canola industry to work with Clean Fuels Alliance America to lobby for product trade to remain tariff free, or as close to it as possible. Failing that, work at an acceptable division of tariffs to keep product flowing -- a third for each of the exporter, importer and passed on to the customer, for example.

On a closing note, it will now be much more important to expand on the exports of canola seed to Europe because of its need and the risk of future retaliation from China.

And now might be a good time to cut a few acres out of the rotation for the year for anyone so inclined?

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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