Beyond De-Risking: China and Canada’s Trade Resilience

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Executive Summary

Canada’s aim to diversify and grow its exports will inevitably mean a significant focus on building deeper and more beneficial linkages with the Asia-Pacific. In this report, we show that Canada’s diversification challenge cannot be fully solved by merely substituting one large market with many small ones, nor by assuming that supply chains can quickly or easily be re-wired. To assess Canada–China trade as an interconnected production system, we deploy a diagnostic of global trade flows and Canadian industrial linkages. By processing thousands of product lines at the granular Harmonized System (HS) 6-digit level, filtering for economic end-use, applying macro-materiality thresholds, and stresstesting Canadian supply networks against statistical counterfactuals, we pinpoint where risks are real, where leverage exists, and where diversification is achievable at scale. This approach aims to help Canada pursue growth and resilience simultaneously through targeted management rather than blanket assumptions of either dependence or decoupling. The following three takeaways from the data stand out:

1. Canada’s exports to China are often structurally tied to Chinese industrial value creation and hold genuine relevancy in China’s import profile.
   

   More than 30% of Canadian goods exports to China are used as inputs in Chinese industrial production. These include softwood pulp for packaging and tissue, canola oil for food manufacturing and processing, copper for electronics and batteries, and potash for agricultural output—far higher input shares than for Japan (11%) or South Korea (18%). More importantly, despite asymmetry in aggregate trade volumes, which largely reflects the relative size and structure of the Canadian and Chinese economies, Canada holds notable agency in its trade with China in forms of revealed agency, investable diversification enablers, and strategicrisk replacement, in approximately 42.9% of its total exports to China. Such agency should not be understood as an ability to dominate or control, but rather as influence flowing from commercially meaningful supply attributes—quality, scale, reliability, scarcity, or alternative-market access— that give Canada more room for maneuver than headline trade shares imply.
   
   
   

2. Canada’s imports from China often significantly support Canadian domestic industrial production, but without systematic capture.
   

   Chinese origin inputs could appear in up to 44% of Canada’s product-industry linkages under our upper-bound allocation assumption.The import composition has shifted from consumer-goods dominance to capital- and intermediate-goods dominance. Crucially, empirical data confirms that Chinese supply acts as a diversification wedge that buffers Canada against single-source concentration risk. The vast majority of these imported inputs reside in low-capture-risk markets with viable global alternatives, supporting domestic production without evidence of monopolistic dependence or systematic capture.
   
   

3. China offers the greatest diversification potential in the Asia-Pacific.
   

   The International Trade Centre has estimated that China offers Canada the greatest upside potential for its regional exports. Meeting Canada’s goal of doubling non-U.S. exports would require capturing just 0.52% more of China’s total imports—the smallest increment needed among major Asia- Pacific markets. Canada’s exports to China are also the least concentrated in the region, spreading across dozens of industries instead of being dependent on a few sectors, implying a broader base for durable growth with less sector-specific risk. Since 2021, Canada’s trade complementarity with China has surpassed that with the United States—suggesting what Canada sells increasingly matches what China buys, indicating a closer product-level match between Canadian export capacity and Chinese import demand. Overall, our findings underscore the need for targeted and dynamically managed interdependence: capturing value where Canada holds embedded advantages, rather than risk-proofing through isolation.