Will China and Canada ease their tariffs? What’s at stake in Carney visit

Bank of Canada Governor-designate Mark Carney's trip to China is being framed as a test of whether bilateral tariffs and trade frictions can be eased, with Ottawa seeking relief for Canadian canola exporters after Beijing imposed steep duties (100% on canola oil/meal/peas in March 2025 and ~76% on canola seed in August 2025) and earlier retaliatory measures including 25% on pork/seafood. Ottawa previously imposed a 100% tariff on China-made EVs (Oct 2024) and 25% on Chinese steel and aluminum; China’s actions have cost a sector that generates over $43 billion annually and employs ~200,000 people. The visit may yield partial agricultural market reopenings but is constrained by potential U.S. reaction and political sensitivity around concessions on EVs, steel/aluminum and broader CUSMA renegotiation risks.

Analysis

Market structure: China’s canola tariffs structurally transfer demand to alternative vegetable oil suppliers (Brazilian soy, Indonesian palm) and global processors (ADM, BG) — expect a 5–15% lift in soy/palm prices within 3–9 months if tariffs persist, and a 15–30% downside shock to Canadian canola basis and farmer cashflows over the same horizon. Steel/EV tariff dynamics keep downside pressure on Chinese EV makers’ ability to penetrate North America (tariff removal would be an upside shock for BYD/BYDDF and NIO), while Canadian provinces dependent on canola exports face GDP/cashflow stress compressing provincial credit metrics and widening provincial bond spreads by 20–50 bps in a severe scenario.

Risk assessment: Tail risks include (A) rapid normalization post-Carney visit driving a 20–40% snap-back in canola prices within 30–90 days, and (B) U.S.-driven escalation forcing broader secondary sanctions or coordinated tariffs that deepen Canadian export losses over 6–24 months. Immediate (days) risks: headline-driven CAD volatility +/-2–4%; short-term (weeks–months): crop marketing windows and inventory reports; long-term (quarters–years): structural re-routing of Chinese imports away from Canada. Hidden dependencies: federal farmer support programs, crop insurance and Chinese domestic oilseed output that can blunt price moves.

Trade implications: Tactical: favor global processors and soy/palm exposure (long ADM, BG, SOYB) and hedge Canada-specific downside with short NTR (Nutrien) or protective put spreads; take a CAD FX directional trade (long USD/CAD via 3-month call structures) if tariffs remain beyond two months or provincial bond spreads widen >20 bp. Use options to asymmetrically express views: buy 3–6 month SOYB calls and buy NTR 3–6 month 5–15% OTM put spreads to cap capital at risk while capturing commodity dislocations. Rotate portfolio overweight to soft-commodities and processors, underweight Canadian ag/energy mid-caps with >30% revenue exposure to China.

Contrarian angles: Consensus assumes persistent decoupling; history (US–China 2018 soy episode) shows demand can re-route quickly and prices can rebound — consider low-cost long-dated call options on canola/Canadian ag names (6–12 months) as convex bets against a negotiated reopening. Market may be underpricing government backstops: if Ottawa transfers >C$2–3bn in support (trigger likely within 30–90 days), downside is capped — that suggests smaller short sizes and favor buying volatility (long straddles) around key trade headlines (Carney meetings, MOFCOM statements). Unintended consequence: easing with China could provoke immediate US retaliation affecting CUSMA negotiations — monitor US statements as a binary catalyst.

Key Decisions for Investors

• Establish a 1.5–2.5% long position in ADM (NYSE: ADM) and Bunge (NYSE: BG) combined (split 60/40) over 3–12 months to capture re-routing of Chinese vegetable-oil demand; hedge 25% of position with 3–6 month puts if soy/palm volatility spikes >30% implied.
• Allocate 1–2% to long SOYB (Teucrium Soybean Fund) via 3–6 month call options (target >20% upside) to play increased Chinese demand for alternatives; size to deliver a max loss of <1% portfolio if calls expire worthless.
• Establish a 1% hedge/short on Nutrien (NYSE: NTR) via buying 3–6 month 5–15% OTM put spreads (sell nearer-dated puts to finance) to reflect expected fertilizer demand compression if prairie farmer incomes drop >15% year-over-year.
• Enter a tactical FX trade: buy 3-month USD/CAD call spread sized to 1% portfolio if USDCAD breaches +2% from today (or CAD weakens), target move 3–5% and close at 50% of realized gains; cut if Canada announces >C$2bn direct farmer support within 30 days.
• Pair trade: go long ADM (processing exposure) and short NTR (Canadian upstream/ag input exposure) 1:1 notional for 3–9 months to capture relative winners/losers from sustained China import diversion; rebalance upon Carney visit outcomes or major US policy statements.