For decades, fossil fuel exports have been a major driver of Canada's economy, generating hundreds of billions in revenue and supporting hundreds of thousands of jobs, with oil and gas making up about 25% of total Canadian exports. However, Canada’s energy markets are characterized by a key flaw: Canada exports nearly all its fossil fuels to the U.S. thanks to geographic proximity as well as a highly integrated pipeline network built to serve U.S. markets since Canada's much smaller population cannot consume its vast output.
This has normally worked out just fine for both countries. But these aren’t normal times. Unfortunately, the latest hostilities between Washington and Ottawa have highlighted the vulnerabilities of Canada’s energy sector in a more divided and uncertain world.
Last year, the Trump administration imposed 25% tariffs on most Canadian goods, with energy products (like oil, gas, minerals) carved out for a 10% tariff, justified as a response to illicit drugs. Back in 2018, Trump slapped hefty Section 232 tariffs on Canadian steel and aluminum, leading to retaliatory tariffs from Canada.
Given this backdrop, it’s hardly surprising that Canada has been frantically searching for new markets in recent years, turning to China and Asia’s tiger economies in its latest foray.
Last week, Canada’s Prime Minister Mark Carney visited Chinese President Xi Jinping, before releasing a joint statement outlining the pillars of their new strategic partnership. The two energy superpowers agreed to collaborate in energy, clean technology and climate competitiveness.
As part of the agreement, Canada will allow up to 49,000 Chinese electric vehicles into its market per year, at a lowly tariff rate of 6.1%. Whereas this represents less than 3% of new vehicles sold in the country in a typical year, the Office of Canada’s PM says it will ensure a robust build-out of Canada’s EV supply chain and drive considerable joint-venture investment between the two countries, creating auto manufacturing jobs for Canadian workers in just three years. Indeed, Canada anticipates that under the agreement, more than 50% of its EVs will have a sticker price of less than $35,000 in five years, offering lower-cost options for Canadian consumers.
The two countries already enjoy robust bilateral trade ties, with Canada exporting merchandise worth $30 billion to China in 2024 while importing goods worth nearly $90 billion.
“At its best, the Canada-China relationship has created massive opportunities for both our peoples. By leveraging our strengths and focusing on trade, energy, agri-food, and areas where we can make huge gains, we are forging a new strategic partnership that builds on the best of our past, reflects the world as it is today, and benefits the people of both our nations,” said Mark Carney.
Carney’s China visit followed his appearance at the Association of Southeast Asian Nations summit in Kuala Lumpur in October 2025, where Canada signed a Letter of Intent with Malaysia covering LNG, oil, small modular reactors, and renewables. The agreement builds on Canada’s first LNG shipment to Asia from Kitimat in July 2025, delivered with the involvement of Malaysian state energy firm Petronas, and is aimed at anchoring longer-term Canadian energy exports into Southeast Asia.
The partnership also includes cooperation on SMRs, with Canada providing technical expertise for deployment in remote and industrial zones where conventional reactors are impractical. Canadian officials highlighted the country’s CANDUreactor technology, emphasizing safety systems and modular design, with the collaboration centered on knowledge transfer rather than near term construction commitments.
In parallel, Asia is emerging as a major buyer of Canadian oil following the start-up of the Trans Mountain Expansion in May 2024.
By nearly tripling capacity to 890,000 barrels per day and providing access to the Westridge Marine Terminal, TMX has opened a direct export route to Asian markets and reduced Canada’s reliance on U.S. buyers. Roughly 75% of crude loaded at Westridge is heavy, sour oil, well suited to complex Asian refineries, with China among the leading destinations. The terminal can now handle up to 34 Aframax tanker loadings per month, with utilization expected to rise further as production increases and incremental expansion options emerge toward 2027.
Canada is also continuing negotiations on the Canada-ASEAN Free Trade Agreement (ACAFTA), targeting deeper access to the $5 trillion Southeast Asian market. The proposed pact would lower tariffs, reduce non-tariff barriers, and improve investment protections for Canadian firms, while preserving flexibility for sensitive sectors such as dairy. Negotiators have already held multiple rounds of talks, with officials indicating that progress toward a deal is expected this year.
Canada is recalibrating how and where it sells its energy. As export capacity expands and Asian demand continues to grow, oil, LNG, and nuclear technology are increasingly flowing toward markets beyond the United States. That shift is beginning to alter trade patterns in Asia, adding new supply options for buyers and reducing Canada’s exposure to political and commercial risk tied to a single dominant customer.
By Alex Kimani for Oilprice.com
