By Farshid Keramat, Senior Research Fellow
After years of tensions, the United States and China unexpectedly entered a period of truce by signing a $30 billion USD trade deal. Officially, the détente is meant to create “strategic stability” in their relationship. For middle powers like Canada, however, this alignment does not bode well. The new agreement threatens to push businesses out of large markets, exacerbate existing supply chain vulnerabilities, and erode the rules-based global trading system they depend on.
For a deal that claims strategic stability, it notably fails to resolve any of the core friction points between the two superpowers. China’s ongoing stranglehold on critical minerals directly undermines U.S. defence manufacturing. The deal also completely disregards the growing tensions over AI governance and Beijing’s lax enforcement of intellectual property rights.
A more likely motive for the collaboration is temporary economic reprieve. The U.S. is struggling with inflationary pressures ahead of a high-stakes November 2026 midterm election that could very well cost Republicans their majority in the House of Representatives and even the Senate. Washington is betting that tariff relief will ease cost-of-living pressures before voters head to the polls. China, meanwhile, is facing an economy that has lost its momentum. Despite Beijing’s stimulus spending, domestic consumption remains weak. By entering a trade agreement with the U.S., Beijing hopes to stabilize its export-focused economy without having to address difficult structural vulnerabilities at home.
The bilateral trade truce comes at the cost of middle powers like Canada. In a sluggish Chinese economy, the demand for imported goods is limited. As the U.S. gains preferential access to Chinese markets through tariff reductions and state-guaranteed purchase quotas for agriculture, forestry, and energy, Canadian products are quietly pushed out. Individually, middle powers lack the market size to protect their interests.
Canadian exporters have learned the importance of rules-based trade firsthand. In 2018, Ottawa arrested Huawei executive Meng Wanzhou under an extradition treaty with the U.S. In response, Beijing immediately restricted the import of canola seed, pork, and beef while arbitrarily detaining two Canadian citizens. When superpowers disregard multilateral frameworks, middle powers pay the price.
A consistent current in Washington’s rhetoric has been the assertion that the U.S. is disproportionately burdened by maintaining global governance structures. From allied security to the United Nations to global trade, there is a perception that it costs U.S. taxpayers without much in return. This view conveniently omits the substantial contributions middle powers are making to protect rules-based trade. Critical minerals are illustrative. Canada has committed roughly $2.8 billion USD in domestic investments. The EU is investing over $35 billion USD, while Australia has allocated approximately $4.6 billion USD in tax incentives to its mining sector. These investments directly counter Beijing’s use of export controls as leverage for its foreign policy. By sidestepping allies, the U.S. undermines free trade and isolates long-standing partners to its own detriment.
Superpower deals pose another economic threat. No longer able to hedge between the two superpowers, middle powers risk being pressured into unequal trade arrangements. Apart from reducing exports, such deals create exposure to unpredictable, unilateral policy changes in Beijing and Washington. Uncertainty inevitably suppresses domestic investment, which in turn slows down economic growth.
Waiting for Washington to change course is not the answer. Middle powers must instead aggressively pursue trade diversification. This includes strengthening and expanding regional trade agreements, like the CPTPP. It also includes advocating for regulatory harmonization between these blocs. The recently signed EU-Mercosur agreement has established the precedent. An EU-CPTPP agreement is the logical next step, albeit one that will take time to negotiate. In the short term, middle powers must double down on existing trade relations, such as Canada’s CETA and a possible associate membership status with the EU. Building a substantial rules-based global trading system independent of superpowers will allow middle powers to retain their leverage and continue to pursue economic opportunities.
This strategy will not be without pushback. A primary reason why the recent Canada–United States–Mexico Agreement talks stalled was the U.S. insisting on language that would have curtailed Canada’s ability to enter trade deals with third countries. Likewise, China is attempting to pressure middle powers through targeted export controls. Superpowers can exert leverage most strongly in bilateral relations. Their coercive power quickly dilutes when middle powers respond collectively, as they did on critical minerals.
Middle powers have relied on a U.S.-centric trade framework for many decades. Holding on to it as the sole pillar of the global trading system would be a strategic mistake. A better choice is to actively seek alternative, rules-based structures. The objective is not to abandon the U.S. market, but to establish enough alternative market access to strengthen bargaining power in dealings with Washington. This is the most likely path to securing political independence and economic prosperity.
Sources
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