Source: The Conversation – Canada
Facing tariffs and a deteriorating trade relationship, Canada has been looking to reduce its dependence on the United States, which still accounts for over 70 per cent of Canadian goods exports.
Prime Minister Mark Carney has set a target of doubling exports to countries other than the U.S. over the next decade.
China, which is already Canada’s second-largest trading partner, with about $125 billion of two-way merchandise trade in 2025, is an obvious part of that strategy.
But expanding trade with China brings its own risks. Its economy is facing mounting pressures, including a prolonged property-market downturn, a shrinking population and escalating trade tensions with the U.S.
For Canada, the question is how resilient that relationship would be if the Chinese economy entered a prolonged slowdown. Could efforts to reduce dependence on one major trading partner leave Canada increasingly reliant on another?
Japan’s experience offers a cautionary lesson. As Canada pursues trade diversification, it must be careful not to replace its dependence on the U.S. with a new dependence on China.
The warning signs
Japan’s economic trajectory offers a striking example of how quickly expectations of continued growth can unravel. In the 1980s, it was widely expected to challenge the U.S. for global economic dominance. Instead, the collapse of its property and stock market bubbles in the early 1990s ushered in decades of stagnation.
Land prices fell for 14 straight years, with commercial land dropping to about one-third of the 1991 level. This period became known as Japan’s “lost decades.”
China, now the world’s second-largest economy, faces some comparable pressures. Its property market has been in decline since 2021, eroding household wealth and weakening local government finances.
Its population has fallen for four straight years, and the government’s 2026 growth target of 4.5 to five per cent is its lowest since 1991.
China is also facing escalating trade tensions with Washington. Restrictions on Chinese exports and access to advanced technologies have intensified the economic rivalry between the two countries.
There are, however, important limits to the comparison. China’s economic structure, political system and global position are different from Japan’s. But Japan’s experience shows why Canada should weigh the risks before becoming overly reliant on another major trading partner.
Why China is different
Several key differences could send China down another path. Unlike Japan, it has a state-controlled banking system, which gives Beijing greater capacity to absorb losses or delay needed restructuring.
China is also poorer and less urbanized than Japan was in 1990, leaving more room for growth in household wealth and domestic consumption. It has so far established leading positions in electric vehicles, batteries and solar panels.
Its relationship with Washington is fundamentally different, too. Japan was a U.S. ally, and its trade disputes took place within an established security relationship. China, on the other hand, is a strategic rival that competes with the U.S. for influence.
China has a population of 1.4 billion people but this doesn’t automatically translate into strong consumer demand. Household consumption is about 40 per cent of GDP, compared with an OECD average of about 60 per cent.
That imbalance has contributed to China’s reliance on exports to sustain its growth. In 2025, net exports accounted for about one-third of its growth, the highest share since 1997.
What a slowdown means for Canada
Canadian exports to China are heavily concentrated in commodities, which leaves them particularly exposed to changes in Chinese industrial activity and resource demand.
Canadian energy exports rose about 78 per cent in 2025, reaching roughly $9.5 billion as the expansion of the Trans Mountain pipeline opened up greater access to overseas markets.
But China’s oil demand is weakening, with further declines expected. A prolonged slowdown could accelerate that trend, reducing demand for Canadian energy and putting downward pressure on global commodity prices.
Other Canadian exports are exposed to China’s property downturn. Steelmaking coal, copper and lumber, are the most tied to construction and infrastructure investment, so a prolonged contraction in the property sector would weaken demand for these materials.
The geographic concentration of Canadian exports adds to the risk. Alberta and British Columbia accounted for 92 per cent of the recent growth in exports to China. Both provinces have substantial resource sectors and are particularly exposed to changes in Chinese commodity demand.
Interdependence is not the same as trust
Economic ties cannot be separated from political and security relationships. When trade is concentrated, governments can use access to supplies or export markets as leverage in disputes.
During the trade disputes of the 1980s, Washington pressured Tokyo to open its markets. Japanese carmakers such as Honda and Toyota built plants across North America, including in Ontario, creating jobs and embedding Japanese investment in North America.
The pattern continued under U.S. President Donald Trump. In 2025, Japan pledged US$550 billion in American investment as part of an agreement to resolve tariff disputes. In both cases, a longstanding political and security alliance provided a foundation for negotiating trade disagreements.
Japan’s relationship with China offers a different lesson. During a territorial dispute in 2010, Japanese businesses reported Chinese shipments of rare earth minerals had stopped. This incident exposed Japan’s dependence on China for materials, and Japan subsequently worked to diversify its supply, cutting China’s share of its rare earth imports from about 90 per cent to 60-70 per cent.
Canada has encountered a similar vulnerability. After imposing 100 per cent tariffs on Chinese electric vehicles in 2024, China responded with tariffs on canola. Exports to China subsequently fell 62 per cent.
A deal reached in January lowered canola tariffs in exchange for allowing 49,000 Chinese electric vehicles into Canada annually at a 6.1 per cent tariff.
Lessons for Canada
Japan’s experience highlights two lessons in Canada’s push to diversify trade. The first is that an economic slowdown does not necessarily make a country an insignificant trading partner. Japan remained a wealthy and important market long after its property bubble burst.
China, however, could face prolonged stagnation before reaching Japan’s level of affluence. If Chinese demand weakens, commodities producers will have to compete for a smaller pool of buyers.
The second lesson is that the political relationship behind trade can matter as much as trade volume. Japan’s ties with the U.S. survived disputes partly because they ran both ways: Japanese firms built plants in North America, and the two countries shared security interests. Japan’s dependence on China demonstrated the risks of relying too heavily on a single source of important resources.
Canada’s relationship with China is more asymmetric. Much of the trade involves Canadian commodities flowing one way, with market access Beijing can grant or withdraw. Trading dependence on Washington for dependence on Beijing would simply replace one vulnerability with another.
Canada’s priority should be to expand its customer base. Its Pacific coast can ship crude, gas and critical minerals to Asia, while the Comprehensive and Progressive Agreement for Trans-Pacific Partnership gives Canada preferential access to Japan and other Indo-Pacific markets.
Trading with more countries is not the same as having more freedom to choose. The goal is to ensure that no single partner — whether rival or ally — can set the terms.
Amir Bahman Radnejad is affiliated with Canadian Global Affair Institute.
Masaru Karube is affiliated with the Institute of Innovation Research, Hitotsubashi University, Japan.
Original source: https://analysis1.mil-osi.com/2026/11/15/what-japans-lost-decades-can-teach-canada-about-its-growing-trade-ties-with-china/