China sits at the center of President Donald Trump's latest trade confrontation with Canada, even though the dispute is unfolding between two North American neighbors.

As Washington presses Ottawa to do more to stop Chinese steel, aluminum and other goods from reaching the U.S. market through North American supply chains, Canada is simultaneously pursuing renewed economic ties with Beijing — a combination that has added a fresh complication to already tense trade talks.

The fight hinges on transshipment: the practice of routing goods through an intermediary country, sometimes after only limited processing, before they reach their final market. U.S. officials fear that steel and aluminum made in China or elsewhere could be processed in Canada or Mexico and then enter the United States counted as regional content — the designation that determines whether goods qualify for preferential duty-free treatment under the U.S.-Mexico-Canada Agreement's rules of origin.

Washington and Ottawa have confronted this risk before. In a 2019 joint statement that resolved an earlier dispute over Section 232 national-security tariffs on steel and aluminum, the two countries agreed to prevent steel and aluminum made outside the U.S. or Canada from being transshipped into the other country, and said they could distinguish between steel melted and poured in North America and steel made elsewhere.

U.S. trade hawks now argue that Canada should accept tougher safeguards as Washington seeks to limit China's role in critical manufacturing supply chains.

Canada maintains it is already taking steps to keep foreign steel from flooding its market. Ottawa limits certain steel imports from countries without a free-trade agreement, including China, and imposes a 50% surcharge once those limits are exceeded.

At the same time, Canada has moved to strengthen its commercial relationship with Beijing. In March, China agreed to reopen its market to several Canadian farm and seafood exports, including canola, peas, lobster and crab — easing restrictions that began in 2019, when China halted canola purchases from major Canadian exporters citing pests amid a deep chill in ties that followed Canada's detention of Huawei executive Meng Wanzhou in Vancouver on a U.S. extradition request. Canada, in turn, established a 49,000-vehicle annual quota for Chinese electric vehicles at the 6.1% most-favored-nation tariff rate, removing its previous 100% surtax — a levy Ottawa had imposed in late 2024, in step with Washington's own steep tariff increases on Chinese electric vehicles.

Ottawa has also extended tariff relief for some Chinese steel and aluminum products that it says are in short supply. Officials describe the arrangement as part of a broader effort to diversify Canada's trade relationships — a pressing concern for an economy that sends roughly three-quarters of its exports to the United States. China is Canada's second-largest merchandise trading partner, though it remains far behind the U.S.

The arrangement has fueled criticism in Washington, where some argue Canada is moving in the opposite direction from the Trump administration's effort to build a more China-resistant North American trading bloc.

For Trump, the growing question is whether Canada is willing to embrace the same approach — or whether its bid to expand trade with Beijing will become another fault line in an already tense relationship.