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Escalating diplomatic tensions with Beijing have at least temporarily poured cold water on Ottawa’s long-held desire to deepen trade ties with China.

But that may not be as big a setback as it seems, a new report suggests.

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As automation curbs the hunt for cheap labour, Asian countries consume more of what they produce and manufacturers locate closer to their customers, Canada’s best trade opportunities are likely to be found outside China’s vast economy — and in some instances, much closer to home, according to researchers at the McKinsey Global Institute.

“Our data certainly shows that China won’t provide as much opportunity to Canada as other parts of the world,” said Susan Lund, a partner at the institute and one of the researchers on the report. “China has a very competitive and vibrant set of companies that are now satisfying the needs of its domestic value chains. But that doesn’t mean there aren’t a lot of other opportunities for Canada. There are.”