Relations between the two countries turned rocky after Canadian authorities in December arrested Meng Wanzhou, Huawei's chief financial officer. The U.S. charged Meng with fraud linked to alleged violations of Iran sanctions. China, in what's widely seen as a politically retaliatory move, subsequently detained several Canadians and blocked shipments of canola from a major Canadian company.
Complicating the situation is continued tension between the United States and China. Canada is a close ally of the U.S. and has been accused by China's state-run media of helping Washington humiliate Beijing.
Morneau, speaking to CNBC's Nancy Hungerford on Saturday, said the U.S.-China relationship is integral to how his country can move forward with Beijing. But Washington and Beijing have halted high-level talks, and any progress between Canada and China appears stalled for now, he said.
"Generally, what we can say quite clearly is the idea that we're going to put people in jail around effectively a trading issue is just inappropriate. There's no way for us to conduct business over the long term — that's been clearly communicated," the minister said at the G-20 Summit and Ministerial Meetings in Japan.
"I can't say that I necessarily have a sense of optimism, because we're at an impasse. It's a difficult moment," he added.
China's cancellation of canola shipments from Canada also doesn't make sense, according to Morneau, adding that he's concerned Beijing could extend the same treatment to other products from his country.
"I don't want to speculate on what might be next but we don't think that ... the stoppage of canola trade is really one that's done on grounds that make sense," he said.
"And of course we're concerned with the spectra of other products being either delayed at the border or in some way taken out of the trading relationship," the minister added. "This is a real concern."
Trump had threatened to apply 5% tariff on all U.S. imports from Mexico starting June 10, saying the Mexican government had failed to address his concerns over immigration. Trade warned at the time that the new tariff could derail the ratification of the United States-Mexico-Canada Agreement (USMCA), which is intended as an updated version of the North American Free Trade Agreement.
Now that Trump t has said he's not going ahead with the tariff on Mexico, the USMCA will now have "a clear path" to ratification by all three countries, Morneau said.
"We're pleased," he said. "We think it's obviously better for our trading relationships and good for the ratification."