Canada’s decision to lower barriers to Chinese electric vehicles is part of a larger move away from dependence on the United States.
The Canadian government is looking to develop joint ventures with Chinese and Korean firms and is trying to rebuild its manufacturing base through tax breaks as it faces strained relations with the United States and decades of decline in Canadian auto production.
In January, the country announced it would allow imports of 49,000 Chinese electric vehicles at a 6.1% tariff rate, dramatically reversing the 106% tariff imposed on them in October 2024. That’s about 3% of Canada’s total new car market and about 20% of its combined batteries, C and C. Advisors, a Canadian research and consulting firm.
In exchange for lifting the restrictions, China agreed to lower tariffs on Canadian canola oil, one of Canada’s main agricultural exports.
The deal calls for at least 50% of these imported Chinese electric vehicles to be affordable models or vehicles with an import price of less than C$35,000 – just under US$26,000 – within five years.
“If the cars coming in are cheaper models, that could have a significant impact,” said Jeff Turner, Dunsky’s director of clean mobility. “But I think if we think ahead to 2030, we expect the EV market to grow significantly. Forty-nine thousand vehicles is a very small number compared to what we expect the EV market to be in a few years.”
Canadian production
The agreement also aims to create Sino-Canadian joint ventures in Canada, creating manufacturing jobs and building the country’s supply chain, according to a press release.
The Canadian government has taken several steps to try to boost car production, including signing a memorandum of understanding with Korea on clean vehicle production and issuing a new automotive strategy.
The United States historically belonged to Canada major trading partner. In turn, Canada was the second largest of the United States. But as of February, the US imposed a 25% tariff on non-US content of cars built in Canada. According to most sources, this works out to a rate of 10% to 12% per vehicle.
The tariffs have disrupted the tightly integrated auto supply chain between Canada, the US and Mexico.
Detroit automakers have been in Canada since the early days of the Detroit auto industry. Henry Ford built a factory in 1904 in what is now Windsor, Ontario. Ford motor“said McMaster University professor Greg Mordue iHamilton, Ontario.
But over time, their share of Canadian production has declined. Today, they account for about 23% of Canadian production, Mordu said. Japanese manufacturers Toyota and Honda is 77%.
That decline accelerated after the tariffs.
Detroit automakers cut several production cuts at plants in Ontario: Star placed its Brampton plant on “operational hiatus” in December and General Motors has discontinued production of BrightDrop electric commercial vans at its Ingersoll facility factory 2025 and eliminated the shift at the Oshawa plant at the end of January.
The flight of Detroit automakers has coincided with a decline in Canadian auto production from about 3 million vehicles in 2000 to 1.3 million in 2025, Mordu said.
“It’s a frequent reminder in the Canadian media that auto jobs are really being affected by the uncertainty coming from south of the border,” Turner said. “So I think it’s natural in this context to see politicians wanting to diversify those relationships.”
Headwinds
The head of the Canadian Automobile Manufacturers Association, the country’s trade group representing Detroit automakers GM, Ford and Stellantis, called the deal with China a “car-sized irritant” in upcoming trade talks with the United States.
Brian Kingston, president and CEO of the CVMA, said he is concerned about Chinese vehicles because China subsidizes its automakers, which makes competition more difficult and could pose safety risks through the hardware and software embedded in its products. He noted that Mexico has taken the opposite approach, raising tariffs on Chinese cars by up to 50%.
“So as we go into these negotiations, our other partner, our other partner in North America, is more protective of China, and we’re going in the opposite direction,” Kingston said.
It’s unclear whether the Chinese company wants a manufacturing presence in Canada, or whether it’s profitable.
Canada has a bit of a tough time attracting manufacturing investment compared to its other two North American neighbors, Mordu said. Mexico offers the cheapest production, and the US is a key market, with steep trade barriers now encouraging automakers to build within its borders.
“It’s a big leap from ‘we’re selling a few Chinese cars in Canada’ to ‘doing a full-scale assembly plant,'” Mordu said. “But doing nothing has led to a list of assembly plants disappearing in the last 12 months.”
CVMA’s Kingston said the country has the resources to compete with China in the electric vehicle market, including key minerals needed for next-generation EVs and zero-emission electricity from hydroelectric and nuclear power plants.
“We have such massive deposits of minerals, many of which are now dependent on access to China,” he said. “If we can get to the point where we can mine and process these minerals in Canada using clean electricity and ultimately create an integrated supply chain with the US, we have a lot to offer not only to the United States, but to any Western partners who are trying to reduce their dependence on China.”