Beijing and Ottawa reached a “landmark” trade agreement last week, slashing tariffs on Chinese electric vehicles, in a move analysts said further cements China’s dominance and suggests the US decline in the global EV market.
The deal will open Canada up to Chinese EVs, signalling a thaw in diplomatic relations and a major break from the US. The bilateral partnership marks a shift in direction for Canada’s automotive industry, coming during a month that saw China’s BYD topple Tesla as the world’s top-selling EV maker.
“It is expected that within three years, this agreement will drive considerable new Chinese joint-venture investment in Canada with trusted partners to protect and create new auto manufacturing careers for Canadian workers and ensure a robust buildout of Canada’s EV supply chain,” the Canadian government said in a statement.
Relations between Canada and the US have frayed since President Donald Trump’s return to office, when he imposed tariffs on Canadian goods, including steel and timber, marking a shift in the dynamics between the two formerly close allies.
Canadian Prime Minister Mark Carney has taken a tougher stance against the US than other countries, opening the door to stronger ties with China after years of strained relations.
Last week’s agreement was announced after Carney travelled to Beijing to meet with Chinese President Xi Jinping. Canada agreed to remove the additional 100 per cent tariff on Chinese-made EVs that were imposed in 2024, following a similar move by the US. In response, China is lowering tariffs on Canadian canola.
The import volume will be capped, allowing 49,000 Chinese-made EVs into the Canadian market with a preferential tariff rate of 6.1 per cent.
More than 50 per cent of these vehicles will be affordable with an import price of less than CAD$35,000 (US$25,365) in five years, Canada anticipates. The price of Tesla’s Model Y starts at CAD$49,990 in Canada.
Nino Di Cara, president of Electric Autonomy Canada, a Canadian media start-up, said China is gaining growing international recognition for delivering high-quality EVs at affordable prices compared with those produced by other global carmakers.
“The reduction of tariffs on Chinese EVs from 100 per cent to 6.1 per cent means it is now financially viable for Chinese manufacturers to sell directly into Canada – a key North American market of car buyers,” he said.
“This gives Canadian consumers their first real opportunity to purchase and experience first-hand Chinese automotive brands.”
Time for Canada to break away from US
“Historically, US trade policy regarding automotive has been mirrored in Canada,” said John Helveston, an engineering professor at George Washington University, meaning that when the US puts tariffs on Chinese imports, Canada generally follows.
“It’s increasing the reach and dominance of Chinese EVs, but more importantly, it’s showing the decline of US automotive leadership,” he said.
After the fallout from Trump’s tariffs, “Canada is realising that the US industry is perhaps not the only one to be tied to going forward”.
The unit limit on Chinese imports roughly corresponds with volumes in the year before trade frictions began, “representing less than three per cent of the Canadian market for new vehicles sold in Canada”, according to the government.
Tesla could gain an early win from this deal, as its Shanghai Gigafactory is the carmaker’s largest production facility globally.
The 49,000 import quota “means whichever carmakers already have approved models to export can do so before others”, Helveston explained.
“That likely means that the majority of those units in the coming year or two will be Teslas made in their Shanghai factory, since those have already been exported to Canada before,” he added.
The average price would then be higher than CAD$35,000, as Teslas are usually priced above that.
“Over time, as either the quota increases or other Chinese competitors get approval, we’ll probably see actual Chinese brands exporting more, which will be less expensive models,” he said.
There are also plans to encourage local assembly, and Helveston speculated that in five years we could see Chinese-branded EVs being built in Canada.
China’s EV industry dominance keeps growing
The deal comes as China’s dominance in the global EV market continues to grow, with BYD delivering record figures for 2025, surpassing Tesla as the top-selling EV.
The Chinese carmaker sold 2.26 million fully electric vehicles in 2025. In an eventful month for the industry, Beijing and Brussels also made progress with their EV trade dispute in January.
China has emerged as the world’s largest car manufacturer in recent years, with total auto sales reaching 31.4 million units in 2024, according to data from the China Association of Automobile Manufacturers (CAAM). Electric vehicles accounted for over 40 per cent of the total.
“In order for Canada to build our own competitive EV sector, we need to learn from innovative partners, access their supply chains and increase local demand,” Carney said at a press briefing following the talks.
Tracy Walden, vice-president of engagement at Plug’n Drive, a Canadian EV non-profit, said access to a wider range of EV options is of key interest for many of Canada’s car buyers and can help support broader adoption.
“Actions that increase the availability and affordability of EVs in Canada have the potential to support adoption in both the short and long term,” she explained.
Helveston said that it’s clear Canada is increasingly willing to import from China, not just the US, signalling it can diversify its economy and become less dependent on the US. There are also opportunities for Chinese-Canadian joint ventures.
“Canada is rich in minerals that are critical to the battery supply chain, namely nickel,” he said.
The country also has a strong manufacturing sector, Helveston added. “I could imagine battery manufacturing in Canada as a JV with Chinese battery technologies that are going into either locally made EVs or EVs being assembled in the US.”
Ontario hub of Canadian automotive industry
Auto manufacturing in Canada accounts for 105,600 direct jobs, with most located in Ontario, according to the Canadian Vehicle Manufacturers’ Association.
“In 2024, the country manufactured approximately 1.3 million vehicles, but only around four per cent of them were battery electric or plug-in hybrid vehicles,” Di Cara said.
Canada has been working hard to develop the full EV supply chain in recent years by “leveraging its extensive resources of critical minerals, attracting investment in processing plants, and securing investment in two large battery cell factories (NextStar Energy with Stellantis and LG; and Volkswagen’s PowerCo)”.
“But it has yet to secure EV production and assembly of a mass-market electric vehicle,” he added.
Reactions to the deal in Canada were not unanimous, with Ontario Premier Doug Ford expressing scepticism and concern about what it means for Canadian workers.
“Make no mistake: China now has a foothold in the Canadian market and will use it to their full advantage at the expense of Canadian workers,” he posted on social media.
“The federal government is inviting a flood of cheap made-in-China electric vehicles without any real guarantee of equal or immediate investments in Canada’s economy, auto sector or supply chain.
“Worse, by lowering tariffs on Chinese electric vehicles, this lopsided deal risks closing the door on Canadian carmakers to the American market, our largest export destination, which would hurt our economy and lead to job losses.”
While Carney and Ford are from rival parties, they’d previously had a friendly relationship, according to Canada’s public broadcaster CBC, with Carney staying at Ford’s cottage in the summer.
Ford said he is “ticked off” with Carney, telling reporters he was disappointed he wasn’t given a heads-up on the deal before the prime minister’s trip to China.
US Trade Representative Jamieson Greer called the decision “problematic for Canada” and said they may come to regret it.
“There’s a reason why we don’t sell a lot of Chinese cars in the United States. It’s because we have tariffs to protect American auto workers and Americans from those vehicles,” Greer told CNBC.
“I think in the long run, they’re not going to like having made that deal.”
Contrasting this, Trump shrugged off concerns and called the deal a “good thing”.
“That’s OK. That’s what he should be doing. It’s a good thing for him to sign a trade deal. If you can get a deal with China, you should do that,” Trump said.
The Canada-China trade deal came during a week in which reports emerged that US carmaker Ford was considering purchasing batteries from BYD.
During a trip to Detroit, Trump also indicated he would be open to having Chinese carmakers build factories in the US.
More vehicle manufacturers to choose from
Helveston believes that, in the long run, this deal will give drivers even more options beyond Tesla.
The US’ Tesla was an early pioneer in the global EV industry but has faced roadblocks in recent years, including backlash over Elon Musk’s move into right-wing politics and the expiration of the Biden-era tax credit.
“More competition means great consumer choice and ultimately more competitive pressures, so lower prices for consumers and more options,” Helveston said.
“Tesla is clearly in decline, a trend that is over a year in progress.
“This move means likely an even harder future for Tesla in North America.” -- SOUTH CHINA MORNING POST
