Why Canada hopes China will boost is auto manufacturing industry

Canada's decision to reduce barriers for Chinese electric vehicles is one piece of a larger pivot away from a reliance on the United States. 

The Canadian government is aiming to develop joint ventures with Chinese and Korean firms and trying to revive its manufacturing base with tax breaks as it faces a strained relationship with the United States and a decades-long decline of Canadian auto manufacturing. 

The country said in January it's allowing the importation of 49,000 Chinese EVs at a tariff rate of 6.1%, a dramatic walk-back of the 106% duty placed on them in October 2024. That would be about 3% of Canada's total new car market, and about 20% of its combined battery EV and plug-in hybrid market, according to Dunsky Energy and Climate Advisors, a Canadian research and advisory firm.

In exchange for lifting restrictions, China has agreed to reduce tariffs on Canadian canola oil, one of Canada's top agricultural exports. 

The deal aims for at least 50% of these imported Chinese EVs to be affordable models within five years, or a vehicle with an import price of less than 35,000 Canadian dollars — just under US$26,000. 

"If those vehicles that are coming in are specifically more affordable models, that could have a significant impact," said Jeff Turner, director of clean mobility at Dunsky. "But I think if we look out as far as 2030, we're expecting the EV market to grow significantly. Forty-nine thousand vehicles is a pretty small number compared to where we expect the EV market to be in just a few years."

The agreement also aims to establish Chinese-Canadian joint ventures in Canada, generate manufacturing jobs and build out the country's supply chain, according to a press release.

The Canadian government has been taking several steps to try to boost automotive manufacturing, including signing a memorandum of understanding with Korea on clean vehicle manufacturing and releasing a new automotive strategy.

The United States has historically been Canada's largest trading partner. In turn, Canada has been the U.S.'s second largest. But as of February, the U.S. had a 25% tariff on the non-U.S. content of cars assembled in Canada. Effectively, this works out to a 10% to 12% tariff per car, according to multiple sources. 

The tariffs have disrupted a tightly integrated automotive supply chain between Canada, the U.S. and Mexico. 

Detroit automakers have had a presence in Canada since the earliest days of the Detroit auto industry. Henry Ford built a factory in what is now Windsor, Ontario, in 1904— the year after he founded Ford Motor, said Greig Mordue, a professor at McMaster University in Hamilton, Ontario.

But over time, their share of Canadian manufacturing has declined. Today they make up only about 23% of Canadian production, Mordue said. Japanese makers Toyota and Honda make up 77%. 

This decline has hastened since the tariffs. 

Detroit automakers have made several production cuts at factories in Ontario: Stellantis placed its Brampton factory on "operational pause" in December and General Motors canceled production of its BrightDrop electric commercial vans at its Ingersoll factory in 2025 and eliminated a shift at its Oshawa factory in late January. 

The flight of Detroit automakers has coincided with an overall decline in Canadian auto production, from about 3 million vehicles in 2000 to 1.3 million in 2025, Mordue said.

"There's been pretty frequent reminders in Canadian media that these auto sector jobs are really being impacted by some of the uncertainty that we're getting from south of the border," Turner said. "So I think in that context, it's pretty natural to see politicians looking to diversify those relationships."

The head of the Canadian Vehicle Manufacturers' Association, a trade group that represents Detroit automakers GM, Ford and Stellantis in the country, called the deal with China a "vehicle-sized irritant" on the upcoming trade talks with the U.S. The countries are scheduled to undergo a review of the United States-Mexico-Canada trade agreement, or USMCA, by July 1.

CVMA President and CEO Brian Kingston said he has concerns with Chinese vehicles, since China subsidizes its automakers, making competition harder, and there could be security threats through the hardware and software embedded in its products. He noted that Mexico took the opposite approach and increased its tariffs on Chinese vehicles to 50%. 

"So as we go into these talks, our other partner, our other North American partner, is putting more protections on China and we're going the opposite direction," Kingston said.

It is unclear if a Chinese company would want to build a manufacturing presence in Canada or if that would even be profitable.

Canada also has a somewhat difficult case to make in attracting manufacturing investment when compared with its two other North American neighbors, Mordue said. Mexico offers the lowest cost manufacturing, and the U.S. is the main market, now with steep trade barriers incentivizing automakers to build within its borders. 

"The leap from 'we're going to sell a few Chinese vehicles in Canada' to 'we're going to make a full scale assembly plant at volume' is a large one," Mordue said. "But not doing anything has resulted in that list of assembly plants that have disappeared over the past 12 months."

CVMA's Kingston said the country has the resources it needs to compete with China in the electric vehicle market — including critical minerals needed for a next-generation EV and ample zero-emission electricity from hydro-electric and nuclear power plants.

"We have these massive deposits of minerals, many of which countries now depend on China for access to," he said. "So if we can get to a point where we are mining and processing these minerals in Canada using clean electricity and ultimately building this integrated supply chain with the U.S., we have a lot to offer to not just the United States, but any Western partners that are trying to reduce dependency on China."