Why Canada hopes China will boost its auto manufacturing industry
Canada’s decision to reduce barriers to Chinese electric vehicles is part of a shift away from dependence on the United States.
The Canadian government is aiming to develop joint ventures with Chinese and Korean firms and is trying to revive its manufacturing base with tax cuts amid tense relations with the United States and a decades-long decline in Canadian auto production.
The country announced in January that it allowed imports of 49,000 Chinese EVs at a tariff rate of 6.1%; this was a dramatic rollback of the 106% tax imposed on them in October 2024. That would be about 3% of Canada’s total new car market and about 20% of the combined battery EV and plug-in hybrid market, according to Dunsky Energy and Climate 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 largest agricultural exports.
The agreement aims for at least 50 percent of these electric vehicles imported from China to be affordable models or a vehicle with an import price of less than C$35,000 (just under US$26,000) within five years.
“This could have a significant impact if the vehicles coming in are particularly more affordable models,” said Jeff Turner, Dunsky’s director of clean mobility. “But when we look out to 2030, we think the EV market will grow significantly. 49 thousand vehicles is a very small number compared to where we expect the EV market to be in just a few years.”
canadian production
The agreement also aims to establish Sino-Canadian joint ventures in Canada, create jobs in manufacturing and build the country’s supply chain. according to a press release.
The Canadian government is taking several steps to increase automotive production, including signing a memorandum of understanding with Korea on clean vehicle production and releasing a new automotive strategy.
The United States is historically Canada’s largest trading partner. In comparison, Canada became the second largest country in the United States. However, starting in February, the US was imposing a 25% tax on the non-US content of cars assembled in Canada. This effectively equates to a tariff of 10% to 12% per vehicle, according to multiple sources.
The tariffs disrupted the tightly integrated automotive supply chain between Canada, the United States and Mexico.
Detroit automakers have had a presence in Canada since the early days of the Detroit auto industry. In 1904, a year after its founding, Henry Ford established a factory in what is now Windsor, Ontario. Ford MotorMcMaster University professor Greig Mordue said: IHamilton, Ontario.
However, over time, their share of Canadian production decreased. Today, they account for just 23% of Canadian production, Mordue said. japanese producers toyota And honda It makes up 77%.
This decline has accelerated since the tariffs.
Detroit automakers have made several production cuts at factories in Ontario: Stellantis It placed its Brampton plant on “operational pause” in December and General Engines In 2025, Ingersoll canceled production of BrightDrop electric commercial vans at its plant and eliminated shifts at its Oshawa plant in late January.
The flight of Detroit automakers coincides with an overall decline in Canadian auto production, from about 3 million vehicles in 2000 to 1.3 million in 2025, Mordue said.
“There are pretty frequent reminders in the Canadian media that jobs in the auto industry are really being impacted by some of the uncertainty coming from south of the border,” Turner said. “So I think it’s quite natural in that context for politicians to try to diversify those relationships.”
headwinds
The president of the Canadian Association of Vehicle Manufacturers, a trade group representing Detroit automakers GM, Ford and Stellantis in the country, called the agreement with China “disturbing on a vehicle scale” for trade talks with the United States. The countries are scheduled to review the United States-Mexico-Canada trade agreement (USMCA) by July 1.
CVMA President and CEO Brian Kingston said he has concerns about Chinese vehicles because China subsidizes automakers, makes competition difficult, and could pose security threats due to the hardware and software built into its products. He noted that Mexico has taken the opposite approach and increased tariffs on Chinese vehicles to 50%.
“So as we continue these discussions, our other partner, our other North American partner, is providing more protection to China, and we’re going in the opposite direction,” Kingston said.
It is unclear whether a Chinese company would want to establish a manufacturing presence in Canada or whether it would be profitable.
Canada also has a bit of a hard time attracting manufacturing investment compared to its other two North American neighbors, Mordue said. Mexico offers the lowest-cost manufacturing, and the United States is now the main market, with steep trade barriers encouraging automakers to build within its borders.
“Going from ‘we’re going to sell a few Chinese vehicles in Canada’ to ‘we’re going to build a full-scale assembly plant’ is a big leap,” Mordue said. “But doing nothing has resulted in the list of assembly plants disappearing over the last 12 months.”
CVMA’s Kingston said the country has the resources it needs to compete with China in the electric vehicle market; these include critical minerals needed for the next generation of EVs and abundant zero-emission electricity from hydroelectric and nuclear power plants.
“We have huge mineral deposits that many countries now depend on China to access,” he said. “So if we can get to the point where we are mining and processing these minerals in Canada using clean electricity and eventually creating an integrated supply chain with the U.S., we have a lot to offer not only the U.S. but also our Western partners who are trying to reduce dependence on China.”
