American Carmakers Are Leaving. Bring on the Chinese EVs.
Just days after Donald Trump yet again called the Canada-United States-Mexico Agreement “irrelevant,” Prime Minister Mark Carney brokered a deal with Chinese President Xi Jinping to allow 49,000 Chinese electric vehicles into Canada at a 6.1 per cent tariff rate, down from 100 per cent. The deal was made on the condition that China would drop the bulk of its tariffs against Canada, including temporarily reducing the levy on canola seeds from a prohibitive 84 per cent to 15 per cent, and eliminating all tariffs on lobsters, crabs and peas. It’s a bold de-escalation in a decade of geopolitical tensions with China. That’s a good thing. The new deal will increase affordability for Canadians and provide relief for our Atlantic fisheries and Western farmers at a time when our economic model is under attack.
While many welcomed the massive tariff reductions on Canadian exports, those in Ontario’s automotive sector, as well as Premier Doug Ford, say the deal will undermine Canada’s struggling auto-manufacturing industry. Critics of the deal are concerned that China could eventually flood the Canadian market with cheaply made EVs, squashing the market for, and production of, Canadian-made vehicles. Others worry Trump will take offence and turn sour in his trade discussions with Canada, potentially pulling the U.S. out of CUSMA. Some think the Chinese cars are going to spy on us. But given the state of Canada’s auto sector and the increasingly toxic relationship we tolerate with the U.S., we have more to gain from this deal than we have to lose.
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Let’s start with the supposed market threat. The 49,000 Chinese EVs bound for Canadian showrooms make up roughly 2.6 per cent of our total market—barely a dent. For context, Canada sells just shy of two million cars per year, the vast majority of which are not EVs; Canada only sold 264,277 EVs in 2024. And those cars are around $2,500 more expensive than gas cars at $67,000. In China, where labour costs are lower and the production process is more efficient, EVs are much more affordable. Under the new deal, 50 per cent of the incoming Chinese EVs will be priced under $35,000, providing more budget-friendly options for Canadians, getting more green vehicles on the road and hopefully boosting incentives for Canadian EV-makers to innovate, reduce their prices and stay competitive.
Some seem to think that China will use the deal as an opportunity to create a foothold in the Canadian auto market and then blow our sector away. But, ultimately, we control how many cars we let in. Plus, Carney has hinted the Chinese don’t just want to export endless batches of EVs; they’re also planning to invest in Canadian car manufacturing, just like other Asian car companies that have set up shop here. Take Honda and Toyota, for example, which have produced vehicles in Alliston and Cambridge, Ontario, since the late ’80s. If Chinese car companies did the same, they would create much-needed jobs in the skilled trades and bring their advanced modular car-manufacturing technology to Canada, all while improving prices amid an affordability crisis. As of now, one of the largest EV manufacturers in China, BYD, is doing this in 16 other countries, including Hungary, Brazil and Mexico. One BYD plant set to open in Brazil later this year is projected to create 20,000 jobs in the region, directly and indirectly, and should pump out 150,000 EVs per year.
Looking beyond the U.S. for auto partnerships is more important than ever as Trump doubles down on the one thing he’s been consistent on since the ’80s: repatriating all automobile production. He wants the Big Three (Ford, GM and Stellantis) to pull out of Canada and consolidate operations in the U.S., and he’s using aggressive tariffs to get them to do it. Just this October, Stellantis went back on its plans to produce the Jeep Compass at the Brampton Assembly Plant, opting to move production to Illinois instead to avoid tariffs.
More importantly, Canada’s auto industry has been navigating a long decline that began well before Trump. Between 1999 and 2024, car production fell from 3 million to 1.3 million vehicles per year, largely due to Big Three plant closures in Ontario following the rise of Mexico as a low-cost competitor and the strengthening of the loonie in the mid-2000s. These changes made Canada a less competitive production partner, and the result has been a decades-long shrinkage of Canada’s car manufacturing footprint.
Now, I’m not saying, “Let’s finish the industry off.” Rather the opposite; I’m saying we should protect our skilled workers and economy by diversifying our trade partners, even if that means welcoming more foreign companies. A country, any country, cannot remain wealthy without large and diverse manufacturing industries. This is exactly what Carney is doing: re-industrializing the economy by pressing ahead with infrastructure projects and attracting foreign investment in manufacturing. This is key at a time when our largest trading partner is tearing up what’s left of the Auto Pact, weaponizing our economic integration and withdrawing from the global economic order that it created in the aftermath of the Second World War.
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There’s no reason why China’s leading EV manufacturers could not produce in Ontario, integrate with and further develop the already-robust ecosystem of local parts suppliers, work with unions to make long-term investments and pay Canadian wages. On top of Brazil, Hungary and Mexico, Chinese EV manufacturers like Chery are doing this in Spain and throughout Southeast Asia. China generated over 70 per cent of global EV production in 2024. Plugging into this gigantic hub, especially with Chinese EV companies’ increasing tendency toward “local-for-local” production, not only hedges against risks from south of the border, but sets Canada up as a potential North American hub in the long term.
Another major concern surrounding the deal is that it could anger Trump. If he feels like Canada is pulling one over on him, it could encourage him to impose more tariffs or leave CUSMA, which Canada’s auto sector heavily relies on. The agreement is up for mandatory review in July, and many in the auto sector don’t want to jeopardize the outcome. But, at least for the moment, Trump himself doesn’t seem to care about Carney and Xi’s deal. “It’s OK. That’s what [Carney] 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,” he told reporters at the White House Friday. And, well, I agree.
Even if we take Carney’s deal with China out of the equation, Trump has expressed no plans to relent in his attacks on Canadian auto manufacturing. He sees himself as America’s Captain Ahab, and he’s going to slay the white whale that is globalism. Under successive Republican and Democratic administrations between 1981 to 2008, the U.S. mostly traded its factories to China and other countries instead of its products. This benefited the few at the expense of the many, favouring the stock market over the country as a whole. It also led to a chronic pattern of large trade deficits. The resulting deindustrialization of the Rust Belt states—which are also swing states—and the disenfranchisement of tens of millions of Americans led directly to Trump and Trumpism. These are powerful, long-term dynamics. And, in view of them, Canada can no longer depend on the United States to have our best interests in mind where trade is concerned.
Regardless, it’s always a good idea to diversify your export markets. Who’s to say who will succeed Trump and what their approach to trade will be? Of course, just how fruitful the agreement with China will be for Canadians will depend on Carney’s negotiating skills, but the stage has been set. We now have the political and diplomatic foundations for China to potentially lift its tariffs indefinitely and commit to producing its vehicles on Canadian soil.
As for the potential for China to use its EVs as Trojan horse spy cars, this doesn’t seem like a legitimate concern. Around 80 per cent of iPhones are assembled in China, but we use and store data on those every day without worry. Not to mention that China has its own space station. If the superpower wants to spy on us, it seems unlikely they would need cars to make it happen.
Beyond EVs, this deal is a huge step in the right direction for the one in five Canadians working jobs directly tied to exports, which also makes up roughly one third of Canada’s GDP. Canola farmers, lobster fishers and other hard-working Canadians across the country can sleep better knowing we have increased trade certainty. The 49,000 affordable EVs heading for Canada, and the potential they hold for the future of the automotive manufacturing industry, are just a bonus.
Julian Karaguesian is a former special adviser to the Department of Finance. He currently lectures on economics at McGill University.