Why Canada hopes China will boost its 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: