Why Canada hopes China will boost its auto manufacturing industry

Canada’s decision to lower barriers to Chinese electric vehicles is part of a larger pivot away from dependence on the United States.

The Canadian government aims to develop joint projects with Chinese and Korean companies and is trying to revive its industrial base with tax breaks at a time when it faces a tense relationship with the United States and a decades-long decline in the Canadian auto industry.

The country said in January it was allowing the import of 49,000 Chinese electric vehicles at a tariff rate of 6.1%, a significant decline from the 106% tariff imposed on them in October 2024. That represents about 3% of Canada’s total new vehicle market, and about 20% of the market for compact electric vehicles and plug-in hybrids, according to Dunsky Energy and Climate Advisors, a Canadian research and consulting firm.

In exchange for lifting the restrictions, China agreed to reduce tariffs on Canadian canola oil, one of Canada’s most important agricultural exports.

The deal aims for at least 50% of these imported Chinese electric cars to be affordable models within five years, or a car with an import price of less than $35,000 CAD – just under $26,000 US.

“If those upcoming vehicles are specifically affordable models, that could have a big impact,” said Jeff Turner, director of clean mobility at Donsky. “But I think if we look at 2030, we expect the EV market to grow significantly. Forty-nine thousand vehicles is a very 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, create job opportunities in manufacturing, and build the country’s supply chain. According to a press release.

The Canadian government has taken several steps to try to boost the auto industry, including signing a memorandum of understanding with Korea on clean vehicle manufacturing and launching a new auto strategy.

The United States has historically been subordinate to Canada Biggest business partner. In contrast, Canada was the second largest country in the United States. But as of February, the United States imposed a 25% tariff on non-US content of cars assembled in Canada. Effectively, this creates a tariff of 10% to 12% per car, according to multiple sources.

The tariffs disrupted a tightly integrated auto 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. Henry Ford built a factory in what is now Windsor, Ontario, in 1904, the year after its founding. ford motorGreg Murdo, a professor at McMaster University, said: I(Hamilton, Ontario).

But over time, its share in Canadian manufacturing declined. Today, they make up only about 23% of Canadian production, suppliers said. Japanese makers Toyota and Honda It constitutes 77%.

This decline has accelerated since the imposition of tariffs.

Detroit automakers have made several production cuts at plants in Ontario: Stellantis It put its plant in Brampton on “operational halt” in December and GM Ingersoll has canceled production of its BrightDrop electric commercial trucks factory in 2025 and canceled a shift at its Oshawa plant 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, suppliers said.

“There have been very frequent reminders in the Canadian media that these auto sector jobs are already being affected by some of the uncertainty that we are getting from south of the border,” Turner said. “So I think in that context, it’s natural to see politicians looking to diversify those relationships.”