Will more Chinese EVs be a ‘self-inflicted wound’ for Canada’s auto sector?

An influx of Chinese-made electric vehicles in the Canadian market will be a “self-inflicted wound” to an already struggling auto sector and will have “real implications,” experts warn.

This comes after an announcement Friday morning that 49,000 Chinese-made electric vehicles (EVs) will soon be imported each year with a lowered 6.1 per cent tariff after Prime Minister Mark Carney struck a deal with China’s President Xi Jinping on Friday.

“Canada is right to re-engage with the world’s second-largest market, but expanded access —particularly around EVs and advanced technology — raises real implications for Canadian manufacturers, cybersecurity, and our CUSMA commitments,” said Matthew Holmes, executive vice-president and chief of public policy at the Canadian Chamber of Commerce, in a written statement.

“Any renewed partnership must be built on clear, enforceable rules that both sides are prepared to follow.”

The reduced tariff rate of 6.1 per cent is down from 100 per cent tariffs on Chinese EVs put in place in 2024.

“This is a self-inflicted wound to an already injured Canadian auto industry,” said Unifor national president Lana Payne. “Providing a foothold to cheap Chinese EVs, backed by massive state subsidies, overproduction and designed to expand market share through exports, puts Canadian auto jobs at risk while rewarding labour violations and unfair trade practices.”

Canada’s tariffs on China’s EVs were originally intended to protect the Canadian auto industry and national security. The policy mirrored those put in place in the United States by the Biden administration and the European Union.

As part of the deal, Beijing says by March 1 it will drop its tariffs on Canadian canola seed imports to 15 per cent from 84 per cent, and pause “anti-discrimination” tariffs until at least the end of the year for Canadian canola meal, lobsters, crabs and peas.

The new tariff rate for China-made EVs should make them a more affordable option for consumers, but the 49,000-unit figure may not move the needle much in Canada’s market.

“If we look at 49,000 EVs that are going to be potentially available to be imported into Canada at a 6.1 per cent tariff rather than the 100 per cent tariff, which basically made them almost a non-starter —that’s a pretty small number in the context of overall vehicle sales,” says Erik Johnson, a senior economist and vice-president of BMO Capital Markets.

“We sell about two million vehicles in Canada every year, so about two and a half per cent is probably not going to move the needle very much on the aggregate market. But it is going to represent a bigger slice of that EV component.”

Although fully-electric vehicles are still a small minority of the total vehicles sold, this new addition from China every year would make up a much larger portion of that category.

In a post on X Friday morning, Ontario Premier Doug Ford called the deal “lopsided” and warned it risks closing the door to the U.S. market for Canadian automakers — and job losses.

Ford also called for the federal government to support Ontario’s auto sector by ending the EV sales mandate, which is currently paused, and scrapping federal fees.

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Conservative labour critic Kyle Seeback said he has concerns about what the deal will mean for auto workers and also about whether China can be trusted to keep its word.

“China has a history of not being a reliable trading partner. So it’s always dangerous when you make these kinds of deals with China,” he told Global News.

“Canadians should ask themselves: how do we end up in this position where Canada has to choose between benefiting Canadian canola farmers and punishing Canadian auto workers? It seems to me like this is a pretty great failure of the government that we end up in this actual position.”

Johnson says the risks to Canada’s automotive production industry from bringing in these vehicles from China in the short-term pale in comparison to what U.S. tariffs have been doing, but longer term is where the risk increases.

“Domestic production is probably not going to matter nearly as much in the context of what Canadian production looks like if we compare it to the effects of what U.S. tariffs on the auto industry have already done to the Canadian domestic vehicle production landscape,” says Johnson.

“In the near term, there’s not much domestic competition in the production space for [EVs], so not much to really crowd out. But certainly, yeah, medium to longer term, if this is something that’s coming into the market in larger numbers, and 49,000 is just the starting point here.”

— With a file from The Canadian Press.