Canada's Prime Minister Mark Carney is implementing a new auto strategy designed to directly challenge Donald Trump's initiative to bring car manufacturing back to the United States. This plan aims to provide companies that assemble vehicles in Canada with enhanced access to the Canadian market, thereby reducing the incentive for them to relocate due to potential U.S. tariffs.
Industry Minister Melanie Joly is slated to officially announce the comprehensive plan in February, though details are already emerging from government sources. The primary objective of this strategy is to halt the decline in the Canadian auto sector. Since the imposition of tariffs on imported cars by the Trump administration in April of the previous year, several manufacturing plants have ceased operations, leading to job losses.
Notable impacts include the closure of a General Motors plant in Ontario and Stellantis abandoning plans for a facility near Toronto, opting instead to build Jeeps in Illinois. Canada is keen to reverse this trend.
Opening Doors to Chinese Automakers Under Canadian Oversight
In a significant policy shift, Canada will permit Chinese auto companies to establish assembly operations within its borders for the first time. However, these companies will be required to adhere to specific Canadian regulations. "They'll need to team up with local firms and use Canadian-built software," a government official stated.
The same official, who requested anonymity, emphasized that national security considerations are integral to this agreement. "It's about having a secure platform that doesn't open up tech risks," the individual added, highlighting the potential involvement of companies like BlackBerry in ensuring technological security.
The new strategy extends beyond attracting manufacturing facilities to encompass the promotion of electric vehicles (EVs). It will feature mandates aimed at increasing EV sales and introduce new incentives for consumers. A key ambition is to reduce Canada's over-reliance on the U.S. market. "We've got free trade with Europe and Asia," the official commented. "We're not going to just sit here and beg for U.S. access."
Currently, five major automotive companies operate assembly plants in Canada: General Motors, Stellantis, Ford, Toyota, and Honda. However, the majority of vehicles produced at these Canadian facilities are exported to the United States, a situation Carney intends to alter.
Canada's domestic market saw the sale of 1.9 million new cars last year, a substantial number for a country with a population comparable to California. Many foreign automotive brands do not have manufacturing presence in Canada, with companies like Tesla, Nissan, and Kia serving the Canadian market from factories located in the U.S. or overseas.
Data from Statistics Canada indicates that since the commencement of the trade dispute initiated by the U.S., American car manufacturers have been experiencing a decrease in their market share within Canada. Conversely, plants in Mexico and South Korea have seen an increase in their share, which has contributed to the momentum behind this new policy direction.
Trade Agreement with China Includes Tariff Reductions and EV Quota Conditions
Prime Minister Mark Carney recently concluded a visit to Beijing, where he met with President Xi Jinping. The two leaders reached an agreement on a trade truce that will permit approximately 49,000 Chinese-manufactured electric vehicles to enter Canada annually, subject to a reduced tariff rate of 6%.
This tariff rate represents a significant reduction from the 100% surtax that was imposed on these vehicles in 2024. In exchange for this concession, China has agreed to reduce its tariffs on Canadian agricultural exports and facilitate visa-free travel for Canadian citizens.
During the same trip, Industry Minister Melanie Joly engaged in discussions with representatives from BYD, Chery, and the Canadian auto parts manufacturer Magna. These meetings culminated in a preliminary agreement whereby China will be allowed to export a specified number of EVs in the short term. Critically, these Chinese companies are expected to seriously consider making investments in Canada. "We'll check back in three years," the official stated. "If they don't follow through, the deal's off."
The agreement incorporates a price cap provision, stipulating that a portion of the EV quota must consist of vehicles priced at C$35,000 or less. This condition is particularly beneficial to Chinese brands, which are known for producing more affordable models. Canada also aims to increase the number of certified Chinese EV models available over time, diversifying its supply beyond reliance on manufacturers like Tesla to meet domestic demand.
While some in Washington were reportedly surprised by this development, former President Donald Trump expressed a pragmatic view. "That's OK, that's what he should be doing," Trump reportedly told reporters when questioned about the Carney-Xi agreement. "If you can get a deal with China you should do that."
Nevertheless, this agreement carries potential risks and could introduce friction as Canada, the United States, and Mexico prepare for a review of their trilateral trade agreement. The Canadian government has indicated that it briefed U.S. Trade Representative Jamieson Greer in advance to prevent any misunderstandings. The overarching objective remains to decrease Canada's dependence on the United States.