Canada and China reach tariff deal on EVs sparking fears it will derail trade talks with U.S.

Prime Minister Mark Carney said it simply returns to a rate that Canada once had with China in 2023 prior to its “recent trade frictions.”

He underscored Chinese manufacturers — who churn out electric cars far more cheaply than North American-made EVs — will invest in auto production in Canada.

“It is expected that within three years, this agreement will drive considerable Chinese investment into Canada’s auto-sector,” Carney said, help create good jobs and advance Canada’s net-zero goals. “It’s also anticipated that within five years, more than 50 per cent of these vehicles will be affordable EVs with an import price of less than $35,000,” he added.

Carney said that for Canada to build its own competitive EV sector, “we will need to learn from innovative partners, access their supply chains, and increase local demand.”

In return, China agreed that by March 1 it would reduce tariffs on Canadian canola seed to 15 per cent, down from about 84 per cent. And it will drop retaliatory tariffs on canola meal, lobster and crab starting March 1 until at least the end of this year.

China will also allow visa-free travel for Canadians travelling to China, Carney announced.

A Chinese readout of the agreement did not specifically mention tariffs on EVs, canola or seafood, but said simply that the two countries agreed to address “economic and trade issues of mutual concern through constructive consultation.”

Carney said in renewing a strategic partnership with China, his government set an ambitious goal to increase exports to China by 50 per cent by 2030.

Carney reached the agreement Friday with Chinese President Xi Jinping, capping an intensive six weeks of talks that went down to the wire before they met.

The negotiations kicked off when the two first met in Korea in November.

The move represents a walk back by Ottawa in order to win a concession from China on retaliatory counter-tariffs that were hurting Canadian agrifood producers, particularly canola oil exporters.

Canadian carmakers have warned Carney any softening in China will trigger Trump to further punish Canadian-made auto exports into the U.S. market.

Canadian autos currently have tariff exemption from U.S. tariffs if the cars comply with CUSMA, and meet the 75 per cent North American content provisions, with a requirement that half or 50 per cent of the car have made-in-America made parts.

As negotiations between Canada, U.S. and Mexico on the renewal of the trilateral free trade pact are set to begin, it is possible Trump — who has warned against giving the heavily-subsidized Chinese EV industry a foothold in North America — might retaliate.

Trump expressed once again in recent days ambivalence about renewing the free trade deal, saying America doesn’t need anything from Canada.

Carney said he intends to explain to the U.S. that the move amounts to granting Chinese EV manufacturers less than three per cent of the size of the auto market in Canada, will bring more affordable cars into reach of consumers, and will build a “new part of our car industry.”

Canadians buy 1.8 million cars a year, he said, and the deal allows EV imports to grow to about 70,000 vehicles at year five, and will be reviewed after year three, he said.

Talks went down to the wire Thursday night before Carney and Xi sat down for a high-stakes meeting Friday, Beijing time.

As he left for the Great Hall of the People, the Star asked Carney if he had reached a deal. “Have we got a deal? You’ll find out.”

Carney added he was “positive, always positive,” as he headed to the meeting.

Canadian carmakers had warned ahead of this trip that Carney was taking a “dangerous” risk in giving the Chinese EV sector an entry into the Canadian market.

In the fall of 2024, Canada matched U.S. tariffs against Chinese imports, imposing 100 per cent tariffs on Chinese electric vehicles, and 25 per cent tariffs on Chinese steel and aluminum imports.

When the EV tariffs on China were announced at a cabinet retreat in August 2024, the Trudeau government made clear it was moving in lockstep with the Americans against Chinese “overcapacity.”

China later responded with its own counter-tariffs on Canadian canola oil and seafood.

Prairie premiers like Saskatchewan’s Scott Moe, who joined Carney in China but declined to talk to Canadian reporters when he accompanied Carney to a meeting with Premier Li Qiang, demanded Ottawa try to ease the agricultural tariffs.

Brian Kingston, head of the Canadian Vehicle Manufacturers’ Association, said last week dropping EV tariffs would be “incomprehensible” and could trigger a backlash from the U.S. at a critical time for the renewal of the Canada-U.S.-Mexico trade deal.

Mexico matched American and Canadian tariffs on Chinese electric cars “because they realize that this is critical if we’re going to have a protected North American integrated automotive industry,” he said. The economics just aren’t there, he added.

“There is no fair competition with the Chinese automotive industry. They massively subsidized this sector and they are now dumping vehicles around the world. Europe was soft on China. Look at what the outcome has been: 90,000 auto jobs lost last year because they’ve allowed dumped Chinese vehicles into their market,” said Kingston.

“At a time when we’re fighting for this industry in Canada, allowing these vehicles in would be an economic catastrophe,” he said, pointing to national security considerations as well. The U.S. identified a “real cybersecurity risk associated with Chinese connected and electric vehicles” which led Washington to ban “Chinese-connected vehicle software,” and Canada “would and should have the same concerns,” he said.

The night before Canadian and Chinese negotiators were working out what an insider said Friday morning was one key sticking point.

Two Canadian sources, speaking on condition they not be named, said it all came down to the leaders’ discussion.

“We’re 98 per cent there,” said one, just three hours before the leaders met at the Great Hall of the People.

The two leaders praised the newfound co-operation in relations and Carney said Canada is renewing a strategic partnership with China.

Xi said his first meeting with Carney in November in Korea marked “a turnaround in the Canada-China relationship and placed it on the upward trajectory” and said he is “heartened” by the progress they had made in improving bilateral relations.

Xi said, according to the official translator that “a healthy and stable China-Canada relationship is in interest of our two countries and serves the peace and stability of the world.”

Carney in turn said he is “extremely pleased that we are moving ahead with our new strategic partnership” that the prime minister predicted will not only deepen bilateral ties “but will also in my judgment help improve the multilateral system, a system that has recently come under great strain.”

Carney underlined a number of agreements signed here that would bring “immediate” and sustained “progress” in agriculture, energy, and finance.

“Together, we can build on the best of what this relationship has been in the past to create a new one adapted to new global realities that will deliver greater stability, security, and prosperity to our peoples on both sides of the Pacific,” Carney said.

The niceties echoed a consistent message heard throughout the past two days.

Even before any decision on the tit-for-tat tariff dispute was nailed, the Canadian team was pleased by Xi’s hosting of an official luncheon in the lush Golden Hall – a gesture not always extended to past prime ministers or other foreign leaders.

When Trump entered office last year wielding global tariffs as a weapon, and first targeted China, Canada and Mexico first in his so-called border war on fentanyl before turning his sights on the world it was clear a new chaotic era in global trade was unfolding.

Trump slapped “reciprocal” tariffs on all U.S. trading allies he viewed as being unfair to U.S. exports.

Mexico followed suit and slapped tariff increases this month on imports from China and other countries which don’t have a free trade agreement with Mexico, with a 50 per cent rate applied to vehicles from China and certain other Asian nations.