Canada's deal for Chinese EVs threatens trade with U.S., automakers warn

Brian Kingston, head of the Canadian Vehicle Manufacturers Association, said the Carney government’s ambition to squeeze Chinese EV manufacturers into expanding production here poses a risk to renewing the Canada-United States-Mexico Agreement (CUSMA) and to its bid to persuade Trump to drop punitive 50 per cent sectoral tariffs against Canadian autos.

“There is a disconnect between our strategy to successfully renew the CUSMA agreement” and to secure relief from the 50 per cent sectoral tariffs that hit steel, aluminum and autos, he said, because that “ultimately means working with the Americans on a joint approach to China” and not diverging from the U.S.

“The U.S. is extremely concerned with bringing Chinese vehicles and EVs into North America, and has been very clear about this,” Kingston said. Mexico reversed its policies on Chinese EVs as a result and imposed a 50 per cent tariff, while “Canada appears to be going the other direction, actively courting Chinese automakers into the Canadian market.

“That is incompatible with renewing our far more important trade relationship with the United States,” he said.

Joly wrapped up her trip Monday, telling Canadian reporters in a call from Japan that she had met with four Chinese companies — BYD, Chery, Geely and Shanghai Launch Automotive Technology — that all want a piece of the new Canadian import quota of 49,000 Chinese electric vehicles that will be permitted this year to enter at a low 6.1 per cent tariff rate, under a deal Prime Minister Mark Carney struck in Beijing in January.

Speaking to Trump last week at the G7 leaders’ summit, Carney stressed it was a “hard cap,” adding he thought Trump would “like that.” Trump later said about the deal, “I don’t know that I said I like it, but I could understand that. Would I rather see a cap than no cap? I would. On Canada.”

“The fact that the prime minister is having to explain this to the president signals that there is clearly concern coming from Washington, and at a time where we should be reducing as many irritants on the negotiating table, we’ve reintroduced one for no reason whatsoever,” said Kingston.

“There’s no economic benefit to attracting these companies to Canada and it puts at risk the five (automakers) we already have in this country.” 

Carney has said most of that import quota will be taken up by Teslas made in China and shipped to Canada. Joly said there a clear cap, but the deal does provide for a rising level of Chinese EVs, growing by five per cent a year to 73,000.

It has sparked a lot of interest in China, she said.

“All the different Chinese EVs automakers that I met are interested in having access to the 49,000 Chinese EVs quota,” said Joly, “and at the same time are willing to explore creating joint ventures in Canada in order to produce in Canada.” 

Joly would not address how Canada’s position will play out at the trade table.

She insisted the Carney government has put four conditions on any further expansion of Chinese EVs in Canada, and would require EV production in Canada under joint ventures that would be majority Canadian-owned, EVs to be built with Canadian parts and labour to current Canadian standards, with strict protections of Canadian data with secure software and privacy safeguards.

But Kingston said none of that makes business sense.

Chinese carmakers have “significant overcapacity. They can satisfy their domestic demand two to three times over. What they’re trying to do now is find markets abroad to export that extra capacity. The idea that they need more manufacturing plants (in Canada) is not realistic. The only reason they would build a plant outside of China is to somehow jump a tariff fall,” he said.

“Using a Canadian supply chain, Canadian labour, that does not align with the Chinese business model,” said Kingston, pointing to how Chinese car companies operate in Spain or Hungary, using “knock-down kits” — essentially assembling cars that are substantially manufactured in China and exported for assembly in a third country. 

Flavio Volpe, head of the Auto Parts Manufacturers Association, is equally skeptical that Chinese companies would agree to a majority Canadian-owned joint venture, and that there is even much interest among Canadian investors or auto parts manufacturers to partner with Chinese companies in a business environment because “they have no clear path to the U.S. market.”

Furthermore, partnering with Chinese companies could be seen as a competitive threat to current customers. “You’d be trading current business for future business,” he said.

However Joly is convinced the auto sector in Canada and worldwide is undergoing a shift to EVs that Canada cannot miss out on.

“My goal is to be able to work with these companies in order to…bring the best technologies, and at the same time support our autoworkers, which are an important part of our economy, and that are key to so many communities across the country,” Joly said.