How Trump’s Trade War Built a Canadian On-Ramp for Chinese EVs

Electric vehicles (EVs) in the U.S. Are facing headwinds. Sales have slowed following the expiration of federal tax credits, and ambitious plans to build out a national charging network have stalled [1]. Ford and GM have scaled back their EV ambitions, although Tesla is increasingly focused on robotaxis and robotics rather than expanding EV production for broader consumer access. Simultaneously, the Trump administration is dismantling regulatory support for EVs, even challenging the endangerment finding that grants the EPA authority to regulate greenhouse gas emissions.

Despite these challenges, the case for electric vehicles remains strong. EV success doesn’t solely depend on policy support, and U.S. Leadership isn’t essential for the transition. Allowing Chinese EVs, the world’s most popular, to compete directly in the U.S. Market could revitalize the sector. A recent trade deal between Canada and China is a significant development, not just for Canada, but for the U.S. And the global climate.

What Happened?

In January, Canadian Prime Minister Mark Carney met with Chinese President Xi Jinping in Beijing to announce a trade agreement. Canada will now permit the import of up to 49,000 Chinese electric vehicles annually, subject to a 6.1% tariff – a reduction from the 100% tariff imposed fifteen months prior [1]. This 100% tariff mirrored the U.S. Tariff on Chinese EVs, initially implemented under the Biden administration. The quota will increase to 70,000 vehicles per year within five years, with at least half priced under C$35,000, ensuring affordability.

This move was largely prompted by the Trump administration’s confrontational approach towards Canada, forcing Carney to pursue diversification strategies. This represents a “tariff boomerang”—Trump’s pressure on Canada inadvertently opened the door to Chinese EVs on the North American market.

The State of Play

The rationale for allowing Chinese EVs into North America is straightforward: they are high-quality and affordable. In 2025, BYD surpassed Tesla as the world’s largest EV manufacturer, selling 2.26 million vehicles compared to Tesla’s 1.64 million (including hybrids) [3]. In Europe, Tesla registrations fell 40% year-over-year in July 2025, while BYD’s surged 225%. Tesla has even fallen out of the top 10 EV sellers in China itself. China currently controls approximately 70% of global EV production and 69% of the global EV battery market, with six of the top ten global EV brands originating from China.

Chinese automakers are increasingly focused on international expansion as the domestic EV market nears saturation. Electric vehicles now account for nearly 60% of latest car sales in China, and government subsidies were halved at the beginning of the year. Concerns about limited growth and margin compression have led to a roughly 40% decline in BYD’s stock price from its peak, prompting Chinese companies to invest more in overseas supply chains. Canada’s opening provides a timely opportunity.

From Imports to Domestic Production

Historical precedent suggests that import quotas can pave the way for domestic production. In 1981, when President Reagan capped Japanese auto imports at 1.68 million vehicles annually, Japanese automakers responded by establishing manufacturing facilities in the U.S.—Honda in Ohio, Nissan in Tennessee, and Toyota in Kentucky—integrating themselves into the North American automotive industry.

Canada appears open to this path. The initial 49,000-vehicle deal represents a small fraction of Canada’s annual vehicle sales of 1.7 million. However, the Canadian government has indicated that imports are just the first step, anticipating “joint-venture investment” within three years. BYD already operates a bus assembly plant in Newmarket, Ontario, since 2019, and is registered with Transport Canada to import passenger vehicles. Carney has further emphasized the investment potential at an auto-parts plant in Woodbridge, Ontario, framing the China partnership as a long-term industrial strategy.

The Boomerang Effect

The Canada-China deal could significantly impact the EV transition in the U.S. Chinese brands are likely to succeed in Canada, building experience navigating regulatory and safety standards. A thawing of U.S.-Canada relations could facilitate the expansion of Canadian-based Chinese investments into the U.S. Market.

However, several factors could hinder this outcome. Chinese EVs are already available in Mexico, so proximity alone isn’t sufficient. Chinese automakers must believe that investing in Canada will lead to U.S. Market access. The current USMCA agreement requires roughly 75% of a product’s components to originate within North America to qualify for duty-free status, necessitating a substantial North American supply chain. U.S. Regulations concerning internet-connected vehicles, prohibiting certain China-linked software and hardware, could present a barrier.

Security concerns surrounding data collected by connected vehicles are legitimate, but the solution lies in technology and regulation, not outright trade bans. Canada, with its closely aligned data and safety standards, could serve as a regulatory testbed for frameworks that would enable future U.S. Market access.

Alternatively, Chinese automakers might bypass Canada and enter the U.S. Market directly. President Trump has expressed openness to Chinese investment in U.S. Manufacturing, and brands like BYD and Geely (owner of Polestar and Volvo) already have a presence in North America.

Should We Welcome Chinese EVs?

Beyond climate benefits, Chinese EVs could address affordability concerns in the U.S. Market. The average new car price in the U.S. Is around $50,000, while the average Chinese EV export costs just $19,000. BYD offers a fully electric crossover SUV priced at $14,000, a price point that could transform the U.S. EV landscape.