Canada has agreed to sharply roll back its 100 percent tariff on Chinese electric vehicles, striking a trade-off that signals a broader reset in its relationship with Beijing and a notable divergence from Washington. But its impact will be felt well beyond Canada’s borders. After two days of high-level meetings in China, Prime Minister Mark Carney said that Ottawa would allow a limited, but steadily growing, number of Chinese-made electric vehicles into the Canadian market in exchange for substantial tariff relief on Canadian agricultural exports after years of strained relations. “We are forging a new strategic partnership that builds on the best of our past, reflects the world as it is today, and benefits the people of both our nations,” Carney said.
The move comes even as Mexico initiated tariffs of up to 50 percent on Chinese cars and auto parts starting January 1 to defend its domestic industry from subsidized, low-priced Chinese imports.
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Under the arrangement, Canada will slash its tariff, currently 100%, to 6.1%, and allow Chinese electric vehicle imports of 49,000 units, rising to 70,000 over five years. Half of the annual quota is slotted for EVs costing less than CA$35,000. Beijing will also make a “considerable investment” in Canada’s auto sector over the next three years, Mr. Carney said. In return, China will slash its tariff on canola seed, one of Canada’s most important agricultural exports, from roughly 84 percent to about 15 percent. The agreement reflects a pragmatic calculus on both sides. Canada gains renewed access to a crucial export market for its farmers, while China secures a foothold in North America for its fast-growing electric vehicle industry. It also sets Ottawa apart from Washington, which has aggressively blocked Chinese EVs with steep tariffs and other trade barriers.
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China currently accounts for roughly 70 percent of global electric vehicle production, and its vehicles are among the most affordable and energy-efficient in the world. Allowing Chinese EVs back into Canada is expected to lower prices for consumers and accelerate adoption, creating new dynamics for major players including Tesla, Volvo, Polestar and Lotus, while presenting challenges for General Motors.
Lotus Technology, the British sports car maker majority-owned by Geely, projects an even more dramatic impact. The company said the CA$313,500 price of its Wuhan-produced Eletre SUV will drop by roughly 50 percent as a result of Canada’s reduced tariffs. Lotus expects the change to have an immediate and meaningful effect on demand, with wholesale deliveries of the Eletre projected to see “exponential growth” as the tariff benefits flow through.
With established brand recognition, regulatory familiarity, and dealer networks in Canada, Geely-controlled brands Volvo and Polestar are well positioned to reintroduce Chinese-produced vehicles to the market. Both companies had paused imports of Chinese-built models, including the Volvo EX30 and Polestar 2, after the 2024 tariffs were imposed. The new agreement restores the profitability of these imports.
Tesla appears particularly well positioned. In 2023, Tesla imported more than 44,000 EVs into Canada from China, the last full year before Canada’s 100 percent tariff imposed in 2024 forced the company to pivot supply to its U.S. and Berlin factories, according to a Reuters report. Even as the deal is framed as opening the door to Chinese automakers, Tesla already produces a substantial number of vehicles in China. In 2023, the company had configured its Shanghai Gigafactory to produce a Canada-specific Model Y, driving a 460 percent year-over-year surge in China-built auto imports through Vancouver. With tariffs now sharply reduced, Tesla could resume exports from China to Canada, regaining a first-mover advantage in a market hungry for more affordable EVs.
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And Reuters reports that Volkswagen is looking to export cars developed and manufactured in China, in an effort to compete with the Chinese in foreign markets.
By contrast, General Motors is unlikely to benefit from the new framework. The company’s Chinese-market Wuling and Baojun brand EVs are engineered for cost-sensitive consumers in China and do not meet North American safety or regulatory standards, requiring extensive redesign before they could be sold in Canada, making near-term market entry impractical. Unlike Lotus, Volvo, Polestar, or Tesla, GM cannot quickly leverage the deal to expand its presence in Canada’s growing EV market.
Other legacy automakers with plants in Ontario, including Ford, Honda, Toyota and Stellantis, could be undercut by Chinese-government-subsidized Chinese imports. It also could lead to U.S. market access for Canadian-built Chinese vehicles, although that remains to be seen.
The Canada-China trade deal represents a significant trade recalibration, one that underscores the shifting dynamics of global commerce in an era of fractured alliances and unpredictable tariffs. Canada hopes the deal encourages Chinese manufacturers to invest in local production, creating jobs and building a stronger Canadian EV supply chain using Canadian critical minerals.
But since the deal provides Chinese EV manufacturers with a much-needed gateway into the Canadian market previously blocked by high tariffs, it will also increase the challenge faced by Western EV makers by introducing lower-priced Chinese models, accelerating Chinese EV adoption in Canada. The net result is the U.S. triggering a self-inflicted wound, as another foreign market in danger of becoming dominated by China.
This story was originally published by Autoblog on Jan 23, 2026, where it first appeared in the News section. Add Autoblog as a Preferred Source by clicking here.
