Canada’s decision this month to give Chinese carmakers a toehold in the country’s car market may be an ominous development for US automakers that are already struggling to stay relevant outside North America.
General Motors and Ford Motor Co. — the two largest US-based car manufacturers — have been steadily losing customers in Asia, Europe and Latin America, as Chinese carmakers have gained ground. Now Canada plans to lower tariffs on a limited number of Chinese-made vehicles, potentially giving companies such as BYD, SAIC or Geely a small but significant presence on the United States’ northern border after already building a thriving business in Mexico and much of Latin America.
If they lose significant ground to Chinese companies in Canada, Mexico and other countries where they once dominated, GM and Ford could gradually become niche manufacturers, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. They will end up primarily making and selling large pickup trucks and SUVs favored by many Americans but that tend to sell less well in much of the rest of the world.
“There’s a real danger that the market for US carmakers is going to largely to be the US, and only that part of the US market that wants big SUVs and trucks,” Gordon said.
The number of Chinese vehicles eligible for low tariffs in Canada will be small — less than 3 per cent of the Canadian car market. Still, “it is very symbolic and significant to the industry,” said Lenny LaRocca, who leads the auto industry practice at consulting firm KPMG. The US automakers, he said, “are taking it very seriously.”
The deal with China, which was announced Jan. 16 in Beijing by Canadian Prime Minister Mark Carney, was the latest example of how President Donald Trump’s policies have disrupted the US auto industry. His hostile rhetoric toward Canada and 25 per cent tariffs on cars imported from Canada have devastated the Canadian auto industry, which is highly intertwined with US automakers and parts suppliers.
Last year, GM ended production of an electric van at a factory in Ingersoll, Ontario, after Republicans in Congress ended tax credits for buyers of electric vehicles, undercutting demand. GM is cutting a shift at a pickup factory in Oshawa, Ontario, at the end of this month. Stellantis abandoned a plan that had been subsidized by the Canadian government to produce a Jeep model at a factory in Brampton, Ontario, and moved production to Illinois.
Canada has had little choice but to move closer to China, said Mike Murphy, a veteran Republican political consultant and co-founder of EVs for All America, an organization that promotes electric vehicle ownership. The president’s trade policies “pushed them into a corner and the corner is Beijing,” Murphy said.
Chinese electric cars are effectively banned from the United States by 100 per cent tariffs. Canada imposes roughly the same tariff, but plans to lower it to 6.1 per cent for 49,000 Chinese-made cars per year. In return, China agreed to lower tariffs on Canadian canola products.
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Many of the Chinese cars arriving in Canada might be Teslas made in Shanghai, where the company has a large factory. Chinese brands such as BYD that are new to Canada would face a safety approval process that could take more than a year.
Still, Canadian buyers might eventually get a glimpse of cars like the Xiaomi SU7, a sporty sedan that has earned grudging admiration from established Western manufacturers. The car exemplifies the styling and technology that has allowed Chinese models to sell a growing number of vehicles in Asia, Europe and Latin America.
Carney also announced that China would make a “considerable investment into Canada’s auto sector” within three years, suggesting that Chinese companies would ultimately manufacture cars in the country.
Americans already encounter Chinese models on trips to Mexico and will soon begin to see them on visits to Canada or when Canadians drive them across the border. It may become increasingly difficult for US policymakers to explain to Americans why they can’t buy the same attractively priced Chinese electric vehicles available to Canadians and Mexicans.
“I don’t think people like being left out of cool technology,” said Albert Gore III, executive director of the Zero Emission Transportation Association and son of the Democratic former vice president.
Gore said Republican policies have undercut efforts to create an electric vehicle supply chain independent of China. Canada has significant deposits of lithium and other critical materials.
“We’ve pushed one of our closest allies, diplomatic and trade allies, into a deeper and more robust trade relationship with China,” Gore said.
