Xi Jinping and Carney chart a new course for the Canadian automotive industry

The recently reached agreement between Canadian Prime Minister Mark Carney and Chinese President Xi Jinping marks a turning point in Canada’s strategy to counter U.S. tariff pressure. During the summit in Beijing, both leaders announced a trade truce that significantly relaxes Chinese electric vehicle access to the Canadian market, allowing approximately 49,000 units to enter with a reduced tariff of 6%, compared to the 100% tariff in place before 2024.

The Carney-Xi pact represents more than just a bilateral negotiation: it positions itself as a strategic response to the protectionist policies of the Trump administration, which imposed tariffs on foreign-made vehicles just over a year ago. In exchange, China is expected to reduce tariffs on Canadian agricultural products and grant visa-free access to Canadian travelers, creating a virtuous circle of economic cooperation.

The Canadian Automotive Industry Under Pressure

Canada faces a crossroads in its automotive sector. The Canadian market, with 1.9 million vehicles sold last year in a territory with a population similar to California’s, has undergone rapid transformation in recent years. The country is consolidating as the largest importer of U.S.-manufactured cars in North America, but this position has become increasingly vulnerable.

U.S. tariff pressure has had immediate consequences. General Motors closed a plant in Ontario and indicated reductions at other facilities, while Stellantis completely canceled its Jeep vehicle manufacturing plans in the region, shifting that production to Illinois. Global suppliers like Tesla, Nissan, and Kia do not even establish assembly operations in Canada, supplying their markets exclusively from U.S. and third-country facilities.

Market erosion is evident in the data: since Trump intensified the trade war, the market share of North American factories in Canada has shrunk significantly, while plants in Mexico and South Korea are gaining ground. Only five conglomerates maintain active assembly lines: General Motors, Stellantis, Ford, Toyota, and Honda, most of whose production is exported to the United States.

Carney-Xi Agreement: Opportunities with Strict Safeguards

The meeting between Xi Jinping and Carney broke years of bilateral tension, allowing Chinese manufacturers substantial access to Canadian soil, but under strict conditions that protect local interests. During the summit, Industry Minister Melanie Joly met with Chinese conglomerates BYD and Chery, as well as auto parts supplier Magna International, exploring concrete investment avenues.

The agreement includes non-negotiable technological security requirements. Any domestically manufactured electric vehicle must have a secure technological platform that excludes security risks, a criterion that benefits the Canadian automotive software sector led by BlackBerry Ltd., a key national company in this niche. Chinese companies will also need to consider strategic partnerships with Canadian firms, rather than simply establishing themselves as independent players.

The Canadian government also inserted a review mechanism into the pact: within three years, it will assess whether Chinese manufacturers meet their commitments to significant investment. The access modality is structured progressively: an increasing portion of the allowed quota must be filled with vehicles priced under C$35,000 (approximately USD 25,155), a stipulation that favors lower-cost Chinese producers and democratizes access for Canadian consumers to more affordable electric mobility options.

Canada’s Broader Strategy

The trade pact is just one piece of a more ambitious strategy by the Carney government to revitalize the national automotive industry. A comprehensive policy is expected to be announced next month, addressing multiple fronts: incentives for manufacturers to expand existing operations, progressive sales mandates for electric vehicles, and tax incentives for consumers. All these measures aim at a central goal: halting the loss of investments and jobs caused by trade confrontation.

Carney’s trip to Beijing, where he sealed the agreement with Xi Jinping, also included negotiations on energy cooperation, expanding the scope beyond the automotive sector. The strategy reflects the government’s conviction that Canada cannot rely solely on preferential access to the U.S. market but must diversify its trade horizons by leveraging free trade agreements with Europe and Asia.

Despite the optimism, a significant geopolitical question remains: how will the Trump administration respond to this rapprochement between Canada and China? Although U.S. Trade Representative Jamieson Greer was notified in advance, Trump surprised with an unusually benevolent response, stating that the agreement “is what Canada should be doing” and suggesting that any understanding with China benefits U.S. interests.

Towards a Reconfigured Industry

The Carney-Xi summit lays the groundwork for a profound reconfiguration of the North American automotive landscape. Canada is moving from a vulnerable position facing tariff pressures to a diversification strategy that includes Chinese competitors under regulatory frameworks that protect national interests in technology and employment.

While it is premature to predict the full scope of Chinese investment, the agreement sends clear signals: Canada is willing to cede market share to Eastern manufacturers if it creates local jobs, drives innovation in electric vehicles, and reduces dependence on a single power. The long-term vision expressed by Canadian officials is even more ambitious: that Canada, Europe, and Asia link their markets under a low-tariff regime to counteract North American protectionism.

The Xi Jinping-Carney meeting, beyond its immediate details, represents a moment of reordering in continental automotive trade, where Trump administration pressure accelerates alliances that until recently seemed unthinkable.