Canada Slashes Tariffs on Chinese EVs, Risks U.S. Retaliation Amid Trump’s Protectionism

Canada has initiated a dramatic realignment of its trade policy, slashing import tariffs on Chinese electric vehicles (EVs) from 100% to a mere 6.1% in exchange for reduced tariffs on Canadian agricultural products, notably canola seeds. This significant shift, announced by Prime Minister Mark Carney, marks a strategic pivot away from aligning solely with U.S. trade stances and is presented as a direct response to what Canada perceives as growing economic threats from the unpredictable and protectionist trade policies of U.S. President Donald Trump. However, the move has immediately drawn sharp criticism from Washington and poses a substantial risk of retaliation from Trump, potentially complicating the critical renewal negotiations for the U.S.-Mexico-Canada Agreement (USMCA) later this year.

The deal, finalized in Beijing on Friday, January 16, 2026, represents a stark departure from Canada’s previous position. Just two years prior, in 2024, Canada had mirrored U.S. policy by imposing a prohibitive 100% tariff on Chinese EVs, reflecting widespread concerns that inexpensive Chinese-made cars could flood the North American market and undermine domestic automakers. Prime Minister Carney, however, defended the new agreement by highlighting its dual benefits for Canada. First, it provides much-needed relief for Canadian canola farmers, with China agreeing to lower its tariff on canola from 84% to 15%. This offers a crucial export market for a major Canadian crop. Second, Carney emphasized the strategic importance of engaging with China’s advanced EV sector. “China’s strengths in [the] electric vehicle sector are undeniable,” Carney stated. “China produces some of the most affordable and … energy-efficient vehicles in the world. And in order for Canada to build our own competitive EV sector, we need to learn from innovative partners, access their supply chains, and increase local demand.”

U.S. Condemnation and Escalating Tensions

The Canadian decision was met with swift and unequivocal condemnation from Washington. U.S. Transportation Secretary Sean Duffy voiced strong disapproval, stating, “I think they’ll look back at this decision and surely regret it to bring Chinese cars into their market.” Speaking at a Ford factory in Ohio, Duffy underscored the U.S. position that tariffs are necessary to protect American auto workers from Chinese competition. Ohio Senator Bernie Moreno, a Republican, echoed these sentiments, expressing his opposition to Chinese vehicles entering the U.S. market and receiving applause from other government officials present. The U.S. maintains that its own stringent rules on connected vehicles and cybersecurity, adopted in January 2025, create a significant impediment for Chinese vehicles in the American market, a point highlighted by another U.S. official, Greer, who questioned the long-term wisdom of Canada’s deal.

Trump’s Protectionism and Global Realignments

Canada’s trade realignment is set against the backdrop of President Trump’s aggressive and often unpredictable protectionist policies since his return to the White House in January 2025. Trump has overturned decades of U.S. policy favoring free trade, imposing double-digit tariffs on imports from numerous countries and targeting specific industries like steel and autos. While he claims these tariffs protect American industries, generate revenue, and attract investment—as seen in a recent deal with Taiwan—they have also prompted America’s top trading partners to seek alternatives to the U.S. market. The Los Angeles Times reports that Canada is not alone in this endeavor; the European Union, for instance, formally signed a trade pact with Mercosur, a South American alliance, and is pursuing a deal with India. China, having faced U.S. tariffs since Trump’s first term, has also successfully diversified its exports to markets in Europe and Southeast Asia, contributing to a record $1.2 trillion trade surplus with the rest of the world in 2025.

A Turnabout in Canada-China Relations

This latest deal marks a significant turnabout in Canada’s historically complex and often fraught relationship with China. As trade expert Edward Alden of the Council on Foreign Relations noted, “Relations between Canada and China have been extremely fraught.” This tension was exemplified in 2018 when China detained two Canadians in retaliation for Canada’s arrest of a Huawei executive at the U.S.’s request; all three were released in a 2021 swap. Canada also launched an investigation into alleged Chinese interference in its 2019 and 2021 elections. Given this contentious history, Prime Minister Carney’s economic rapprochement with Beijing represents a calculated, albeit risky, gamble to prioritize Canada’s economic interests amidst a shifting global trade landscape.

Internal Criticism and USMCA Renewal Risks

Domestically, the deal has drawn criticism for potentially exposing Canadian autoworkers to intense competition from low-priced Chinese EVs. Ontario Premier Doug Ford, whose province is the heart of Canadian auto production, vehemently denounced the agreement. “Make no mistake: China now has a foothold in the Canadian market and will use it to their full advantage at the expense of Canadian workers,” Ford posted on social media. He also warned that by lowering tariffs on Chinese EVs, the deal risks jeopardizing Canadian automakers’ access to the crucial American market, Canada’s largest export destination. In response to these concerns, Carney clarified that the deal is limited, allowing China to export only 49,000 EVs to Canada at the reduced tariff rate initially, rising to about 70,000 in five years.

However, the most significant risk to Canada stems from its relationship with the U.S. The U.S.-Mexico-Canada Agreement (USMCA), which governs duty-free trade across North America, is up for renewal this year. Experts like William Reinsch, a former U.S. trade official now with the Center for Strategic and International Studies, anticipate that Trump will likely demand changes aimed at shifting manufacturing to the United States and may even threaten to withdraw from the pact, especially if he seeks to punish Carney for the China deal. This prospect is alarming for Canada, which sends 75% of its exported goods to the United States. While Trump initially commended Carney, stating, “If you can get a deal with China, you should do that,” the underlying tensions suggest a difficult path ahead. Carney may be counting on support from U.S. businesses, including automakers and farmers, who rely heavily on the USMCA for integrated supply chains and market access, potentially lobbying against any drastic changes to the agreement.

Ultimately, Canada’s decision to forge closer trade ties with China, particularly in the strategically vital EV sector, signals a bold attempt to assert economic autonomy and diversify its partnerships in an increasingly protectionist global environment. While it offers immediate benefits for key Canadian industries like canola, it simultaneously represents a high-stakes gamble, potentially alienating its largest trading partner and forcing Canada to navigate a complex geopolitical tightrope between two economic superpowers.