Canada has announced an agreement to reduce its 100%tariff on electric vehicle (EV) imports from China to 6.1%. The tariffs will be replaced by an annual import quota of 49,000 EVs in 2026, rising gradually to 70,000 by 2030.
This phased opening is designed to help Canada diversify its supply chain and accelerate EV adoption without relying on subsidies. In return, China will lower tariffs on Canadian canola oil to 15% by March and remove tariffs on a few other Canadian goods.
The rollback of Canada’s EV tariff wall marks a significant shift in the Canadian trade relationship with China. It also represents a notable de-escalation of trade tensions during a period of intense economic uncertainty, driven largely by protectionist American policy.
It will not, however, reshape Canada’s auto market overnight.
A modest opening with outsized effects
The initial 2026 quota amounts to about 2.5% of total new vehicle sales in Canada, which was just below two million vehicles in 2025. In global terms, it’s also a modest amount, equivalent to only 2.2% of BYD’s estimated 2025 EV sales (2.26 million vehicles) and 3% of Tesla’s estimated 2025 EV sales (1.65 million vehicles).
For Canada’s struggling EV market, however, the policy change could provide a meaningful boost. The end of the federal Incentives for Zero-Emission Vehicles program in 2025 increased EV prices by roughly 8% to 12%. Higher upfront costs slowed demand, and EVs now account for about 9% of new vehicle sales, down from 15% in 2024.
By opening the market to innovative EVs from China, the new policy should expand access to lower-cost models and help revive demand. China’s EV market includes more than 100 EV brands, including BYD, which recently overtook Tesla as the world’s largest EV maker.
The new policy also features other major brands like Geely, SAIC Group, Nio and XPeng, with several models priced around CA$30,000. Increased price competition could narrow the affordability gap that has slowed adoption since incentives were withdrawn.
Pivoting to China for diversification
The quota system likely reflects concern within Ottawa that unrestricted access for Chinese EVs could flood the Canadian market and disrupt local manufacturing. A phased opening gives automakers time to adjust and helps consumers become familiar with new Chinese brands.
It may also encourage foreign manufacturers to expand local assembly or partnerships to cater to growing EV demand. The government expects the deal to catalyze Chinese joint-venture investment that will deepen and diversify Canada’s EV supply chain.
The agreement also signals an effort to reduce Canada’s dependence on the United States, which is the destination for about 92% of Canada’s auto and auto parts exports. This shift, however, starts from a very low base.
While China is Canada’s second-largest trading partner, merchandise exports to China were only CA$29.9 billion in 2024, or about 7.3% of exports to the U.S.
For that reason, the seemingly ambitious target of increasing merchandise exports to China by 50% by 2030 will not materially change Canada’s reliance on the US.
It is better understood as one element of a broader strategy to reduce exposure to an increasingly inward-looking and unpredictable partner.
One element of a broader strategy to reduce exposure to an increasingly inward-looking and unpredictable partner
The deal could also complicate Canada’s position ahead of future renegotiations of the Canada-United States-Mexico Agreement. Prime Minister Mark Carney can reasonably argue that import volumes are small relative to total auto sales in Canada and the US. At the same time, deeper engagement with China signals alternatives and may modestly strengthen Canada’s leverage.
More EV adoption at lower government cost
The trade opening could support EV adoption at lower fiscal cost. The Incentives for Zero-Emission Vehicles program, which stalled after its funding was exhausted, cost the government CA$2.6 billion and supported approximately 546,000 EV purchases.
When rebates lapsed, annual EV sales declined by more than one-quarter, falling from 264,000 in 2024 to 191,000 in 2025.
As Canada contends with a growing fiscal deficit, expanding consumer choice through trade may prove more durable than relying on subsidies.
It not only reduces the need for public spending but also reduces the future cost of adoption by putting pressure on incumbents such as Tesla and GM to cut prices to compete with new entrants like BYD.
A wider set of affordable models should lift demand and, as the customer base expands, strengthen the case for faster charging network expansion. This could help Canada return to its mandate of 50 per cent EV sales by 2030 and 100 per cent by 2035, which was recently paused.
Why the quota needs a hard end date
Tariffs and quotas are often framed as temporary protections that give domestic producers breathing room amid competitive pressure. In practice, they can be difficult to unwind because beneficiaries lobby to preserve them.
Canada’s rollback of its tariff wall on Chinese EVs is unusual, precipitated by trade tensions with the US and punishing reciprocal tariffs by China on its canola imports.
Absent similar pressure, the newly introduced quotas could outlive the intended five-year window. Automakers and their political allies will defend them, just as they defended the blanket EV tariffs that denied Canadians access to affordable EVs.
Canada should explicitly commit to eliminating the quota by 2030. Moving to an open market regime will benefits consumers, strengthens competitiveness and supports environmental goals.
Addisu Lashitew is an associate professor of business, McMaster University.
This article is republished from The Conversation under a Creative Commons license. Read the original article.