Canada Lowers Tariffs on Chinese EVs Amid Thaw in Trade Relations

Canadian Prime Minister Mark Carney has announced that Canada will dramatically lower its tariffs on Chinese electric vehicles (EVs), signaling a thaw in relations with the country’s second biggest trading partner.

Under the new “strategic partnership” agreement signed in Beijing, Canada is replacing its blanket 100% surtax with a more standard trade framework and lowering the tariff from 100% to 6.1% in line with the most favored nation (MFN) rate. However, there would be an import quota of 49,000, which would rise to 70,000 over five years.

Canada Lowers Tariffs on Chinese EVs

In exchange for lower EV tariffs, China agreed to slash its tariffs on Canadian canola seeds from roughly 84% to 15% by March 1, 2026. Restrictions on Canadian lobster and crab were also lifted.

Lowering the barrier for entry-level EVs is seen as essential for meeting national emissions targets, as high costs remain the primary hurdle for Canadian EV adoption.

Prime Minister Carney characterized the deal as a “reversal toward predictability” in response to an increasingly volatile trade relationship with the United States.

Responding to a question on whether China has been a reliable partner compared to the US, Carney said, “In terms of the way our relationship has progressed in recent months with China, it is more predictable, and you see results coming from that.”

“Given current complexities in Canada’s trade relationship with the U.S., it’s no surprise that Carney’s government is keen to improve the bilateral trade and investment relationship with Beijing, which represents a massive market for Canadian farmers,” said Beijing-based Trivium China’s Even Rogers Pay.

EU Is Looking to Move to a Price Floor for Chinese EVs

Separately, the European Union (EU) and China recently reached a consensus to replace punitive tariffs on Chinese electric vehicles with a “price undertaking” mechanism, commonly known as a minimum price floor.

This agreement aims to de-escalate a trade war that has simmered since 2024, providing a “soft landing” of sorts for both the European automotive industry and Chinese exporters.

According to the framework, the previous additional duties (which ranged from 7.8% to 35.3%) would be phased out in favor of individual price commitments. Chinese manufacturers must agree to sell their battery electric vehicles (BEVs) at or above a specific minimum import price. This price is calculated to “remove the injurious effects” of state subsidies that the EU initially investigated.

Unlike a blanket tariff, each manufacturer can submit its own pricing offer based on its specific models and investment plans in Europe. The EU has indicated that it will look more favorably on price offers from companies that commit to localizing production and investing in the EU supply chain.

Chinese Companies Have Gained Market Share in the EU

The EU is strictly monitoring “cross-compensation,” ensuring manufacturers don’t lower prices on hybrid vehicles (which aren’t subject to the floor) to offset the higher cost of pure EVs. Analysts expect Chinese brands to move away from entry-level budget models and prioritize premium, high-tech SUVs and sedans to justify the mandatory minimum prices. The “price floor” acts as a nudge for Chinese firms to build factories in Europe (e.g., BYD in Hungary), which eventually exempts those vehicles from import restrictions entirely.

Notably, Chinese EV companies have gained market share in the EU even as Tesla’s sales have sagged in the region.

BYD Became the Biggest BEV Seller in 2025

Last year, BYD delivered 2.26 million battery electric vehicles (BEVs), which was well ahead of Tesla’s 1.64 million deliveries.

BYD surpassed Tesla’s total sales in 2022, even as the US EV giant retained the title of the biggest seller of BEVs. It hit yet another milestone when its 2024 revenues surpassed those of Tesla. BYD’s annual revenues rose 29% YoY to $107 billion in 2024, while Tesla’s revenues were around $97.7 billion. The steep rise in BYD’s sales was led by a record 4.27 million deliveries, which was well ahead of Tesla, which reported a YoY fall in its 2024 deliveries – the first in the company’s history.

Notably, in 2011, Tesla CEO Elon Musk laughed at the possibility of BYD becoming a competitor to Tesla. However, the Chinese company has proven critics wrong and has emerged as a serious competitor to Tesla, not only in China but also in global markets.

Musk Has Praised Chinese EV Companies

Musk has lately been all praise for Chinese EV companies and, during Tesla’s Q4 2023 earnings call, said, “Frankly, I think, if there are not trade barriers established, they will pretty much demolish most other companies in the world.”

The billionaire added, “The Chinese car companies are the most competitive car companies in the world. So, I think they will have significant success outside of China depending on what kind of tariffs or trade barriers are established.”

China now controls roughly 80% of the world’s battery supply chain. This vertical integration allows Chinese brands to produce EVs significantly cheaper than their Western or Japanese counterparts. Experts note that China can now produce EVs at a lower cost than many legacy manufacturers can produce gasoline cars.

Chinese EVs Are Quite Competitive

China’s early and massive investment in New Energy Vehicles (NEVs) has paid off. While Japanese giants like Toyota focused heavily on traditional hybrids, Chinese companies like BYD and Nio built an entire ecosystem for pure electric cars. In 2025, nearly half of China’s auto exports were electric or plug-in hybrids.

In 2025, the global automotive landscape reached a historic turning point, and China officially surpassed Japan to become the world’s largest auto exporter. This shift marks the end of a decades-long era of Japanese dominance and signals the rise of a new “automotive superpower” powered by electrification and aggressive global expansion.

Chinese EV companies also capitalized on the withdrawal of Japanese, European, and American automakers from the Russian market following the invasion of Ukraine and became the dominant player in Russia, with brands like Chery and Great Wall filling the gap left by brands like Nissan and Toyota.