OTTAWA — Mark Carney is now grappling with a significant challenge that has long troubled his predecessor, Justin Trudeau. The question of whether to permit Chinese electric vehicles (EVs) into the Canadian market has been a contentious issue for years. This dilemma forces Carney to navigate between two powerful political factions, each with compelling arguments.

On one side are advocates for allowing Chinese EVs, including consumers, environmentalists, farmers, and exporters to China. These groups argue that permitting these vehicles would benefit the environment and strengthen Canada’s trade relations with China. On the other side are those who support imposing tariffs to keep Chinese EVs out, including major auto manufacturers, Canadian autoworkers, and voters in Southern Ontario. This group emphasizes the importance of maintaining a strong relationship with the United States.

After much deliberation, Trudeau's government decided over a year ago to keep Chinese EVs out of Canada. Following the lead of then-U.S. President Joe Biden, Ottawa imposed a 100% tariff on Chinese EVs and a 25% tariff on Chinese steel and aluminum. In response, China retaliated with tariffs on key Canadian exports, including canola oil, seafood, and pork.

Trade officials suggest that the decision to impose tariffs was straightforward. Canada could not afford to act against the U.S. or jeopardize its lucrative auto industry. Security concerns regarding China also played a significant role in the decision-making process. Tyler Meredith, a senior policy advisor in the Trudeau government, noted, "A year ago, I think it was an easy decision."

Now, with Carney at the helm, the issue of Chinese EVs remains unresolved. The political landscape has shifted, particularly with Donald Trump back in power in the U.S., complicating matters further. Tim Sargent, head of domestic policy at a think tank, stated that Canada may struggle to regain access to the Chinese market without allowing some Chinese EVs into Canada. However, doing so could upset the U.S. and threaten ongoing trade discussions, which are crucial for Canada.

Trump's return has hindered Canada’s ability to strengthen trade relationships with both the U.S. and China, the two largest markets for Canadian exports. In 2024, approximately 75.9% of Canadian merchandise exports were directed to the U.S., while only about 4.1% went to China. The U.S. president's trade policies have also forced a reevaluation of the Canadian auto industry, which is facing challenges due to tariffs on vehicles and essential materials like steel and aluminum.

The impact of these tariffs is already evident. Major manufacturers, including General Motors and Stellantis, have announced plans to shift some production from Canada to the U.S. This shift has raised concerns about the future of the Canadian auto industry.

In the fall of 2023, Canadian federal and provincial governments initiated a series of subsidy agreements aimed at boosting investments in the EV and battery sectors. Trudeau expressed optimism, stating, "Canada has positioned itself to be a leader in the EV industry," highlighting the potential for job creation in the sector. However, the anticipated growth has faced setbacks as consumer demand for EVs has stalled.

Analysts are now questioning the viability of the EV market. Factors such as weakened emissions standards for gas-powered vehicles, reduced subsidies for EVs, and consumer concerns about range and charging infrastructure have contributed to a decline in sales. In 2024, zero-emission vehicles accounted for about 15% of new car sales in Canada, but this figure dropped to 8.6% in the second quarter of the year.

As a result, many companies have begun to reassess their production plans. Notable manufacturers like Northvolt Batteries, Volkswagen, and Stellantis are among those reconsidering their investments in Canada. This trend is not isolated to Canada; similar challenges are being faced in the U.S. auto industry.

The repercussions of these stalled investments extend beyond the auto sector, affecting jobs, local businesses, and tax revenues. A year after the sector's downturn, it remains uncertain how many delayed production plans will be revived.

Despite the challenges, Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association, remains hopeful, stating, "The future is still electric. What’s changed is the pace."

In the midst of these challenges, Carney's situation is becoming increasingly urgent. The pressure to negotiate a deal with China is intensifying, especially as the U.S. market remains partially closed. Carney recently met with Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation summit, marking the first meeting between leaders of the two countries in eight years. While no concrete agreements were reached, both leaders expressed a desire to improve relations.

However, underlying tensions persist. Meredith noted, "There’s a level of distrust on both sides." The Canadian auto industry remains cautious, with Kingston emphasizing the risks of relying on Chinese subsidies that could undermine domestic production. A recent report highlighted that China's substantial subsidies have created an uneven playing field, while also suggesting that Canada’s tariffs have limited opportunities to learn from China's advanced battery technology.

As Carney navigates these complex issues, the future of Canadian EV policy and its relationship with both superpowers remains uncertain.