Carney’s EV deal with Beijing is high-wire diplomacy with risks on both sides

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One day before Prime Minister Mark Carney arrived in Beijing, U.S. President Donald Trump offered his latest dismissal of the Canadian auto industry. The North American free-trade pact is “irrelevant,” Mr. Trump said while touring a Ford Motor Co. plant in Michigan, and the U.S. should stop buying Canadian cars.

Mr. Carney’s response came on Friday.

Following a meeting with Chinese President Xi Jinping, he announced a break on Canada’s steep tariffs on Chinese EVs that will allow 49,000 cars to enter the country each year at a much lower tariff-rate. And he said Canada would welcome significant joint-venture investments by Chinese companies in the Canadian auto sector.

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The move – which was met by lower tariffs from China on Canadian agriculture products – is both a geopolitical and economic gambit.

Having spent years working with the U.S. to keep China’s inexpensive and cutting-edge EVs off North American roads, Mr. Carney is wagering that Chinese investment and technology could offer a lifeline to Canada’s beleaguered auto industry.

But that’s putting Canada offside Washington, ahead of the crucial review of the continental free-trade pact, the USMCA, where the Trump administration has said it will push for more alignment between the three countries on excluding Chinese goods and investment from North America.

And it’s putting Mr. Carney on the wrong side of Canada’s incumbent automakers, and Ontario Premier Doug Ford, who worry both about increased competition and jeopardizing access to the U.S. market.

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Ultimately Mr. Carney is betting that he has more room to manoeuvre – both between the world’s two superpowers and between various constituencies at home – than widely appreciated, and that it’s worth risking crashing out of the USMCA to diversify Canadian trade and blaze a new path for the Canadian auto industry.

So far, the deal seems to have landed lightly in Washington. There were grumbles of disapproval from Mr. Trump’s chief trade representative, Jamieson Greer, who called the agreement “problematic.”

But the President himself seemed non-plussed, even impressed, by Mr. Carney’s step toward America’s chief geopolitical rival.

“It’s a good thing for him to sign a trade deal,” Mr. Trump told reporters on Friday. “If you can get a deal with China, you should do ⁠that.”

That approval may be short-lived, given the President’s temperament. And there are plenty of China hawks in the Trump administration who could make things tough for Canada in the USMCA talks.

“What’s absolutely clear is there has been a desire to shield the USMCA market as much as possible from Chinese transshipment and from Chinese penetration and certainly from Chinese EVs. And so this [Canada-China deal] would be clearly in the opposite direction of that,” said Christopher Hernandez-Roy, deputy director of the Americas Program at the Center for Strategic and International Studies in Washington.

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Here, the structure of the Ottawa-Beijing EV deal is important, said Jeff Mahon, director of StrategyCorp’s geopolitical advisory practice, and a former deputy director at Global Affairs focusing on China.

The tariff-rate quota system, which effectively caps Chinese EV imports at less than 3 per cent of the Canadian auto market, appears designed to ease the nerves of both Washington and Ontario automakers.

“It’s not opening the floodgates by allowing a whole deluge of Chinese EVs in. It’s about letting a little bit of trade flow to build the market, test the market and give a proof of concept for the investment piece,” Mr. Mahon said.

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In the past, Washington has been upset by attempts by BYD and other Chinese automakers to establish factories in Mexico. But the focus on joint ventures could assuage those concerns, Mr. Mahon said.

“This is different from BYD setting up in Mexico because that’s an OEM [original equipment manufacturer] coming in with 100-per-cent ownership. A JV means there’s going to be restrictions.”

Mr. Trump’s abandonment of U.S. leadership on EVs and clean technology may have also opened up room for Canada-China collaboration that might not have been possible under the Biden administration.

Then there’s Mr. Trump himself, who seems to have become less hawkish on China during his second term, and more eager to cut blockbuster deals with his fellow strongman, Mr. Xi.

Still, there’s plenty of risk surrounding Mr. Carney’s high-wire diplomacy. And it’s not only on the American side.

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When Canada first put 100-per-cent tariffs on Chinese EVs in 2024, it said they were needed to combat “unfair trade practices” and “state-directed policy of overcapacity.” Ottawa and Washington had just spent billions of dollars trying to build their domestic EV industries, and wanted to prevent them from being overrun by the surge in inexpensive EVs pouring out of factories in China and onto cargo ships headed around the world.

This language was entirely absent from the Canadian delegation in Beijing this week. But Geoffrey Gertz, a senior fellow at the Center for a New American Security in Washington and a former White House director for international economics in the Biden administration, said that Canada would be wise not to lose sight of these issues.

“Canada is in a very difficult position here. It’s clear that the United States has become a less appealing both trade and broader geostrategic partner to Canada than it was previously. But at the same time it would be a mistake to suggest that China has become a better partner,” Mr. Gertz said.

“This is the same regime that captured the two Michaels. This is the same Chinese economic model that has been pumping out overcapacity for many years and they’re showing no interest in moving away from that poor economic model.”