Chinese automakers are rapidly expanding into Canada. According to Reuters, BYD, Geely-owned Lotus and Chery are all preparing to launch or expand their Canadian operations, viewing the country as a strategic stepping stone toward the much larger U.S. market. BYD plans to open six dealerships, Geely-owned Lotus intends to establish six locations as well, and Chery is preparing to launch sales in Canada later this year.
None of these vehicles can be legally sold in the United States. That stark divide — welcomed on one side of the border and barred on the other — sits at the center of an emerging geopolitical contest over the future of North America’s auto market.
The United States has erected two formidable barriers to Chinese vehicles. The first is a 100 percent import tariff. The second is a national security regulation that bars vehicles produced by Chinese-controlled automakers from the U.S. market, even if they are assembled at factories on American soil.
Canada, however, has moved in the opposite direction. Ottawa agreed in January to allow up to 49,000 Chinese electric vehicles into the country annually at a tariff rate of 6.1 percent, replacing the previous 100 percent surtax and breaking with Washington’s harder-line approach. The new tariff arrangement took effect on March 1.
Former officials and industry analysts warn that Canada’s decision could give Chinese automakers a strategic foothold in North America and lay the groundwork for their eventual entry into the United States. According to Reuters, U.S. industry representatives have also raised economic and national-security concerns, arguing that Chinese connected vehicles could create cybersecurity risks and intensify competitive pressure on American automakers.
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Margaret McCuaig-Johnston, who spent 37 years in senior positions in Canada’s federal government, told The Epoch Times that China “plays the long game” and uses successive negotiations to push its foothold further. She warned that Canada could become a “beachhead” for Chinese automakers seeking broader access to the North American market.
Under the agreement, Canada will initially allow an annual quota of 49,000 Chinese-made electric vehicles, rising to 70,000 within five years. That would represent only about 3.6 percent of Canada’s annual new-vehicle market of roughly 1.85 million units, comparable to the sales of a single brand such as Subaru or Mazda.
Canadian market may not be profitable for China
The quota alone may not be large enough to make Canada profitable for individual Chinese automakers. Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions, told The Epoch Times that a mainstream brand would generally need to sell more than 20,000 vehicles annually to turn a profit in Canada, well beyond what any one manufacturer is likely to receive under the quota.
In other words, the numbers make sense only if Canada is being treated as a springboard, with Chinese automakers ultimately seeking access to the U.S. market or planning to establish production facilities in North America.
For the United States, the most immediate economic impact would not depend on a single Chinese vehicle crossing the border. Historically, roughly 60 to 70 percent of new vehicles sold in Canada have been assembled in North America, including a substantial share produced at U.S. plants. Any market share gained by Chinese brands would therefore come largely at the expense of vehicles built in the United States and elsewhere in North America.
Washington is also concerned that Chinese goods may already be entering the United States indirectly through Mexico and Canada. The U.S. trade deficit with Mexico rose from approximately US$63 billion in 2016 to more than US$171 billion in 2024, while the trade deficit with China narrowed. Some analysts view this as evidence that Chinese supply chains have been rerouted through third countries rather than genuinely returning to the United States.
More difficult to dismantle than tariffs is a security rule finalized by the U.S. Department of Commerce last year. Beginning with model year 2027, vehicles containing Chinese connected-vehicle software will be prohibited. Beginning in 2030, Chinese connected-vehicle hardware will also be banned.
In addition, connected vehicles made by Chinese-controlled automakers cannot be sold in the United States even when they are assembled domestically.
Polestar blocked from the American market
In June, Polestar, the Swedish brand controlled by Geely, was denied authorization by the Commerce Department to sell its 2027 models in the United States because of its ownership structure, even though the vehicles were manufactured in South Carolina.
Canada’s quota for Chinese electric vehicles, by contrast, includes no requirements for data localization or the replacement of Chinese software.
McCuaig-Johnston warned that Chinese connected vehicles contain microphones and can access data stored on a driver’s mobile phone while it is charging. She said the vehicles may continue transferring data even when turned off, creating what she described as a serious privacy and national-security risk.
Another concern is that a substantial portion of the aluminum used in Chinese electric vehicles is produced in Xinjiang, where processing operations have been linked to detained Uyghur laborers.
A 2024 Human Rights Watch report said major automakers including General Motors, Toyota and Volkswagen had failed to adequately prevent forced labor from entering their supply chains.
Since Canada introduced a ban on imports made with forced labor in 2020, authorities have intercepted only two shipments, far fewer than the tens of thousands of detentions carried out by U.S. authorities. Canada’s customs notice concerning Chinese electric vehicles did not even mention forced-labor legislation.
In March, the Office of the U.S. Trade Representative launched Section 301 investigations into 60 major trading partners, including Canada, over their enforcement of bans on imports produced with forced labor. On July 23, President Donald Trump directed USTR to impose an additional 10 percent tariff on most Canadian goods, with the duties taking effect on July 24.
Promises of local jobs could weaken US resistance
The barriers erected by the United States are not necessarily impenetrable, however. Several analysts believe Chinese automakers could follow a strategy similar to that used by TikTok, gradually softening political opposition by promising to create local jobs.
Once factories are established in North America and local employment becomes tied to political interests, federal restrictions may not withstand pressure from state and provincial governments indefinitely.
McCuaig-Johnston cautioned, however, that Chinese automakers often rely on highly automated operations in which imported vehicle kits are simply assembled locally. Such facilities may not create the high-paying unionized jobs repeatedly promoted by Ontario Premier Doug Ford.
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