Canada Ditches Trump's Playbook, Slashes EV Tariffs

Canada just threw the rulebook out. While Washington tries to bully automakers into abandoning Canadian factories, Ottawa slashed import tariffs on Chinese-made electric vehicles from a punishing 106.1% down to 6.1% – a move that cracks open the door for Chinese EVs to flood the Canadian market. The numbers tell the story: Chinese EV exports to Canada cratered 92% quarter-over-quarter in Q4 2024 under the old tariff regime. Now Prime Minister Carney is calling the shots from Davos, warning middle powers they need to stick together or risk becoming "menu items" for superpowers playing hardball.

From 106.1% to 6.1%

Here's what actually changed. Since October 2024, Canada's previous government had parroted US policy by slapping a 100% additional tariff on Chinese EVs, pushing the combined rate to 106.1%. Chinese EV exports to Canada collapsed 92% in Q4 2024 compared to the previous quarter.

Canada slashes tariffs from 106.1% to 6.1%. Stock photo

The new policy strips that away, restoring the 6.1% base tariff and establishing an annual import quota of 49,000 vehicles. Carney framed this as fostering Sino-Canadian cooperation, projecting that joint ventures between Chinese companies and Canadian partners will materialize within three years – preserving and creating auto sector jobs while strengthening Canada's EV supply chain. The agreement commits to bringing more affordable models to Canadian buyers, with over 50% of imported EVs expected to cost less than CAD 35,000 within five years.

Automakers and market analysts are calling it a "major boon." Sun Xiaohong, an expert from the China Chamber of Commerce for Import and Export of Machinery and Electronic Products, noted that Chinese EVs match the Canadian market well on price and performance, and the policy shift will restore positive growth momentum.

The price gap that's driving Ottawa's pivot. Stock photo

Price competitiveness remains the killer advantage. Market comparisons show that equivalent Chinese EV models typically sell for US$10,000 to US$15,000 less than existing options in Canada. Polling data backs this up: most Canadians support tariff cuts to boost their purchasing power.

Payback for Trade Bullying

Bloomberg characterized this as a direct response to the current US administration's strong-arming of automakers to relocate factories from Canada to the United States – while simultaneously opening the door for Chinese carmakers to assemble vehicles in Canada for the first time.

Daniel Breton, head of the Canadian Electric Vehicle Association, put it plainly: the US President has publicly declared he doesn't want any Canada-built cars sold in the US, effectively threatening Canada's entire auto industry. The policy adjustment is "right on time," enabling Canada to find new partners and reduce over-reliance on the US market. Industry forecasts suggest Chinese brands could capture roughly 10% of the Canadian EV market share.

Significantly, the new policy marks the first time Canada opens the door for Chinese firms to assemble cars domestically, though it may attach conditions like joint ventures or mandates for local software.

Sun Xiaohong analyzed that in 2025, the US government rolled out a series of tariff increases targeting autos and parts – measures that applied equally to Canada. This prompted many companies originally producing in Canada to shift capacity to the US mainland, leaving output gaps in Canada. As a result, Ottawa is actively seeking global auto investors, including from China.

Canada's government is developing a new auto industry strategy, scheduled for release in February, focused on attracting foreign investment, nurturing local industry, and reducing dependence on the US.

Sun believes Sino-Canadian auto cooperation could evolve from trade to investment, with strong odds of Chinese firms establishing assembly operations in Canada. As a USMCA member, Canada offers an attractive market and a gateway into North America. The Chinese side will monitor the stability of Canada's investment climate and policy continuity to ensure healthy, long-term collaboration.

"Not at the Table? On the Menu"

At the Davos World Economic Forum, Canadian Prime Minister Carney delivered a headline-grabbing speech, urging middle powers worldwide to band together and push back against coercion by aggressive superpowers.

Prime Minister Carney at Davos. AP photo

Though he didn't name US President Trump directly, he referenced "American hegemony" and accused "great powers" of weaponizing economic integration. Facing this new reality, Canada must "be both principled and pragmatic" – pivoting inward to build the nation, diversify trade relationships, and reduce dependence on the US and others, because it's now clear that "integration" breeds "subordination".

 

Carney put it bluntly: the long-standing US-led, rules-based international order is finished. Middle powers like Canada need a strategic pivot to avoid becoming casualties of "coercion" from powerful forces. "When the strong can do what they can”, there is a strong tendency for countries to “go along to get along, to accommodate, to avoid trouble, to hope that compliance will buy safety”. “Well, it won’t”, said Carney. “The middle powers must act together, because if we're not at the table, we're on the menu.”

Deep Throat

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Trump just rolled out another tariff threat, and this time Iran's trading partners are in his crosshairs. On January 12, the US president announced a blanket 25% tariff on any country "doing business" with Tehran.

The international press immediately fixated on China—Iran's biggest trade partner. Reuters warned this could reignite the US–China trade war and shred the fragile truce both sides hammered out last year. But Chinese scholars aren't buying it. They say Trump lacks the nerve to slap Beijing with new tariffs, because China will hit back hard—and make him regret it.

Anti-government protests erupt in Iran. (AP photo)

The Financial Times reported on January 12 that these tariffs—which took effect immediately—could slam China, India, Turkey, Pakistan, the UAE, Brazil, and Iraq. All of them trade heavily with Iran. Russia sealed a new free trade deal with Iran in 2025, making it another potential target.

CNN pointed out the stakes for Beijing. China trades with both Iran and the US, so if Washington applies these tariffs, Chinese goods entering America could see costs spike. The network recalled that after last year's summit in Busan, South Korea, the Chinese and US presidents agreed to pause portions of their tariff war—a temporary truce.

Iran as Flashpoint, Again

Reuters published a piece on January 13 titled "Trump's Iran Tariff Threat Risks Reopening China Rift." The article traced how Iran became a powder keg in US–China relations during Trump's first term (2017–2021).

Back then, Washington tightened sanctions on Tehran and blacklisted Huawei, accusing the Chinese telecom giant of selling tech to Iran. That led to the arrest of Huawei founder Ren Zhengfei's daughter, Meng Wanzhou, in Canada—triggering a diplomatic crisis and sending bilateral tensions through the roof.

Now Trump's targeting Iran again. If he follows through, total US tariffs on Chinese exports could exceed 70%—way higher than the rates both sides agreed to last October when they dialed down their trade fight.

It's still unclear which countries or entities Trump will actually target. He hasn't named China explicitly. But Reuters noted Trump has a track record of making bombastic statements that could upend US foreign policy—only to back off later.

US–China "truce" forged in Busan last year now at risk if Trump's Iran tariffs target Beijing. (AP file photo)

Beijing Calls Trump's Bluff

Wu Xinbo, Dean of Fudan University's School of International Relations, told Reuters that China sees through Trump's posturing. "China will call (Trump's) bluff. I can assure you that Trump has no guts to impose the extra 25% tariffs on China, and if he does, China will retaliate and he will be punished," said Wu.

Another Chinese scholar pushed back on the narrative that China and Iran are economically intertwined, noting that "China and Iran are not as close as in the public imagination".

China Customs data backs that up. Beijing has dramatically reduced imports from Iran in recent years. Through November last year, China imported just 2.9 billion USD worth of Iranian goods—a far cry from the 21 billion USD peak in 2018, during Trump's first presidency.

Some sources claim China's major oil companies stopped doing business with Iran in 2022. Yet China's purchases from Tehran still run into the billions, thanks to independent refiners handling shipments.

China as Convenient Scapegoat

Wang Jin, a researcher at Beijing's Dialogue Think Tank, told reporters that "China is just an excuse, a kind of disguise for the Trump administration, to impose new pressure (on) Iran."

Chinese Foreign Ministry spokesperson Mao Ning responded to Trump's tariff threat on January 13. She stated that China's position on tariffs is crystal clear: tariff wars produce no winners. Beijing will firmly defend its legitimate rights and interests.

Analysts warn that Trump's renewed attempt to cut Iran off from global trade could heighten worries about the Belt and Road Initiative. Iran serves as a strategic hub for Chinese goods heading to the Middle East.

This tariff gambit has cast doubt on Trump's planned April visit to China. Observers had expected him to seal a comprehensive trade deal with Beijing during that trip.

The Wall Street Journal echoed Reuters' concerns, warning that new tariffs on Iran's trading partners could wreck the US–China trade truce.

But Reuters also cited Xu Tianchen, a senior analyst at the Economist Intelligence Unit, who questioned whether Trump's tariff policy is even enforceable. "Last year he announced tariffs related to 'illicit' Russian oil trade, but their implementation was patchy." Xu said.

He went on stating that "Trump is also the kind of person who likes bullying the weak," Xu said. "He should manage his actions to avoid these tariffs escalating into direct confrontation with China".