What Will China’s EV Invasion Actually Bring Canada?

Canada’s hope of producing electric cars once seemed within reach. At a Honda plant in Alliston, an Ontario town of 20,000 near Lake Simcoe that had built Civics for a generation, former prime minister Justin Trudeau and Premier Doug Ford walked the assembly line. Joined by the Japanese automaker’s chief executive, Toshihiro Mibe, they announced the largest single investment in the sector’s storied history: $15 billion to build the country’s first electric vehicle supply chain. That was April 2024. A little over a year later, Honda Motor Co. reaffirmed its commitment to the investment, even as it tapped the brakes on the project for two years.

That hopeful trajectory came to a full stop in May 2026 when Honda said it was indefinitely suspending the plan. The funds have not been dispersed, and the plant will not be built in the foreseeable future. The disappointment was immediate, palpable, and widespread. Within forty-eight hours of Honda’s announcement, the Globe and Mail’s Eric Reguly spoke for some in the Mark Carney government when he argued that Canada should now court Chinese EV makers—BYD, Chery, and Xiaomi among them—to fill the Honda-shaped hole. These Chinese companies had already signalled interest in the Canadian market, after all. China could replace the United States and Japan in Canada’s economic strategy, Reguly opined. “Follow the money.”

That advice is truer than he knows. The catchphrase comes from the 1976 film All the President’s Men, about the Watergate scandal’s bottomless corruption. And, ironically, it gets to the heart of the problem with Canada looking to China as an unqualified economic partner. Following the money shows that embracing Chinese-made autos will not make Canada more prosperous. It will instead make us both dependent on and subservient to a regime that is pursuing a strategy of global centrality through technology, manufacturing, and supply chains that is hostile to what remains of Western industrial strength.

That scenario flows directly from the structure of the current agreement with the People’s Republic of China (PRC) signed under geoeconomic duress on the prime minister’s relationship-recalibrating visit to Beijing in January. Officials framed the preliminary arrangement that opened Canada’s market to Chinese electric vehicles, with a quota of 49,000 cars in year one (scaling to 70,000 by 2030), as mutually beneficial. In return, China agreed to lift retaliatory tariffs on Canadian canola, pork, and seafood—provisionally. The stark imbalance in negotiating leverage was laid bare in the agreement’s asymmetry: five years of Chinese EV access to Canada’s market in exchange for ten months of relief from Chinese tariffs on Canadian agricultural commodities. Extending that reprieve is contingent on continued Canadian good behaviour, as judged by Chinese officials.

Most Canadians don’t seem to realize that this deal, and how we manage it going forward, is one of the most consequential strategic questions our country has ever faced. It will profoundly shape the path of Canada’s political and economic development. And yet Canadians haven’t seriously debated the implications.

Instead, the public conversation so far has been almost entirely about whether Canadians want cheaper electric cars and what good they’ll do for the environment. That framing assumes Canada’s destiny is to be a mere consumer market for foreign-made products. But such an outcome is a choice, not an inevitability. And like all choices, it carries consequences. The vital question is whether Canada wants to be a producer in the next auto economy and a meaningful player in designing and setting the standards for the key technologies of this century—or merely a small, subordinate market for surplus vehicles produced by China’s unsustainable and predatory industrial system.

Answering that critical question requires understanding three things—three “Whats.” What Chinese EVs actually are, as economic objects. What other countries have learned about admitting them. And, most importantly: What Canada specifically stands to gain—or to lose—by doing the same. Determining answers to those three Whats will help Canadians see where the money leads.

Unquestionably, much of China’s technological and manufacturing success is due to the sheer scale of its market, its extensive logistics infrastructure, and industrial clustering. Its skillful entrepreneurs, engineers, managers, and workers also deserve ample credit. With those qualities alone, some Chinese firms would be formidable competitors.

But China’s one-party state has never been content with free-market competition, and after decades of liberalization, since the world financial crisis, it has reverted to a much more dirigiste suite of industrial policies in an epic quest to dominate the commanding heights of twenty-first-century technologies and the means of producing them. This distorted political economy has created a vast industrial ecosystem that depends on hundreds of billions of dollars worth of subsidies, tax breaks, cheap land, and lax labour and environmental regulation.

Sure, most countries subsidize their auto sectors—but not to China’s extent: the Organisation for Economic Co-operation and Development average is about 0.7 percent of revenues for firms that benefit. The PRC lavishes over six times as much, along with effectively unlimited credit. Under state direction, banks steer evergreen lending at rock-bottom rates to politically favoured manufacturers, enabling them to sustain losses no profit-driven shareholder structure could absorb.

Last year’s numbers for China’s electric vehicle industry tell the story: production rose 10 percent and revenues 7 percent, but profit margins fell to their lowest level in a decade. Production incentives lock original equipment manufacturers into a destructive cycle of hypercompetition called “involution” in which they impose even more crushing payment terms on their suppliers. Driven to overproduce beyond what Chinese consumers can buy, they dump excess output in foreign markets where they at least have some hope of making the profits they need to gain an edge on domestic competitors and keep factories humming to please Chinese Communist Party overseers. Add a significantly undervalued yuan that makes their cars artificially cheap in dollar terms, and you have an incubator for global manufacturing titans like battery-maker CATL.

Canadians can’t match the scale or structure of this economic model—and nor should we want to. Sure, under World Trade Organization rules, Ottawa can, in some cases, respond with defensive measures on behalf of Canadian companies. But not fast enough to cope with what many economists now consider a Second China Shock. WTO instruments were designed for a liberal economic paradigm in which firms compete with one another. They’re not equipped to protect against China-scale industrial policy that pits foreign firms against the Chinese state. That’s why integrating Canada’s economy more closely with China means playing a rigged game. It can’t be won except by the other side—and losing means devolving to becoming a tributary market in a China-centric geoeconomic system.

Blocked by tariffs from accessing the prized US market, these electric vehicle makers have turned to the rest of the world. Since 2022, they have rapidly captured dominant market shares in battery EV markets in countries as diverse as Australia, Brazil, Indonesia, Israel, and Mexico. Even in Europe, which has extensive production of its own, the extent of penetration has been stunning.

What’s next? A trifecta of bad scenarios: We could wind up dependent on PRC technology and supply chains, enabling Beijing to control or disrupt entire sectors. Unfair competition could erode our industry, innovative capacity, and high-quality employment. And in a desperate, belated effort to prevent the first two, we could be forced into deploying costly industrial policies and heavy-handed protectionist measures. I would regretfully bet on all three.

This is not an entirely new industrial movie. It’s a sequel to what the world has seen in other sectors. Solar panels were once a strong, growing industry in the Western world. Now, domestic production has collapsed, with China controlling roughly 80–95 percent of global manufacturing. The Canadian steel industry has plateaued amid global overcapacity driven by the PRC. And Beijing now wields its near-monopoly on refining rare earths and critical minerals as a coercive instrument of state power. In each sector, the cycle took roughly a decade. The Canadian auto sector is in the path of the same steamroller—unless Ottawa puts in place policies and regulations to stop it.

This is what’s at stake. The viability of an industrial ecosystem that has been the backbone of Canadian manufacturing for decades—the auto sector but also the parts, tooling, software, and defence-industrial capacity that ride on top of it.

Economics aside, advocates of admitting Chinese EVs to Canada argue that the climate crisis demands this step. Chinese cars are the cheapest electric vehicles in the world, they say; quibbling about industrial policy while glaciers melt is unjustifiable.

But in fact, made-in-China EVs are no longer the cleanest electric vehicles, if they ever were. Research by the European climate group Transport & Environment finds that battery production in China generates roughly 37 percent more carbon emissions on average than battery production in Europe and almost two-thirds more than in countries with clean electricity grids. The reason is straightforward: China is still building coal plants at a rate the rest of the world abandoned a decade ago. A battery cell manufactured in Inner Mongolia and one manufactured in Bécancour, Quebec, do not have the same climate footprint. The cleaner the Canadian grid gets, the larger the differential becomes. Every Chinese-built EV that displaces a Canadian-built or Korean-built EV in our market is a marginal increase in total transport-sector emissions, not a reduction.

In addition, the argument for importing Chinese goods on climate grounds is a political catastrophe. If green-transition subsidies are seen by voters as creating jobs in Hefei rather than in Hamilton, “our last, best hope of avoiding climate catastrophe will be lost,” as the economist Paul Krugman has put it. The economic logic of the green transition cannot be separated from its political logic. Decarbonization that hollows out the industries it depends on for political support eats its own seed corn. The climate argument, properly examined, does not lead to Chinese EVs. It leads to whichever EVs displace tailpipes fastest while sustaining the political coalition that will defend climate policy through the next two decades of difficult voting. In Canada, those vehicles are built in Cambridge, Windsor, and—if we make the right calls—Brampton.

Just as the climate and economic arguments cannot be divorced from politics, so they cannot be divorced from human rights. The collapse of Honda’s EV plans was devastating for many reasons, most immediately the loss of 1,000 jobs. And these were to be good-paying jobs. Unifor workers at Canadian assembly plants average an hourly wage of $44.52. But Chinese workers making the EVs that could flood into Canada are not so fortunate, earning between $2.40 and $6.20 per hour. The Party won’t abide alternative means of organizing, and so independent labour unions cannot exist. China’s hukou housing registration system also denies roughly 300 million migrant workers equal services. Land is expropriated without consultation.

Extensive, reputable research has also revealed extensive use of forced labour in China, particularly involving ethnic minorities. A Sheffield Hallam University report specifically documents Uyghur labour transfers feeding the automotive supply chain—chassis steel, automotive interiors, tires, glass, and the lithium that powers most Chinese EV batteries—used by Chinese and Western automakers alike. It’s one of history’s greatest ironies that a Party founded on Marxism-Leninism exploits workers as means to its own ends of national greatness and regime survival. But Marx would have recognized the logic: power comes from controlling the means of production.

And that’s just on the production side of things. Canada has signed an EV quota that describes vehicles by country of manufacture and value, with no reference to where the software comes from, where the data is housed, or with whom it is designed to be shared. But a modern Chinese EV is, technically speaking, a rolling computer with cameras, microphones, LiDAR, sub-meter GPS, and continuous over-the-air software updates. And since China’s 2017 National Intelligence Law compels any Chinese firm to assist intelligence collection on demand, it’s clear where all the data can go—and who can control the machines.

That’s how it works with Chinese companies such as Huawei, TikTok, Hikvision, and DJI, which is why the Five Eyes intelligence alliance of Australia, Canada, New Zealand, the United Kingdom, and US has restricted them. Connected vehicles are next on that list. The more Chinese EVs that Canada accepts, the harder it will be to disentangle from the Chinese security state even if Canadians belatedly want to. We’ll be trapped, which is China’s objective from the get-go.

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Other countries have further entangled themselves with Beijing and suffered for the decision. Under Viktor Orbán’s illiberal rule, Hungary bet bigger on Chinese EV and battery investment than any other European country, drawing roughly 60 percent of all Chinese EV-related investment in Europe in 2024. And the bet was costly. The economic transfer Hungary was promised—skilled jobs, technology, and supplier integration—has largely failed to materialize. The plants are mostly just used to assemble cars made elsewhere. The battery cells, steel, skilled workers, and technology come from China.

Mexico ran a different version of the experiment. Chinese battery electric vehicles went from roughly 28 percent of the Mexican EV market to nearly 90 percent in two years. Finally, in January 2026, Mexico raised its tariff on passenger cars not covered by a free trade agreement to 50 percent—the WTO-bound ceiling—and BYD shelved its proposed Mexican factory. The reversal was politically painful, undertaken largely under US pressure as the 2026 trade agreement review approached. Mexico bore the full costs of admitting China’s EV industry and most of the costs of curtailing it. Canadian observers should look hard at that example before we follow suit.

Honda froze its plans because tariff uncertainty undermined the case for selling into the US market. But a frozen project from a friendly country can be thawed if market access conditions improve, while industrial influence surrendered to a strategic adversary cannot. Chinese companies are arriving because they can’t access the United States anyway and they’re hoping to pry open a back door. But we can’t just replace an American or Japanese plant with a Chinese one, because Beijing’s political economy differs radically from Washington’s and Tokyo’s.

Deals like the one Carney announced are premised on the idea that Chinese EV companies get market access, and in return, Canada gets plants, jobs, and supplier integration. The evidence does not support the assumption. No Chinese firm has committed to a joint venture or technology transfer in Canada—or anywhere else. Unlike earlier generations of Japanese, Korean, European, and American multinationals, Chinese ones face weaker structural incentives to localize. Fewer than 10 percent of Chinese-firm employees are typically outside China.

This is not an argument for closing Canada to Chinese trade and investment. It is an argument for opening Canada to it selectively, on terms that build Canadian capability and restore some resilience to our industry and national sovereignty. We need to decide what level of Chinese-origin or Chinese-controlled exposure Canada considers acceptable—or else the decision will be made for us. We require snapback provisions that automatically reimpose tariffs if Beijing renews economic coercion against Canadian agricultural exports or other sensitive sectors. We must insist on Canadian rules on connected-vehicle data and software—and ultimately firmware and hardware—that are compatible with the US Commerce Department’s regulations, so that Canadian-assembled vehicles are not legally re-characterized as Chinese vehicles by Washington in a trade-agreement review. None of these moves requires renegotiating the deal. They constrain how it operates. They are also, presently, not in place.

When historians of Canadian economic policy look back at the 2020s, they will find one window in which the terms could still be set. The window is open now, and it is closing. After 2027, every corrective measure becomes more expensive and increasingly impossible. The choice the Honda news has forced into public debate is not a choice between Chinese investment and no investment. It is a choice between accepting industrial substitution and demanding industrial development. That choice belongs to Canadians. It should not be made for them by the absence of any threshold at all.

By all means, follow the money. Just understand that with Chinese EVs, it leads to a dead end for Canadian automotive manufacturing and could ultimately trigger a slow death spiral for much of Canadian industry. All too often, I hear Canadians saying we have no choice now. What they really mean is that the easy path is blocked, and they don’t like the harder road. But that’s the one that leads to longer-term prosperity and sovereignty through developing our own supply chains and ecosystems.

Adapted from Michael Kovrig’s testimony to the House of Commons Standing Committee on Industry and Technology, the Standing Committee on International Trade, and the Standing Committee on Science and Research. Reprinted with permission. With additional research by Jonathan Landreth, Patricia Xavier, and Joseph Widacki.