There are many stories around the world, including The Lord of the Rings trilogy, where close friends or siblings, precisely because they are so close, are confronted with a crisis that drives them apart. Perhaps Canada and the US, staring down China’s massive electric vehicle sector, should be added to that list.
Chinese EV giant BYD is reportedly planning to establish a dealer network in Canada. Considering that Chinese vehicles are subject to a 100% tariff in the US and Canada, effectively creating an embargo, the natural question upon hearing this is, why?
In the background is the disagreement between the administration of US President Donald Trump and the Canadian government over tariffs. In January, Canadian Prime Minister Mark Carney announced that Canada would stop aligning its tariffs on Chinese cars with the US, setting an import quota that took effect in May lowering the duty on Chinese vehicles to 6.1%.
The import quota is 49,000 units in the first year, a small number compared to Canada’s annual market size of 1.9 million units. Moreover, the first to raise their hands were US automakers Tesla and General Motors, apparently looking to import EVs produced in China.
But the Canadian government has said that it will gradually widen the import quota, with BYD, Chery Automobile, and Geely preparing to export. These companies see this as a once-in-a-lifetime opportunity to crack open the North American market.
A trilateral meeting was held on July 1 to decide whether to renew the US-Mexico-Canada free trade agreement, six years after its launch. The US declined to renew the deal, taking the three countries back to the negotiation stage to try to come to a new agreement.
Considering the benefits to the three countries, especially to US companies, the agreement itself is unlikely to collapse entirely. But individual policies and strategies toward China outside of the agreement, like Canada’s import quotas, may continue to diverge.
What kind of consequences could that have? The US and Canada have shared the world’s longest border, stretching 8,891 kilometers, for about 200 years. With the similarities in their language, lifestyles, and values, if inexpensive Chinese EVs gain popularity in Canada, the psychological barrier against Chinese cars in the US could start to break down.
A similar phenomenon is occurring in Australia, where BYD has largely caught up with Tesla in just three years since its entry into the market. This was after Chinese EVs gained popularity in Europe, where values are similar, lowering the psychological barrier for Australia.
The discord between Canada and the US stems from a misunderstanding between their leaders. If The Lord of the Rings doesn’t help you conjure an image of their dynamic, how about the biblical story of Cain and Abel, two brothers pulled apart by the differences between them?
But it’s worth thinking about where Canada is headed as it seeks to reduce its trade dependence on the US. As China waits with arms open, an examination of why its EVs are so cheap is called for.
BYD, Chery, and Geely all boast high technological standards, and their efficient management, evidenced by their short development cycles, is highly rated. But it is also said that their rapid rise and low-cost operations have been possible thanks to China’s domestic industrial policies.
According to data from the Organisation for Economic Co-operation and Development, or OECD, China provides approximately eight times more subsidies to businesses than European and Asian member states. This includes national and local government grants, low-interest loans from government-affiliated financial institutions and tax incentives.
The Chinese government said these are things that every country does, but a detailed analysis by US think tank Rhodium Group revealed that in addition to the government subsidies and loans, companies are able to secure significantly more favorable contracts through state-owned enterprises in areas like steel and other raw material procurement, electricity, and logistics services than companies in other major countries. This appears to be government policy.
By continuously exporting inexpensive final products overseas, China is cornering competitors worldwide and narrowing the scope of competition, wrote Rhodium partner Agatha Kratz.
In the EV sector, both in finished vehicles and batteries, it has become difficult for companies outside of China to grow. China, which holds a dominant share of key raw materials, has tightened export restrictions to countries like Japan, effectively weaponizing its supply chain.
The starting point to all of this may have been 2013, when Xi Jinping became president. China began tightening restrictions on US tech companies, politically entangling companies like Apple—which manufactured most of its products in China—and seizing their technology.
US journalist Patrick McGee wrote in his book “Apple in China: The Capture of the World’s Greatest Company” that, without intending to, Apple helped Beijing acquire technology comparable to that of the US.
China has since dominated most manufacturing sectors through its “Made in China 2025” policy, which began in 2015. From 2026, China is adding autonomous driving and next-generation solar cells to its five-year plans, as Xi reportedly secretly advocates for total industrial dominance.
It would be fine if the progress of industrial development was a fair and even thing. But if the goal is to distort competition and crush competitors in other countries, then supply chain bottlenecks will increase everywhere.
Unity is crucial to confront China’s business practices, sometimes referred to as the “red supply chain.” The “One Ring” in The Lord of the Rings symbolizes both destruction and human bonds, but Germany, whose automotive sector heavily relies on China, has been slow to act.
Can the US and Canada unite based on their shared values and achieve a grand, epic conclusion, like Frodo and Sam?
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.