Canada’s decision this month to give Chinese carmakers a toehold in the country’s car market may be an ominous development for U.S. automakers that are already struggling to stay relevant outside North America.
General Motors and Ford Motor — the two largest U.S.-based car manufacturers — have been steadily losing customers in Asia, Europe and Latin America, as Chinese carmakers have gained ground. Now Canada plans to lower tariffs on a limited number of Chinese-made vehicles, potentially giving companies like BYD, SAIC or Geely a small but significant presence on the United States’ northern border after already building a thriving business in Mexico and much of Latin America.
If they lose significant ground to Chinese companies in Canada, Mexico and other countries where they once dominated, Ford and G.M. could gradually become niche manufacturers, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan. They will end up primarily making and selling large pickup trucks and sport-utility vehicles favored by many Americans but that tend to sell less well in much of the rest of the world.
“There’s a real danger that the market for U.S. carmakers is going to largely to be the U.S., and only that part of the U.S. market that wants big S.U.V.s and trucks,” Mr. Gordon said.
The number of Chinese vehicles eligible for low tariffs in Canada will be small — less than 3 percent of the Canadian car market. Still, “it is very symbolic and significant to the industry,” said Lenny LaRocca, who leads the auto industry practice at the consulting firm KPMG. The U.S. automakers, he said, “are taking it very seriously.”
The deal with China, which was announced Jan. 16 in Beijing by Prime Minister Mark Carney of Canada, was the latest example of how President Trump’s policies have disrupted the U.S. auto industry. His hostile rhetoric toward Canada and 25 percent tariffs on cars imported from Canada have devastated the Canadian auto industry, which is highly intertwined with U.S. automakers and parts suppliers.
Last year G.M. ended production of an electric van at a factory in Ingersoll, Ontario, after Republicans in Congress ended tax credits for buyers of electric vehicles, undercutting demand. G.M. is cutting a shift at a pickup factory in Oshawa, Ontario, at the end of this month. Stellantis abandoned a plan that had been subsidized by the Canadian government to produce a Jeep model at a factory in Brampton, Ontario, and moved production to Illinois.
Canada has had little choice but to move closer to China, said Mike Murphy, a veteran Republican political consultant and co-founder of EVs for All America, an organization that promotes electric vehicle ownership. The president’s trade policies “pushed them into a corner and the corner is Beijing,” Mr. Murphy said.
Chinese electric cars are effectively barred from the United States by 100 percent tariffs. Canada imposes roughly the same tariff, but plans to lower it to 6.1 percent for 49,000 Chinese-made cars per year. In return, China agreed to lower tariffs on Canadian canola products.
Many of the Chinese cars arriving in Canada might be Teslas made in Shanghai, where the company has a large factory. Chinese brands like BYD that are new to Canada would face a safety approval process that could take more than a year.
Still, Canadian buyers might eventually get a glimpse of cars like the Xiaomi SU7, a sporty sedan that has earned grudging admiration from established Western manufacturers. The car exemplifies the styling and technology that has allowed Chinese models to sell a growing number of vehicles in Asia, Europe and Latin America.
Mr. Carney also announced that China would make a “considerable investment into Canada’s auto sector” within three years, suggesting that Chinese companies would ultimately manufacture cars in the country.
Americans already encounter Chinese models on trips to Mexico and will soon begin to see them on visits to Canada or when Canadians drive them across the border. It may become increasingly difficult for U.S. policymakers to explain to Americans why they can’t buy the same attractively priced Chinese electric vehicles available to Canadians and Mexicans.
“I don’t think people like being left out of cool technology,” said Albert Gore III, executive director of the Zero Emission Transportation Association and the son of the former Democratic vice president.
Mr. Gore said Republican policies have undercut efforts to create an electric vehicle supply chain independent of China. Canada has significant deposits of lithium and other critical materials.
“We’ve pushed one of our closest allies, diplomatic and trade allies, into a deeper and more robust trade relationship with China,” Mr. Gore said.
Mr. Trump’s commerce secretary, Howard Lutnick, criticized Canada’s deal with China and said it could affect the North American trade agreement that the United States, Canada and Mexico are planning to renegotiate.
“They are playing with a set of rules that they haven’t really thought through,” Mr. Lutnick said in an interview with Bloomberg at the World Economic Forum in Davos.
In a recent visit to Detroit, Mr. Trump claimed credit for reviving the American auto industry and said that the United States did not need cars made in Canada or Mexico.
Ford declined to comment on Canada’s deal with China. G.M. referred to a joint statement by the American Automotive Policy Council and the Canadian Vehicle Manufacturers’ Association, two groups that lobby on behalf of Ford, G.M., and Stellantis, which also owns Ram and Chrysler.
The decision to let in Chinese cars “has the potential to undermine Canada’s auto sector and presents risks to the future of the integrated North American auto supply chain,” the organizations’ statement said. Doug Ford, the premier of Ontario, home to many Canadian auto factories, has also objected to Mr. Carney’s agreement with China.
Flavio Volpe, president of the Canadian Automotive Parts Manufacturers’ Association, said that the deal exposes the industry to Chinese manufacturers that sell at artificially low prices made possible by government subsidies.
“Chinese cars are cheaper for a reason,” he said. “All of those reasons are available only to the Chinese.”
Canada could serve as a valuable test market for Chinese automakers, giving them an opportunity to learn about North American preferences. Canadians are fonder of small cars than Americans, while also buying lots of pickup trucks and S.U.V.s. But electric vehicles are growing in popularity.
“Although E.V.s are not a big deal today, they are going to be the big deal,” said Mr. Gordon, the Michigan professor. “China is probably ahead of the U.S. in E.V. technology and ahead of the U.S. in electric vehicle manufacturing.”
Ford and G.M. scaled back plans to develop electric vehicles after the elimination of tax credits and other clean energy incentives. Ford, for example, canceled production of the F-150 Lightning even though it was the best-selling electric pickup last year, according to estimates by Cox Automotive.
Mr. Trump’s plans to cut emissions standards have also encouraged automakers to sell more gasoline pickups and S.U.V.s that earn the most profit. But those kinds of vehicles sell poorly in Asian and European countries with relatively high fuel prices.
The overseas operations of U.S. automakers have been shrinking for years. G.M. sold its Opel unit in Europe in 2017 to Peugeot, which later merged with Fiat Chrysler to become Stellantis. Sales outside of the United States, Canada and Mexico accounted for only 8 percent of G.M.’s revenue in the third quarter.
Ford remains a leading car brand in a few countries like Britain and Australia, but it has lost a lot of ground in Europe. The company had 3 percent of the European Union market last year, down from 5 percent in 2020, according to the European Automobile Manufacturers’ Association. Last year Ford closed a factory in Saarlouis, Germany, a city near the French border.
Chinese carmakers have been gaining customers in the places that Ford and G.M. are losing them. BYD tripled its share of car sales in Europe last year to almost 2 percent, surpassing Tesla, according to the manufacturers’ association.
But some analysts said that losing sales in foreign markets, while unappealing, might not amount to a big financial loss for U.S. automakers. That’s because it was already hard for the companies to make money in many countries because they are competing for customers against a lot of other manufacturers, including the Chinese.
Lately, the U.S. automakers’ best opportunities for growth are in new businesses like self-driving taxis or financial services, said Mr. LaRocca of KPMG. Ford provided an example last month when the company said it plans to begin manufacturing large batteries that can be used to store renewable energy.
“The U.S. auto market is the most profitable auto market,” he said. “Outside of the U.S. it’s very difficult.”
But industry experts say the U.S. carmakers are not moving fast enough to respond to Chinese competition. During the last decade 50 percent of the patents in automotive technology were filed by Chinese firms, according to research by Greig Mordue, a former Toyota executive who is a professor at McMaster University near Toronto.
“You can ignore it for a while,” Mr. Mordue said of Chinese competition, “but ultimately you will get engulfed.”
Ian Austen contributed reporting.
Jack Ewing covers the auto industry for The Times, with an emphasis on electric vehicles.
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