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01/22/2026 | Press release | Distributed by Public on 01/22/2026 11:00

Canada and the European Union: Two New Wins for Chinese Exports in the West

Canada and the European Union: Two New Wins for Chinese Exports in the West

Photo: Adek BERRY/AFP/Getty Images

Commentary by Ilaria Mazzocco

Published January 22, 2026

Last week was full of surprises for trade disputes between China and U.S. allies in what has become a highly controversial sector in recent years: electric vehicles (EVs). Both Canada and the European Union appear to have reached agreements with China that would allow for more Chinese-made EVs to enter their markets. The United States should take note. Both the European Union and Canada were converging with the United States on their approach toward Chinese industrial policy, overcapacity, and trade disputes, but these deals suggest more willingness to engage with China on commercial matters, despite the country's record exports (see Figure 1). Indeed, at a time when Washington is increasingly focused on technological competition with China, it appears as though some close allies may be considering a more diversified approach to technological stacks-one which may include some reliance and cooperation with China. Although derisking may still be a priority for Brussels and Ottawa in some specific sectors, neither government is espousing a broad strategy to isolate China at the moment.

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Deputy Director and Senior Fellow, Trustee Chair in Chinese Business and Economics
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There are big differences between Canada and the European Union and their respective relationships with China. Moreover, the breakthroughs of this week don't address the structural issues that have raised tensions between China and many of its trading partners in recent years. However, taken together, the developments are significant because of the signal they send. One reasonable conclusion is that Western countries are still interested in Chinese technology and are mainly focused on reducing the volume or price competition rather than blocking trade altogether. A key background element in both cases is Chinese investments, which governments in Europe and Canada hope may boost domestic employment and innovation through potential technology transfers. Indeed, in the case of Europe, the investments already exist, and the debate has already shifted to how to manage and ensure that Chinese manufacturing can benefit long-term competitiveness and innovation goals. In other words, European and Canadian leaders believe that there are economic benefits to maintaining some trade and allowing some investment from China.

What Is the European Union's Deal?

On January 12, 2026, the European Commission released a guidance document providing information to companies on how to submit offers for voluntary price undertakings for battery EV exports from China, signaling it would welcome such an approach in some cases as an alternative to the tariffs imposed after its anti-subsidy investigation on battery electric vehicles made in China. This came as reports broke that not only had Volkswagen already submitted an application for the CUPRA Tavascan, which is produced in China, but that the Chinese Ministry of Commerce (MOFCOM) had endorsed such an approach, reversing its earlier position.

For the European Union, the debate over EV imports has been both drawn out and high profile due to the large-scale economic implications of the rapid shift in the automotive balance of trade with China (see Figure 2). When tariffs on Chinese-made battery electric vehicles ranging from 7.8 percent for Tesla to 35.3 percent for SAIC Motor were introduced in 2024, the European Commission explicitly indicated that some alternative mechanisms could be utilized to avoid tariffs. However, over the next year, little progress was achieved between Beijing and Brussels when it came to finding an agreement. To complicate matters, European automakers such as Volkswagen that have extensive production capacity in China were also affected by the tariffs, while Chinese companies, including BYD, have been investing in Europe to localize more of their production and avoid duties. Indeed, European policymakers have faced tough choices due to the complex trade and investment ties between the two economies and the large number of cars exported from China to Europe by Western automakers such as Tesla, Volkswagen, and others.

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The issue with a price undertaking is that it may not solve the European Union's competitiveness or EV deployment problems, but it may help alleviate Chinese firms' "involution" struggles. Indeed, MOFCOM may turn out to be very pleased with the outcome, even if it wasn't an early vocal supporter of this solution. While tariffs require companies to pay a duty, a price undertaking would allow them to retain higher margins and potentially reinvest the money in expanding further production or research and development. Either way, consumers should see a similar, if higher, price tag. However, although much concern has been raised about the possibility of this outcome benefiting Chinese firms, it is worth noting that so far, Volkswagen, a German company, is the only one that has submitted a request for a price undertaking. Whether others will follow remains to be seen.

What Is Canada's Deal?

Only a few days after the news from Europe, during Canadian Prime Minister Mark Carney's visit to Beijing on January 16, the first such state visit in eight years, the Canadian government indicated that a series of commercial deals had been reached between the two countries. Among other things, the Canadian side agreed to allow 49,000 Chinese EVs into Canada at a most-favored-nation rate of 6.1 percent. This is far lower than the 100 percent rate that was imposed in 2024 following the United States' lead under then-President Joe Biden, which effectively stopped imports (see Figure 3). Some reports indicated that the number of vehicles would then increase to 70,000 over five years. In exchange, China has reportedly committed to lowering tariffs on Canadian agricultural products such as canola oil and to increasing investment in Canada, among other things.

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Prime Minister Carney and much of the reporting have highlighted that 49,000 cars is a small number compared to Canada's overall light vehicle market, which was roughly 1.8 million in 2025. However, when looking at EV sales, the number becomes far more significant. After a record year in 2024, when almost 251,000 EVs were sold in Canada, in 2025 the number dropped significantly, reaching less than 165,000 by the end of November, according to EV Volumes, an industry data provider. Thus, it is possible that 50,000 vehicles could inject some momentum into the market, especially if their price point can entice consumers. This is clearly part of the calculation-the Canadian official statement points to the hope that a significant portion of the vehicles would cost less than C$35,000 (about $25,000).

The Canadian deal is particularly opaque right now, and much remains unexplained, including which brands will be included in the 49,000 vehicles. For example, Tesla, a U.S. company, is a major exporter of EVs from China, but its vehicles would be in the more expensive range, and it is not clear that Beijing or Ottawa would prioritize a foreign firm's exports.

Regardless, this signals a far more dramatic shift in policy compared to that of the European Union. While Europe is already an importer of EVs from China and many European manufacturers are deeply dependent on the Chinese market and Chinese value chains, Canada is in a different position, as it has adopted a similar approach to the United States, effectively closing its market to Chinese automotive exports in 2024. By opening its market, even in such a limited fashion, it is effectively signaling a willingness to create more linkages with the Chinese market-especially given Prime Minister Carney's emphasis on the potential investment that would flow to Canada as part of this deal.

The fact that Canada is willing to cut such a deal with China and involve a hot-button issue such as EVs is significant also in relation to Ottawa's relationship with Washington, which, as Carney's speech at Davos this week indicates, is evolving rapidly. Lower tariffs on Chinese EVs and, more broadly, a deal with China will certainly come under scrutiny during United States-Mexico-Canada Agreement negotiations. Mexico is also a major importer of Chinese-made EVs as well as ICE vehicles, ensuring that this will indeed be a complicated discussion. Indeed, if the deal were to increase Chinese investment in Canada, that would raise concerns in Washington, even if, as of now, it seems that the main target of Chinese negotiations is access to the Canadian market.

Looking Ahead: A Complicated Path Forward

It is difficult to look at the data and conclude that Chinese manufacturing and EV producers won't play a major role in the future of the automotive industry. However, the deals discussed in this piece do not solve some of the broader issues that the industry faces in China, including over-competition and low margins and profitability. Meanwhile, although the European Union and Canada have signaled some interest in retaining or reestablishing some trade in the sector, they are far from swinging open the floodgates. In both cases, the governments are expecting some level of productive investment from China to mitigate the negative effects of changing trade dynamics. As argued above, both U.S. allies are effectively signaling a strong interest in the technologies that Chinese firms can offer.

For the United States, this raises interesting questions. Firstly, at a time when U.S. automakers have reined in their plans for electrification and federal policy has rolled back incentives for EV deployment, the growth of EV trade in other countries should be taken as a serious signal of future global trends. Second, Washington's strategy toward many of its allies, including Ottawa and Brussels, has been to utilize its leverage, whether it be military or economic, to secure more concessions. In several instances, this has proven a remarkably effective strategy. However, it has also created a new set of incentives for countries to, among other things, seek to stabilize their commercial relationship with Beijing, which is now portraying itself as a more reliable partner. While not necessarily always detrimental to U.S. national security in the short term, it could nonetheless carry long-term consequences. A more holistic foreign policy approach would consider both the motivations and interests of allies that can be leveraged to mutual benefit, in addition to the pressure points that can be used to pursue U.S. interests in a more direct way.

Ilaria Mazzocco is deputy director and senior fellow with the Trustee Chair in Chinese Business and Economics at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2026 by the Center for Strategic and International Studies. All rights reserved.

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