Canada Rolls Out New Auto Industry Strategy as It Reduces Reliance on US Market
Canada has announced a new plan aimed at strengthening its automotive sector and accelerating the shift to electric vehicles, as the industry struggles with the impact of US trade tariffs and an increasingly uncertain relationship with its largest export market.
Prime Minister Mark Carney unveiled the measures on Thursday, describing them as part of a broader effort to diversify Canada’s economic ties and reduce dependence on the United States. The announcement comes as US President Donald Trump continues to push policies favouring domestic vehicle production.
Central to the plan are financial incentives designed to encourage automakers to expand and invest in Canada, alongside the return of government rebates for electric vehicle buyers. The strategy follows the introduction last year of a 25 per cent tariff by the US on Canadian-made vehicles and auto parts, a move that sent shockwaves through the industry.
Canada’s car sector is deeply intertwined with the US market, with around 90 per cent of vehicles produced in the country exported south of the border. Several American automakers operate plants in Canada under long-standing free trade arrangements, and supply chains span both countries.
Speaking at an automotive facility in Toronto, Carney acknowledged that the trading landscape has shifted, noting that the upcoming review of the United States-Canada-Mexico Agreement (USMCA) may not deliver the tariff-free certainty it once promised.
“The approach of the US has changed,” he said, adding that Canada must be ready for multiple scenarios.
The impact of the tariffs has already been felt, with thousands of Canadian auto workers losing their jobs as manufacturers such as General Motors and Stellantis cut back production. In response, the government plans to introduce a new tariff credit system that would help companies offset costs if they manufacture vehicles within Canada.
At the same time, Ottawa has been looking beyond the US to secure the future of the sector. Recent agreements with China and South Korea are intended to attract new investment and boost electric vehicle production, although analysts say these deals could intensify competition for US-based carmakers.
As part of Thursday’s announcement, Carney confirmed that Canada will reinstate incentives for consumers purchasing electric vehicles, a policy that diverges sharply from the US, where federal EV subsidies were rolled back last year.
The government also plans to tighten emissions standards for new vehicles, with a long-term goal of electric vehicles accounting for 90 per cent of new car sales by 2040. However, Carney scrapped a mandatory EV sales target introduced in 2023 by former prime minister Justin Trudeau, citing concerns from automakers about cost and feasibility.
He said the revised approach would deliver environmental results without placing excessive strain on the industry. Environmental groups, however, were quick to criticise the decision to abandon the sales mandate, arguing it weakened Canada’s climate commitments.
