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Prime Minister Mark Carney tours an auto-parts plant in Woodbridge, Ont., in February.Eduardo Lima/The Canadian Press
Chris Severson-Baker is the Pembina Institute’s executive director and Adam Thorn is the think tank’s director of transportation.
U.S. President Donald Trump’s latest threat to hike auto tariffs and rip key parts of the sector out of Canada puts more pressure on Ottawa to align Canadian auto policy with Washington.
What does alignment look like? It is what Canada has been doing recently: sidelining electric vehicles and favouring production of conventional cars.
Canada must resist.
Ottawa can’t stop Washington from trying to reshape the North American auto industry around the U.S., but it can decide whether to make itself more dependent on that strategy or build more options of its own.
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A resilient Canadian auto strategy should focus on EVs, for that would mean more manufacturers, investment, access to export markets, stronger supply chains and, most importantly, more affordable vehicle choices in the country.
However, the government will need to provide policy certainty to make it happen. With Canada’s recent commitment to electrification expected to deliver more affordable energy and reduce emissions, transportation policy needs to actively drive EV adoption.
We have already seen how U.S. trade pressure can affect Canadian auto policy.
Last year, Prime Minister Mark Carney weakened policies designed to provide Canadian consumers with access to more EV models at a variety of price points. The government removed the 2026 requirement under the Electric Vehicle Availability Standard, saying that the move would help reduce economic pressure created by tariffs. Earlier this month, Canada repealed the standard altogether without an immediate replacement, as was promised in its February auto strategy. The standard has since been postponed to 2027.
The result of this backpedalling? Mr. Trump decided to raise auto tariffs to 50 per cent anyway.
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Honda vehicle are assembled at a plant in Alliston, Ont., in April, 2024.Nathan Denette/The Canadian Press
These decisions affect what vehicles auto makers bring to Canada and, ultimately, what vehicles Canadians can choose from and how much they pay.
That’s why the country needs to be careful with what comes next. Mr. Trump is using Canada’s dependence on the U.S. market as leverage. He has made clear that his objective is to strengthen U.S. production and pull investment and manufacturing south. We can’t stop him from pursuing that objective and we should not assume that weakening Canadian policy will retain investment.
Canada has a clear choice – we can use this moment to build a more resilient auto market or we can weaken policies that create domestic demand for EVs and limit competition from global manufacturers to align more closely with the U.S. market.
The first option starts with a strong vehicle emissions standard (VES) that gives auto makers a clear signal that Canadians need more affordable electric options. Canada can then allow global manufacturers to compete to meet that demand, building on Mr. Carney’s January agreement to open the country’s market to Chinese EVs.
Our research shows that strong regulatory policy that encourages EV uptake creates downward pressure on EV prices.
More manufacturers competing for Canadian buyers could bring new models and price competition. We are already seeing auto makers respond to growing demand for more affordable EVs, with a wave of new, lower-priced models entering the market. Canada should be accelerating that competition, not narrowing the field.
The second option would leave Canada more dependent on the U.S. While this might sound like a way to protect the country’s existing auto industry, it comes with a cost to consumers and no guarantees for workers. A weak VES gives auto makers less incentive to prioritize making EVs available to the market and puts us behind the global industry – leaving Canadians without access to better and more affordable cars. In contrast, when the European Union set up a strong VES, their EV market share went from 3 per cent in 2019 to nearly 30 per cent last year, and affordable models multiplied.
Canadian car prices are dropping – except for used EVs
Even if Canada chooses this path, there is no guarantee that the U.S. will cease efforts to move manufacturing from Canada to the U.S.
None of this means Canada should walk away from the U.S. market.
Canadian auto workers and manufacturers depend on continued access to the U.S., and protecting that access remains essential. But if we continue following American policy to maintain the struggling status quo of our auto industry, rather than allowing for EV and policy innovation, consumers will suffer from fewer choices. Instead of having the option to buy a low-cost EV that is cheaper to charge, they will have to keep paying for gas-powered cars as gas prices fluctuate wildly.
A more independent Canadian economy will not be achieved by caving to U.S. pressure, weakening the policies that create domestic demand and limiting the companies that can compete in our market.