Trump’s Return: A Potential Storm for Canada’s $50 Billion Electric Vehicle Sector?

Canada has successfully attracted over $50 billion in investments related to electric vehicles (EVs) over the past three years, primarily fueled by growing demand from the United States. The economic relationship between the two countries is described as "deeply intertwined," but the incoming presidency of Donald Trump may pose significant challenges to this burgeoning sector.

As Trump returns to the White House, Canadian stakeholders are bracing themselves for a series of uncertainties, particularly within the auto industry. Questions loom over potential tariffs on Canadian-made vehicles, and the possibility of a halt in the progress of electrification policies could reshape the market landscape entirely. Reports from Automotive News warn that decades of cooperative automotive trade between Canada and the U.S. could be jeopardized.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, articulates the gravity of the situation, stating, "We’re so intertwined. Half of the vehicles made in Canada are produced by American companies." He warns that if Trump were to exclude Canada from agreements like the United States-Mexico-Canada Agreement (USMCA) and impose a tariff wall, it could negatively affect major American automakers such as General Motors and Ford, as well as American suppliers of parts and materials.

One of the critical scenarios includes a proposed 10% tariff on global imports into the U.S., potentially stifling Canada’s GDP by billions. This erosion will especially hit the auto sector the hardest, according to industry analysts.

In response to Trump’s election victory, Canadian Prime Minister Justin Trudeau quickly extended congratulations and emphasized the importance of the two countries’ economic ties, promising to address pressing cross-border issues.

Trump has openly criticized the current administration's policies that favor electric vehicles, claiming intentions to repeal Biden’s Inflation Reduction Act, which allocated billions toward battery supply chains. Additionally, he hinted at imposing tariffs as high as 200% on vehicles manufactured in Mexico and imposing elevated tariffs on imports from China and Europe.

Meanwhile, significant investments in EV-related manufacturing are being established in traditionally Republican states like South Carolina, Ohio, and Georgia. This presents a complex dynamic for Trump, as reversing these initiatives could undermine job creation in key areas that politically support him.

Following the election, major U.S. EV players such as Tesla, Lucid, and Rivian expressed their willingness to collaborate with Trump to continue advancing EV technology, although the specifics of such cooperation remain uncertain.

The role of Elon Musk could also be a pivotal factor. Experts suggest that Musk may act as a moderating influence on Trump due to Tesla’s significant operations and investments across North America. Brendan Sweeney from the Trillium Network for Advanced Manufacturing notes, “If they can’t walk away from [EV supports], it will create considerable logistical issues for Tesla.”

Detroit's Big Three automakers—Ford, GM, and Stellantis—have a vital presence in Canada, employing thousands of unionized workers. Trump's posture on tariffs and EV policies could ripple through the entire supply chain, impacting various stakeholders.

Adding to the complexity, Chinese EV manufacturer BYD has now put its Canadian entry plans on hold, deterred by Canada’s existing 100% federal tariffs on EVs imported from China, coupled with uncertainties resulting from U.S. policy shifts. This decision comes after months of discussions in Canada aimed at establishing a distribution network.

In August, Trudeau remarked that Canada would align its tariff strategies on EV imports from China with the U.S., highlighting the changing dynamics of international trade.

For Canada, securing its supply chains for critical minerals is urgent in order to reduce dependency on China. Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association, emphasizes the need to demonstrate to the U.S. that Canada is committed to supporting this transition, saying, “We have to show the Americans that we are ready to go.”

As the landscape continues to evolve, the interactions between the U.S. and Canada will be pivotal, influencing the future of the electric vehicle sector and, ultimately, the Canadian economy. With tensions brewing in trade policies and tariffs, stakeholders on both sides of the border are keenly watching the developments that lie ahead.