Prime Minister Mark Carney on Thursday announced a broad package of measures aimed at stabilising Canada’s auto sector and accelerating its transition to electric vehicles, as manufacturers and workers grapple with the impact of steep US tariffs and shifting trade dynamics in North America. The plan is the latest signal from Ottawa that it is seeking to reduce Canada’s heavy dependence on the US market at a time when Washington is prioritising domestic vehicle production under President Donald Trump.
Speaking at an automobile manufacturing facility in Toronto, Carney said the global and regional context for Canada’s auto sector had fundamentally changed. With the US no longer committed to the original spirit of tariff-free trade under the United States-Canada-Mexico Agreement (USMCA), which is due for review later this year, Canada must be ready for multiple scenarios. “Their approach has changed,” Carney said, referring to the US administration. “We have to prepare for all possibilities.”
The announcement comes against the backdrop of a 25% tariff imposed by the US on Canadian-made cars and auto parts last year, a move that sent shockwaves through the industry. Canada exports close to 90% of its vehicle production to the US, and the two countries’ automotive supply chains are deeply intertwined, with many American manufacturers operating plants north of the border. Since Trump’s return to the White House, thousands of Canadian auto workers have been laid off as companies such as General Motors and Stellantis cut back production in response to rising costs and uncertainty.
To cushion the impact of tariffs, Carney unveiled a new tariff credit system that would benefit automakers producing vehicles in Canada, including major players such as GM and Toyota. The credits are intended to partially offset the financial burden imposed by US levies and encourage companies to maintain and expand their Canadian operations.
At the same time, the federal government plans to revive consumer rebates for electric vehicles, a policy shift that contrasts sharply with developments in the US, where the Trump administration scrapped subsidies that had lowered the cost of battery electric, plug-in hybrid and fuel cell vehicles. Carney said reinstating incentives would support consumers while helping manufacturers scale up EV production for the domestic market.
Canadian officials have also been actively seeking new international partnerships to diversify trade and investment in the auto sector. Last month, Ottawa reached an agreement with China to ease tariffs on Chinese-made electric vehicles, reversing duties imposed alongside the US in 2024. Canada has also signed a deal with South Korea designed to attract Korean automakers to set up or expand manufacturing operations in the country. Analysts note that both agreements could potentially disadvantage US carmakers by opening the Canadian market to increased foreign competition.
Alongside financial measures, the government will introduce tougher emissions standards for new vehicles, with a long-term objective of electric vehicles accounting for 90% of all car sales by 2040. However, Carney simultaneously scrapped an electric vehicle sales mandate introduced by former prime minister Justin Trudeau in 2023, which required automakers to meet specific EV sales targets. The mandate had faced strong resistance from the industry, which warned that it would drive up costs and strain production.
Carney defended the change, arguing that stricter emissions rules would deliver environmental outcomes without imposing rigid requirements on manufacturers. “This focuses on the results that matter to Canadians, while avoiding undue burdens on the Canadian auto industry,” he said.
Environmental organisations were quick to criticise the rollback of the EV sales mandate, warning that it could slow Canada’s transition away from fossil fuels. Despite the backlash, the government maintains that the revised approach strikes a balance between climate goals and economic realities as the auto sector navigates an increasingly volatile trade environment.
