Trade Deals Are Accelerating the Chinese EV Shock For Legacy Automakers
At Davos, Canada’s Prime Minister Mark Carney framed the current moment plainly: the “rules-based” era is fraying, and countries are moving toward a world where outcomes are shaped less by shared norms and more by negotiated relationships.
That of course matters for every industry, but for the automotive sector it changes the game with regards to Chinese EVs.
In the old model, Chinese EVs were a political object, arguably moreso than a commercial one. They were discussed through tariffs, security framing, industrial policy, and regulatory friction.
The core question was: should they be allowed in?
As long as that was the question, incumbents had a buffer.
The new model looks to remove that buffer gradually, then perhaps completely; it is an accelerant for trends with which legacy automakers already seemed to have trouble keeping up.
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Trade Deals Will Accelerate and Compress Legacy Automakers’ EV Timelines
Trade agreements open up new markets, but at a more social level, they legitimize the products that are allowed in; they are an implicit way for governments to say to their citizens: “we have taken a look at this, and now we think it’s ready for you to use or consume.”
The moment a Chinese EV can be imported, sold, financed, insured, serviced, and resold under standard rules, it stops being part of a political agenda and straightforwardly becomes a simple purchasing option.
And so, with trade deals, the question flips from should this be allowed? to which one is better value?
The question of Chinese EVs becomes commercial rather than political, and the more we see the emergence of these trade deals, the more legacy carmakers will see their EV timelines compressed due to this dynamic.
Canada: Small Volumes, Big Legitimacy
As part of a recently announced trade deal with China, Canada will lower the 100% tariff on Chinese EVs to 6.1% for 49,000 vehicles per year.
This is a relatively small number compared to Canada’s overall market, but to look solely at the tariff relief today is to overlook the consequences down the line for automakers already established in-country.
A limited foothold is enough to plug Chinese EVs into the normal operations and routines of the market: fleets, leasing assumptions, insurer models, dealer economics, service networks, and crucial word-of-mouth credibility.
Once those gears start turning, it gets harder to argue that access should be restricted, because at that point you’re not “protecting an industry,” you’re taking options away from consumers and businesses.
That’s politically unpleasant, which means the commercial momentum tends to win by default. And turning back to politics, if old alliances are in fact no longer relevant and trade corridors with China become shorter, it is reasonable to assume that 49,000 imports per year could turn into something much greater.
If you are in leadership at a legacy automaker, pay no attention to the limited scope of the current agreement. It is a wedge: the first cars matter less for market share than legitimacy, and the former will follow eventually.
EU–Mercosur: Opportunity and Collision in the Same Trade Agreement
The EU–Mercosur deal shows another phase of this transition. For European carmakers, the agreement presents lower tariffs over time, a clearer rules framework, and the promise of selling more EU-built vehicles (especially higher-margin models) into a large market.
On paper, it looks like textbook upside: more export volume, better economics on premium imports, and a friendlier environment for integrating South America into end markets and supply chains.
But that upside is neither immediate nor uncontested.
Tariffs on finished cars don’t drop to zero on day one; they are phased out over a long transition. That means EU manufacturers do not suddenly gain a decisive price advantage for imported vehicles.
And even as duties fall, the models shipped from Europe should be the more expensive ones, premium ICE and EVs sitting above the locally produced “workhorse” segments. That goes against the reality that, even with increasing standards of living, in many Mercosur markets (and, to be clear, many other markets around the world), the purchase decision is economic: monthly payment, financing, availability, operating cost.
Heritage and mythology, the key differentiators legacy automakers have at their disposal against Chinese EVs, sit several layers below that.
In that environment, Chinese manufacturers don’t need to “win hearts.” They only need to land products that are good enough and cheaper in the segments where budgets are tight and fleet economics rule.
As the EU opens its own door to deeper trade with Mercosur, Beijing will be working the same problem from the other side, pursuing bilateral arrangements and local production that allow Chinese OEMs to exploit the same reduction in friction, without carrying legacy European cost structures.
The Decisions That Trade Deals Force For Legacy Automakers Facing Competition From Chinese EVs
If you take Carney’s Davos framing seriously, you have to stop reading trade deals as “extra access” for legacy automakers and start reading them as normalization events for Chinese EVs.
For a decade, legacy carmakers have treated Chinese EVs as a political problem: something to be contained with tariffs, safety rules, industrial policy and vague talk of “strategic autonomy.” That bought time and created the illusion that, if things got uncomfortable, you could always lean on politics to slow entry.
That stance was never tenable, today’s geopolitical situation only accelerates what was inevitable; that reality is here in the form of the first of what should be numerous other trade deals between countries and country-blocs.
Canada’s agreement with China and the EU’s agreement with Mercosur are the first manifestation of this accelerated timeline for legacy automakers.
What was already looking to be an expensive, even existential, competition sometime in the future is looking to be exactly that, but it’s already here.
Is Your Automobile Brand Ready For the New Trade Landscape?
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Main image source: Michael Marais via Unsplash