2025 is bringing the greatest challenges North America’s burgeoning EV sector has faced yet

The first weekend in February saw the curtain lift on the opening act of a political melodrama continuing to unfold on the North American stage.

On February 1, President Donald Trump made good on his threat to impose a 25 per cent tariff on Canadian and Mexican goods. The measure is being presented as responding to a danger to U.S. national security for what Trump describes as Canada and Mexico’s complacency concerning the flow of drugs and illegal immigrants into the United States.

Following Trump’s Executive Order, Canadian officials quickly announced their own round of 25 per cent tariffs on U.S. goods. As well, premiers across the country announced measures such as cancelling contracts held by American companies and the banishment of American liquor, beer and wine from provincial alcohol retailers.

Amid the political din, Mexico managed to negotiate a tenuous pause in tariff implementation in the hope they can negotiate a resolution with the Trump Administration over the next 30 days.

Then, hours before tariffs against Canada were set to go into effect on February 3, Ottawa and Washington also reached a month-long temporary trade truce.

At 12:01am on February 4, 10 per cent tariffs went into effect for Chinese imports to the U.S.

Despite staving off of an immediate crisis on its own shores, North America remains divided. The three countries are in limbo for the next 30 days waiting to see if they can negotiate a agreement they can each claim as a success.

And somewhere in the middle of the power struggle is an auto industry already grappling with a transition to zero-emission vehicles and the creation of a robust North American battery supply chain. The sector is shakier than ever and a future anything but certain.

“These tariffs introduce severe risks to the stability of the auto sector,” reads a letter from the Automotive Parts Manufacturers’ Association to its members.

“The auto sector operates on just-in-time logistics, meaning sustained disruptions could force temporary closures… The tariffs may cause immediate bottlenecks in cross-border shipments, forcing companies to reconfigure sourcing strategies. U.S. manufacturers relying on Canadian parts will face higher costs, leading to increased vehicle prices for consumers.”

It’s a sentiment being echoed across every border in North America.

All in all, say experts, it’s a continental catfight that will likely end in economic hardship for almost 530 million citizens, damage to the reputation of North America and, perhaps, cede valuable ground in a global ohms race to full battery electrification and production.

Electric vehicles on the line

Last week, Linda Hasenfratz, the CEO of autoparts maker giant Linamar, said a tariff war with the United States would “bring the industry to its knees.”

The statement was made during an announcement that saw Linamar reinvest $1.1 billion into its production facilities in Canada. 

Much of the investment is going into developing manufacturing for EV parts.

Even so, Hasenfratz went on to say her belief is auto production in Guanajuato, Mexico, Detroit, Michigan and Windsor, Ontario would be forced to stop within a week should tariffs be imposed at any point.

That ominous prophecy is being echoed by many in Canada from elected officials to EV industry stakeholders and membership coalitions.

The EV sector is a new supply chain in North America and has already been coping with growing pains. Continental trade instability presents additional challenges, but also, perhaps, better opportunities.

“There is an element of ‘never waste a good crisis,’” says David Adams, president and CEO of the Global Automakers of Canada, in an interview with Electric Autonomy.

“We finally seem to have agreement from the federal government and all the provincial leaders that, ‘Gee, maybe we do need to do something about these interprovincial trade barriers,’ which, in some cases, can add upwards of 20 per cent to the cost of things. I think there is an opportunity for Canada to wake up a little bit and become more aware that maybe they just can’t take the easy route of assured access to the U.S. market.”

That could have interesting implications for the Canadian EV manufacturing sector.

“Interprovincial trade accounted for roughly 55 per cent of overall trade flows in the early 1980s, but has declined to 36 per cent today,” reads a recent report from Scotiabank.

“A 2019 IMF study identified that sectors looking to trade interprovincially face non-geographic costs equal to a 21 per cent tariff.”

Is there a future in which critical minerals mined and refined in facilities across Canada could be shipped inter-provincially to battery factories, that in turn would send battery cells and packs to automotive assembly factories in other areas of the country where finished vehicles are shipped to Canadian dealerships for retail?

Adams thinks so.

“Canada can take advantage of the situation and position itself as a welcoming, stable place for foreign direct investment,” he says.

“We’re not going to be putting tariffs on other countries. That’s not how we generally operate. So I think there is an opportunity for Canada to start to develop a different sales pitch for foreign direct investment.”

“The currency of predictability”

Most political standoffs take the form of Greek tragedies — that is the main action occurs offstage in backrooms and on secured, private phone lines away from public view.

The fight over tariffs is, by contrast, happening in the full glare of the international spotlight.

The publicity, while perhaps entertaining for those not directly affected by the outcome, has the potential to be mutually harmful for both Canada and the U.S.

“Business likes certainty,” says Adams. “In the more uncertain world — and the more uncertain it seems to be getting day-by-day — the currency of predictability will go up.”

For the last three years Canada has made no secret it’s taken a bullish approach to attracting foreign investment to build out an EV battery supply chain.

Measures include allocating enormous government subsidies and tax breaks for incoming companies, global trade tours to Asia and Europe and being clear that Canada will not be out-muscled by the United States and the Biden Administration’s Inflation Reduction Act stimulus package that allocated a sizeable chunk of its $300-billion budget to zero-emission vehicle supply chains.

It’s not clear if Canada’s position on the latter is what has, at least in part, raised the ire of Trump and what he means when he says, “We aren’t treated well by Canada.”

But with the president’s grievances about USMCA (a trade deal he once took credit for, referring to it as “incredible”) and his fixation on U.S. trade deficits it’s not impossible that part of the problem now is that Canada is ambitiously pursuing the largest slice of the EV pie instead of being content with being left with whatever its neighbour didn’t take.

“The U.S. is reliant on our crude oil, our uranium, on our potash, on our high-grade metal, on our electricity. Ontario powers 1.5 million homes, keeps the lights on New York and Michigan and Minnesota and many other areas,” said Ontario Premier Doug Ford in a recent interview with CNN.

“We want to ship down more products, more critical minerals, more oil. We’d rather have a strong trading partner with the U.S., build an Am-Can fortress.”

Rising Chinese influence

The ideal of a united North America moving in unison to break away from reliance on Chinese critical minerals and battery manufacturing seems much less certain today than it did just six months ago.

Still, many within the U.S. are voicing urgent concerns about the effect of tariffs on competitiveness in critical minerals, batteries, auto parts and vehicles.

“Canada and Mexico are the United States’ top automotive trade partners, forming the backbone of a resilient, North American-centered [sic] supply chain,” reads a statement from the American, Motor & Equipment Manufacturers Association (MEMA).

“Since the implementation of USMCA, regional trade has grown stronger, reducing reliance on China and reinforcing North American economic security. Tariffs would upend this progress, forcing companies to reevaluate supply routes and delay production, as well as discourage further investment in emerging technologies.”

Those with a focus on the critical battery minerals side are especially concerned by the threat of tariffs.

“Everything about critical minerals, at the end of the day, is not about Canada-U.S. It’s about the U.S. and China, or, the West and China,” says Frik Els, head of Adamas Inside, in an interview with Electric Autonomy.

“Are you really going to punish your neighbour, if your end goal is to decouple from China? If you want to set up an alternative supply chain to China, then you would want to integrate with Canada.”

Mining the least affected

Els says that while the tariffs (or even the threat of tariffs) are causing havoc for the upstream supply chain, he believes the critical mineral mining portion of battery manufacturing is not likely to be as affected.

That’s because the mining industry works on different timelines to auto retail and parts supply — they are thinking in terms of decades, not days.

In all likelihood mining operations and projects in the works in Canada — and North America — will proceed as planned. However the same can not be said for the refining of critical minerals.

The plans was while North American critical mineral refiners worked to establish facilities and suppliers and scale up, there would be a gradual weaning off of Chinese minerals.

Now that Trump’s 10 per cent tariff is in effect on Made-in-China goods, it’s being anticipated that the latter may retaliate and become even more restrictive on battery minerals.

“China has readied a trade war arsenal,” says Els. “They [already] have export restrictions or very tight rules around battery materials, battery processing, battery technology. If the trade tariffs are imposed on them are harsh they could explode the whole system.”

Els gives graphite as a particularly obvious example with China responsible for supplying around 90 per cent of the U.S.’s graphite.

If China turns off the tap “that would actually chase the U.S. into the arms of Canada, because we have the raw materials, even if we don’t have all the processing facilities. That could actually lead to a boom,” says Els.

Facing the unknown

The trade disputes over the last week are unprecedented in 90 years of Canadian-American relations.

No one knows how the situation will play out, but the importance of the outcome can not be understated with over a trillion dollars in goods flowing across the two North American borders every year.

What is known is that, in the short and medium terms, at least, a trade war between Canada, the United States and Mexico would destabilize and harm all three economies.

Perhaps one day — decades in the future — the North American fortress will have the manufacturing infrastructure to decouple further from one another. For now, though, for better or worse, the industries in each country are inextricably linked with its neighbour.

To provide further analysis on the evolving Canada-U.S.-Mexico trade tariff situation, Electric Autonomy is hosting Flavio Volpe, president of the Automotive Parts Manufacturers’ Association; Collin Shaw, president of MEMA, The Vehicle Suppliers Association; and Francisco N. González Díaz, executive president of the Industria Nacional de Autopartes, A.C., at the EV Innovation and Technology Conference on February 6 at York University in Toronto.

Tickets are available here.