U.S. Midterm Outcome Injects Optimism Into Canadian Automotive Sector
The Democrat victory in the U.S. midterm elections could signal a positive shift for the Canadian auto industry, as experts predict a congressional push against tariffs and the possible resurrection of policies that favour the purchase of electric cars.
U.S. President Donald Trump’s protectionist trade policies have hurt the North American auto sector, especially in Canada, where it faces 25-per-cent tariffs to ship into its biggest market. And Mr. Trump’s decision to eliminate incentives to make and purchase EVs hammered sales in the U.S. and forced companies in Canada to abandon or postpone billions of dollars’ worth of projects intended to supply the U.S. market.
But the midterm elections on Tuesday that saw Democrats take majorities in the Senate and House of Representatives offer hope Mr. Trump’s policies could be reversed or mitigated, despite his veto powers.
Among the EV-friendly policies Mr. Trump ended are the fuel economy standards that encouraged automakers to increase the overall efficiency of their fleets, and the US$7,500 Clean Vehicle Rebate for buyers. He also watered down tax credits for makers of EV batteries.
“Trump came in and pulled the rug out from under American carmakers’ own EV manufacturing plans, which is widely believed to have undermined their long-term global competitiveness because the global auto sector is quickly going electric,” said Joanna Kyriazis, director of policy and strategy at Clean Energy Canada, a renewable energy think tank in Vancouver.
Eliminating the subsidies helped send U.S. EV sales down by 45 per cent in the fourth quarter of 2025, from a year earlier. EV sales in the U.S. were 10 per cent of the overall market in 2025, according to the International Energy Agency, compared with 11 per cent in Canada, 53 per cent in China and 28 per cent in Europe.
Amid the slowing demand, U.S.-based carmakers took billions in writedowns as they scrapped EV plans. Several Canadian EV projects worth billions of dollars were cancelled or postponed, including plans by Honda, Ford and Volkswagen. This upended Canadian government plans of investing billions of dollars to encourage companies to build a domestic EV supply chain, tapping the country’s critical minerals, manufacturing base and skilled workforce to build zero-emission cars.
John Higham, a board member of the Silicon Valley-based Electric Vehicle Association, said he has taken part in meetings with industry people and at least one politician, developing EV adoption policies they can put forth when the time is right.
“Whether or not we now have an EV-friendly administration remains to be seen because Donald Trump is still in the White House, but I do think that you will start to see some legislation being proposed in the U.S. to mould EV adoption and be more friendly toward auto manufacturers,” Mr. Higham said.
“The last few years have been difficult for anyone in the EV industry because of shifting priorities for not just for EVs but for auto manufacturers in general,” Mr. Higham said. “It is difficult for a company like GM or Ford or BMW or Hyundai to make 10-year long-term plans when things keep changing so drastically.”
Although there are no signs yet that Congress is keen on resurrecting EV credits, U.S. voters signalled they are fed up with high prices for gas and diesel caused by the war in Iran, Ms. Kyriazis said. Used EV sales in the U.S. surged by more than 20 per cent in September and 12 per cent in August from the year-earlier months, according to Cox Automotive.
“This shows me buyers are looking for ways to save money on gas, and they know that EVs can help,” Ms. Kyriazis said.
“If battery manufacturing tax credits were to get renewed in the U.S. and if we were to see some tariff relief on Canadian inputs, this could mean that Canada and the U.S. get back to the days of collaborating on building a North American battery supply chain that can catch up to and compete with China,” Ms. Kyriazis said.
Patrick Anderson, principal of Michigan-based Anderson Economic Group, agrees Democrats will push for EV tax credits or encourage their adoption through fuel economy or emissions standards. Still, he said car buyers will continue to favour vehicles powered by internal combustion engines for reasons that include reliability and convenience.
“Electric cars are not ready to displace internal combustion engine vehicles, and drivers don’t want them to,” Mr. Anderson said.
For Mr. Anderson, the biggest message sent by U.S. voters was that the trade relationship with Canada and Mexico should be preserved. This will likely end the U.S. administration’s push for new tariffs and lead to legislation from Congress aimed at reversing Mr. Trump’s trade policies.
Americans “don’t like tariffs that increase their costs. And therefore they’re likely supportive of maintaining the general policy that was reflected in the USMCA,” he said.
This will affect the U.S. position at Canada-U.S. trade talks that have begun ahead of Mr. Trump’s threat to raise tariffs on cars and auto parts to 50 per cent by Jan. 1. Canada has vowed to retaliate and has already applied tariffs on U.S.-made vehicles.
Michigan U.S. senator-elect Abdul El-Sayed in a CNN interview on Thursday called the trade war “insane.”
“There is no economic reason we are having a tariff war with our biggest trading partner,” said Mr. El-Sayed, a Democrat.
Flavio Volpe, who represents Canada’s parts makers as head of the Automotive Parts Manufacturers’ Association, pointed to Democrat victories in the states that have large car industries, including Michigan, Ohio, Illinois, Texas, North Carolina and South Carolina.
This will amount to a heap of pressure applied on the White House to craft trade policy that does not hurt U.S. automaking states, using legislation, public hearings and lobbying.
Mr. Volpe predicted Canada will match the U.S.’s 50-per-cent levies on cars if it comes to that, spurring U.S. politicians who campaigned on affordability to stand up against tariffs.
“The negotiating landscape is different,” Mr. Volpe said. “There are no guarantees, but it’s different now.”
This article was first reported by The Globe and Mail
