China’s EVs are coming to Canada. Americans should welcome them, too.

In 1977, a swashbuckling British entrepreneur named Freddy Laker launched the Skytrain, a no-frills, low-fare flight between London and New York. At a time when the trans-Atlantic air market was a cozy cartel of national flag carriers charging exorbitant prices, Laker’s $135 tickets were a jolt to the U.S. It directly inspired Congress’ 1978 Airline Deregulation Act, which ushered in an era of competitive domestic airline markets with lower fares.

Experiments in foreign markets are about to provide a similar wake-up call for transportation in the U.S., this time in the automobile market. Last week, Canadian Prime Minister Mark Carney announced a landmark trade agreement with Beijing that effectively ends the protectionist wall around the North American electric vehicle market. Canada will slash its 100% tariffs on 49,000 Chinese EVs to a mere 6.1%. In exchange, China will reopen its markets to Canadian agriculture.

Both Tesla and General Motors, the two leading sellers of EVs in Canada, should be worried. Tesla’s concern compounds worries after it reported Wednesday a 61% drop in profit last quarter, the largest decline in its history. Its vehicle sales fell 16%, and its market share in Europe slipped as China’s BYD gained traction.

China is the undisputed global EV leader, accounting for 62% of all EV sales. BYD is the world’s largest producer of plug-in vehicles, commanding nearly 20% of the global market. Its bargain brand, Wuling, is the global leader of the EVmicrocar class. By welcoming models like the BYD Dolphin or the Wuling Mini—which retail for under $20,000, even with tariffs—Canada is about to show American motorists what they are missing.

Tesla and the broader American EV market have been shaped by state subsidies in the form of rebates, high tariffs to limit foreign competition, and subsidies in the form of $7,500 federal tax credits, which ended in October. The result is that EVs only account for roughly 5% of car sales in the U.S. American consumers are trapped in a small market of high-margin luxury EVs, mostly priced around $60,000. More affordable options are limited.

China has roughly 130 models under $40,000. The U.S. has four. One entry-level, four-door EV sells for as little as $3,500. In the U.S., the Bolt, a stripped-back EV option from Chevy, starts at nearly $30,000. GM plans to stop producing the Bolt next year.

The effects of entry by Chinese auto makers on prices and product variety in the Canadian market will be revealing for U.S. consumers. Not only will the EV segment of the Canadian market be vastly improved, but the non-EV segment of the market also will be improved because the prices of those vehicles will fall from competition with Chinese EVs. Canadians are likely to be offered a large price cut for cars produced by U.S. auto makers, which are made in Canada by subsidiaries. U.S. consumers over the border will seethe with envy.

U.S. policymakers, as well as auto executives and their workers, are concerned Chinese EVs would erode American car manufacturing jobs and undercut their sales with subsidies from the Chinese government. Understandably, GM CEO Mary Barra said Tuesday that Carney’s move was “a very slippery slope."

A reasonable compromise to soothe those fears could be to allow Chinese auto makers to sell their EVs in the U.S., provided they are manufactured in the U.S., their costs aren’t subsidized by the Chinese government, and Chinese auto makers satisfy U.S. government security concerns.

Previous foreign laboratories have led to constructive changes by U.S. policymakers. The global pharmaceutical market showed that Americans pay nearly three times more for the same brand-name drugs than consumers in other wealthy nations. This “demonstration effect" led directly to the 2021 Inflation Reduction Act, which for the first time allowed Medicare to negotiate drug prices—a practice that was once unthinkable in the U.S.

Japanese firms transformed the U.S. automobile market in the 1980s by building manufacturing plants in the U.S. that produced high-quality, fuel-efficient vehicles. Consumers benefited from the improvement in vehicle price-quality offerings, and U.S. firms were incentivized to improve the price-quality offerings of their vehicles. The entry of Chinese automobile firms would have a similar positive effect.

At long last, this could enable the adoption of EVs in the U.S. to be determined primarily by market competition, not by subsidies and protectionism.

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