Trade agreements outside the US come to the forefront

Europe and India reached a basic agreement allowing lower duties for a specific quota of vehicles from Europe to India, marking another step in Europe’s portfolio of global trade agreements aimed at strengthening long-term industrial partnerships. Automotive tariffs on non-electric vehicles (EVs) from Europe will decrease from a maximum of 110% to 35% or 30% for up to 100,000 vehicles during the first year. The tariff rate depends on the vehicle price. The duty will fall to 10% by year five, and the annual quota will increase to 160,000 units over 10 years. 

For EVs, the import duty is not reduced until year five of the agreement; the initial quota is 20,000 units. Over time, the EV quota will increase to 90,000 units, and the duty will fall to 10%.

Legal and legislative approval for this agreement could take 18 to 24 months. If approved, India could relatively quickly see more European imports of hybrid and internal combustion engine (ICE) vehicles, with reduced import costs stimulating market activity. 

India’s current tax on completely knocked-down production is between 15% and 30%; the lower import tariff could also influence production. A more integrated EU–India supply chain could prompt plant consolidation in both regions. 

In 10 to 15 years, this agreement could position India as a production hub for European automakers with older ICE and hybrid platforms or small EVs. Less expensive sourcing from India could also benefit European automakers facing high manufacturing costs at home.

Brazil at the center of EU–Mercosur industrial strategy

The Europe and Mercosur framework is a key development in Latin America trade, largely about Brazil and its historically high tariffs. It includes an 18-year phase-in, a rules of origin clause, a bilateral safeguard, technical standards and regulations, and provisions about critical raw materials, but still needs legal review and parliamentary ratification. 

Brazil is a source for lithium, graphite and nickel, and this agreement would limit export taxes and help the EU diversify its supply chain. The bilateral safeguard would allow Brazil or the EU to temporarily suspend the tariff preferences or reinstate prior settings, if either party can demonstrate that the imports cause or threaten serious injury to the domestic economy.

The combination of safeguard and long runway were critical for Brazil’s agreement. The separate schedule for EV and hybrid tariff reduction allows Brazil to protect its emerging EV supply chain. The safeguard protects against a flood of premium German or French vehicles that could displace locally produced models. 

Canada and South Korea, which already have tariff-free automotive trade, are exploring South Korean investments in auto and battery manufacturing in Canada. Although no specific plans have been announced, the countries will create a forum to develop a Korean automotive footprint in Canada, including EV manufacturing opportunities.  

However, South Korea’s largest OEM, the Hyundai Motor Group, has previously committed to increasing US manufacturing capacity, therefore further vehicle manufacturing in Canada could create excess capacity. Additionally, while Canadian resources could be leveraged to support EV battery cell manufacturing in Canada—and South Korean battery manufacturers Samsung and LG Energy Solutions have invested in North American battery manufacturing—recent shifts in the EV market have led to battery projects being canceled or scaled back across Canada and the US. Investment in more battery production could also mean oversupply.  

Canada and China reached an agreement reducing the current 100% tariff on some EVs from mainland China. Under the new agreement, an initial quota of 49,000 units per year will qualify for a reduced tariff of 6.1%, aligned to Canada’s most-favored-nation rate of 6.1%. While this quota will increase over time, Chinese EVs outside the quota will remain tariffed at 100%. By 2030, 50% of the annual quota must also be vehicles priced below C$35,000.  

Additionally, Canada expects Chinese joint-venture investment with trusted partners, though no specific plans or commitments have been disclosed. 

Near-term change could be slow. It is unclear how the quota will be allocated but splitting it may limit brand-level impact. New brands must build distribution networks and consumer awareness, and the reduced tariff may not offset market entry costs. However, it may give new entrants the opportunity to establish a presence while evaluating manufacturing investment.  

Canada’s push for joint-venture manufacturing between mainland Chinese and local companies could ultimately prove more significant than the Canada–China EV tariff reduction.