A new US government policy offering tax credits for electric cars and batteries made by US trade unions is putting Canada in a difficult position, according to both environmentalists and Canadian trade experts.
Part of the “building back better” plan passed by Congress last weekend, many of those fighting climate change on both sides of the border admired.
By offering an effective US$12,500 subsidy if US residents buy an electric car instead of one with a conventional engine, the move is a positive step toward coaxing gas-powered cars — and their emissions — off the market.
Like the high tariff
But there are cries from Canadian economic nationalists that if the subsidy goes only to American-made cars, as planned, it could simultaneously drive Canada out of the electric car industry, with a negative impact on well-paid Canadian jobs.
It could also break the highly integrated auto supply chain in North America, with repercussions in the United States as well.
“Any cars made in Canada are not going to get subsidized and they will be very expensive. In a way, it would be like imposing a high tariff,” explained Patrick Leblond, professor of public and international affairs at the University of Ottawa.
This means that if US residents – who make up the vast majority of North American car buyers – buy an identical or similar car made in Canada, it will cost them thousands of dollars.
Existing Canadian factories that manufacture internal combustion vehicles may not be affected, but that will change as automakers plan new plants. US buying policy could affect those plans now.
“Obviously, the big automakers will be building their plants in the United States rather than Canada,” Leblond said.
And just like when Donald Trump imposed tariffs on Canadian steel, aluminum and forest products, some say Canada should consider how it can do some kind of counter-threat, perhaps even providing a list of products made in the US, but not in Canada. , that would face tariffs here if the tax credit continues.
“Sometimes, at least, the threat is a way of saying, ‘Hey, let’s get our friends in the United States who depend on the Canadian economy to put pressure on Congress or the administration to rescind this,'” Leblond said.
As many of those I’ve spoken to have pointed out, offering a similar tax advantage to cars made in Canada would not have the same effect, due to our uneven influence in the marketplace. Imposing tariffs on electric cars manufactured in America would simultaneously be harmful to both climate change and Canadian auto parts producers.
But one place Canada could take is producing the base metals needed to make electric car batteries; Canadian mines, while currently undeveloped, could be a reliable and close non-Chinese source to the United States as demand for electrified transportation increases.
Dan Ciuriak, senior fellow at the Center for International Governance Innovation in Waterloo, Ontario, compares the state of metal in batteries to the time Trump banned the export of masks to Canada — before realizing that the soft pulp for making those masks actually came from Canada. This, he said, is the reason for Trump’s retreat.
But Siuriak et al. said there are drawbacks to this type of response. It could be “politically toxic” for an existing largely cordial bilateral relationship, Siuriak said.
Overcoming a protectionist agenda is not an easily solvable problem.
“It’s a big deal,” said Valerie Hughes, a Canadian lawyer with years of business experience, including a contract at the World Trade Organization (WTO). While it depends on the final wording of the legislation, she said the tax credit for electric vehicles may be illegal under WTO rules and the Canada, United States and Mexico Agreement (CUSMA).
Hughes said she opposes the harsh trade retaliation seen under Trump.
We did it once…because that was really the world we were living in,” Hughes said. “There was a unilateral action against the rules. The US was doing it – and we didn’t see a way out of it.”
But this time, Hughes said, there are plenty of friendlier options, including earning Canadian party access to their American counterparts at all levels — whether in government, industry, or employment — to remind them that integrated auto production in North America creates jobs and wealth on a global scale. Both sides of the border.
She said that if needed, Canada could always use CUSMA’s appeal mechanisms, which she described as very effective compared to the previous NAFTA dispute resolution mechanism.
Mark Warner, a well-known Canadian business lawyer who ran for membership in the Federalist Conservative Party, is skeptical of Ottawa’s suggestion that Canada is being cheated on by the plan. While that mindset may irritate people, he said, the best way to work with the United States is quiet negotiation.
Warner points out that electric vehicle legislation is about US politics — an attempt to show that green investment will help create good American jobs. He said there was still time for negotiation, as the bill had not yet passed through the Senate, and it would be five years before the parts of the law purchased by the United States would enter into force.
Climate change knows no borders
On the other hand, even a law to be passed in five years can affect business planning now. Once in effect, change will be more difficult.
In addition to convincing US workers and businesses that continuing to do business with Canada is in their own best interest, there is another potential set of allies, says Del Biogen, of the Canadian Institute for Climate Options.
He said US climate scientists and activists know that greenhouse gases do not respect national borders.
“Climate change requires cooperation across countries and across borders — and you want to enable a low-carbon transition, not only in the United States, but elsewhere as well,” Biogen said.
Disagreements over trade will only slow down the process.
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