If you can’t beat them, join them.
That appears to be the thinking behind Canada’s latest move concerning a proposed U.S.-built electric-vehicle tax rebate contained in President Biden’s $1.75 trillion “Build Back Better” investment bill. Though the northern country has objected to the rebate as written, Prime Minister Justin Trudeau proposed a compromise at a news conference Monday, December 14: Canada will pass its own, equivalent tax credit for EVs built in the U.S. and Canada, if the U.S. extends the rebate to include Canadian cars, too.
Canada has previously objected that the U.S.-exclusive rebate would amount to a de facto tariff on Canadian-built electric vehicles and said it would harm auto production in both countries. The latest proposal is one of “a number of solutions” put forward to Washington, Trudeau told reporters, who noted that the countries’ automotive businesses are intertwined.
“Canada and the United States have been making cars together for over 50 years now,” Trudeau said. “Our supply chains are deeply integrated.” Trudeau added that the proposal for both companies to “align” their tax benefits with one another would make sure no one country gets an unfair advantage in the electric vehicle market.
If the credits are implemented without change, Trudeau threatened, Canada would respond by passing retaliatory tariffs on U.S. goods and suspending parts of the USMCA trade agreement.
The proposed tax rebate for EVs contained in Biden’s spending bill would eliminate the existing 200,000 vehicle cap for electric vehicle tax credits, which Tesla and General Motors have already beaten, and expands them for union-built electric vehicles, with an additional tax credit for cars with U.S.-built batteries.
In a letter sent to U.S. senators December 10, Canada’s Deputy Prime Minister Chrystia Freeland estimated the U.S.-only credits would be equivalent to a 34% tariff on Canadian electric vehicles.
In November, representatives from Canada and Mexico wrote to members of Congress objecting to the tax credits, saying they violate the United States’ tariff agreements under the USMCA. Canadian Trade Minister Mary Ng wrote the “severe economic harm” caused would lead to “tens of thousands of jobs lost in one of Canada’s largest manufacturing sectors.”
Partner companies in the States would likely also be affected, Ng added: “U.S. companies and workers would not be isolated from these impacts.”
Around the same time, Mexico’s Washington envoy Moctezuma Barragan and other ambassadors wrote the tax credits would actually slow the rapid adoption of electric vehicles by restricting consumer options.