Canada to U.S. on EV tax credits: ‘No choice but to forcefully respond’ if passed

WASHINGTON — Canada suddenly raised the stakes Friday in its ongoing electric-vehicle feud with the United States, threatening a barrage of retaliatory tariffs and a reversal of certain dairy-related trade concessions if Congress approves a controversial incentive for U.S.-made electric vehicles. 

In a stern letter to Senate leadership as well as key committee leaders, Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng promised to impose tariffs on a raft of U.S.-made products if President Joe Biden’s tax credit proposal becomes law. 

The proposal amounts to a 34 per cent tariff on electric vehicles assembled in Canada and violates the terms of the U.S.-Mexico-Canada Agreement, or USMCA, they said — not to mention the affront it represents in a country that’s been a U.S. partner in building cars and trucks for half a century. 

“We want to be clear that if there is no satisfactory resolution to this matter, Canada will defend its national interests, as we did when we were faced with unjustified tariffs on Canadian steel and aluminum,” the ministers wrote. 

Canada is getting ready to publish a list of U.S. products it would be willing to target, including within — but not limited to — the auto sector, continues the letter, which was addressed to Democratic Sen. Chuck Schumer of New York and Kentucky Republican counterpart Mitch McConnell, the respective majority and minority leaders in the Senate, among others. 

It was also sent to West Virginia Sen. Joe Manchin, chairman of the Energy and Natural Resources Committee — a moderate Democrat known for voting his conscience and widely seen as the likely deciding vote in the 50-50 Senate on Biden’s Build Back Better bill, which includes the proposal. 

If passed, the tax credit would create incentives worth up to $12,500 on certain electric vehicles, provided they are built in the United States and assembled with union labour. 

“It’s a very clear articulation from the government of Canada on just how important this is to us, and also that the Americans risk more than hurt feelings if we get this wrong,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association.

The tough talk — evoking as it does Canada’s retaliation against Section 232 tariffs that were imposed on steel and aluminum exports during Donald Trump’s time in office, ostensibly for national security reasons — also indicates that Ottawa is taking the threat seriously. 

“What it says to me is that Canada is prepared also to respond to this like we responded to the 232 tariffs, which was the last time the Americans threatened an illegal trade action on us,” Volpe said. 

“I think it underlines the fact that official Canada, that Ottawa, has understood very well how big a threat this is to one of its biggest sectors.”

Manchin, who hails from a state where Toyota is a major employer, has already expressed misgivings about the idea. He also worries about what the $1.75-trillion climate and spending package might do to the inflation rate, which topped out Friday at 6.8 per cent, a 39-year high.

White House press secretary Jen Psaki was ready Friday with a detailed breakdown of the spending rate, attributing the increase to higher gasoline prices, more expensive cars and trucks and supply-chain pressure, all of which she said have already started to ease. 

“Our argument is that this makes passing Build Back Better even more imperative, even more important,” she said. 

Schumer has been pressing to bring the legislation — already approved by the Democrat-controlled House of Representatives — to a vote before Christmas, but U.S. political observers remain unconvinced that such a timeline is realistic, especially after Friday’s inflation numbers. 

Vehicles built in Canada comprise about 50 per cent U.S. content, said the letter from Ng and Freeland, with more than $22-billion worth of American auto parts being imported by Canadian manufacturers every year. 

It goes on to list the states that supply those parts: “Michigan, Ohio, West Virginia, Virginia, Indiana, Kentucky, Illinois and New York, among others.” 

“To be clear, we do not wish to go down a path of confrontation,” the letter reads. “That has not been the history of the relationship between our two countries — nor should it be the future.”

One potential solution, it says, would be to ensure Canadian-assembled vehicles and batteries are eligible for the same tax relief. 

The letter also threatens to hit the pause button on certain concessions Canada has already made to U.S. dairy producers under USMCA, arguing that the EV tax credit would comprise “a significant change in the balance of concessions” agreed to under the deal.

This report by The Canadian Press was first published Dec. 10, 2021. 

James McCarten, The Canadian Press