How Canada could retaliate if tariff-like U.S. electric car policy goes ahead

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A new US government policy that provides tax credits for electric vehicles and batteries made by unionized labor in the United States puts Canada in a difficult position, according to both Canadian environmentalists and trade experts.

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Part of a “Build Back Better” plan passed by Congress late last week, it gets a thumbs-up from many battling climate change on both sides of the border.

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Offering an effective $12,500 US subsidy if US residents buy an electric vehicle instead of one with a conventional engine, the move is considered a positive step toward taking gas-powered vehicles – and their emissions – off the market. is believed.

like a high tariff

But Canadian economic nationalists cry that if subsidies only go to American-made cars, as planned, it could put Canada out of the business of making EVs, resulting in well-paying Canadians. Jobs may be adversely affected.

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It could also breach North America’s deeply integrated automotive supply chain, which would have implications in the US as well.

Patrick LeBlond, who teaches public and international affairs at the University of Ottawa, explained, “Any car made in Canada would not be subsidized and would be much more expensive. In a way, it would be like imposing a higher tariff.”

This means that if US residents – who make up the vast majority of North American vehicle buyers – buy a similar or similar car made in Canada, it will cost them thousands of dollars more.

Existing Canadian plants making internal combustion vehicles may not be affected, but that will change as automakers plan new factories. And the US buy policy could affect those plans now.

“Obviously, the big carmakers will be building their plants in the US instead of Canada,” LeBlond said.

And just like when Donald Trump imposed tariffs on Canada’s steel, aluminum and forest products, some say Canada should investigate how it poses some sort of counter-threat, perhaps a mix of products made in America. Also offering a list, but not in Canada, that will face tariffs here if the tax credit goes ahead.

“Sometimes, at least, the threat is a way of saying, ‘Hey, get our friends in America who depend on the Canadian economy to pressure Congress or the administration to put this thing away,'” LeBlond said.

‘politically toxic’

As I spoke to him, offering the same tax benefit for cars manufactured in Canada will not have the same effect due to our unequal market dominance. And imposing tariffs on American-made EVs would be simultaneously bad for both climate change and Canada’s auto-parts producers.

But Canada could act on the production of key minerals needed to make EV batteries; Canada’s mines, while currently underdeveloped, could be a reliable and near-term non-Chinese source for the US as increased demand for electrified transportation ramps up.

Dan Ciuriak, a senior fellow at the Center for International Governance Innovation in Waterloo, Ont., likens the battery-mineral situation to the time when Trump banned the export of masks to Canada — to actually make those masks. Before feeling the fine pulp. Canada. That was the reason Trump withdrew, he said.

But Ciuriak and others said that kind of response also has disadvantages. It could be “politically toxic”, Ciuriak said, for a bilateral relationship that is currently largely cordial.

Overcoming a protectionist agenda is not a problem that can be easily solved.

“It’s a big deal,” said Valerie Hughes, a Canadian lawyer with years of trade experience, including a decade at the World Trade Organization (WTO). While it depends on the final wording of the law, it said the EV tax credit is probably illegal under WTO rules and the Canada-US-Mexico Agreement (CUSMA).

Hughes said she opposes the harsh trade retaliation seen in the Trump era.

Hughes said, “We did it once … because that was really the world we were living in.” “There was unilateral action that went against the rules. America was doing it – and we could see no way out of it.”

But this time, Hughes said, there are much friendlier options, with implicated Canadian parties reaching out to their American counterparts at all levels — whether in government, industry or labor — to remind them that the deeply integrated North American automobile. Production creates jobs and wealth. on both sides of the border.

If necessary, Canada can always use CUSMA’s appeals mechanisms, she said, describing them as significantly more effective than previous NAFTA dispute-settlement mechanisms.

Mark Warner, a well-known Canadian business lawyer who has run for federal Conservatives, is skeptical of Ottawa’s proposal that Canada is being deceived by the plan. While this mentality can upset people, he said, the best way to work with America is through calm dialogue.

Warner points out that EV law is all about American politics – an attempt to show that green investing will help create decent American jobs. And he said there is still time for negotiations, as the bill has not yet passed through the Senate and will go into effect five years before it buys the US portions of the legislation.

climate change knows no bounds

On the other hand, the law coming in five years can also affect business planning now. And once it’s in effect, it’ll be hard to change.

Dale Begin with Canada’s Institute for Climate Choice said that in addition to convincing labor and business interests in the US that working with Canada is in their own best interests, there is another potential group of colleagues.

American climate scientists and activists, he said, know that greenhouse gases do not respect national boundaries.

“Climate change requires cooperation across borders, across countries – and you want to enable a low-carbon transition not only in the US, but elsewhere as well,” Beugin said.

Disputes regarding business will slow down the process.

Follow Don Pittis on Twitter @don_pittis

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