Canadian Manufacturing

Canada threatens response if U.S. EV tax credits are approved

The U.S. 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

December 13, 2021  The Canadian Press

Canada suddenly raised the stakes on Dec. 10 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.

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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.

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.