Canada threatens to impose tariffs if EV tax credits pass
Washington — The Canadian government says it will retaliate against the United States by enacting new tariffs if electric vehicle tax credits advantaging unionized, American automakers are made into law.
Canadian officials argued in a letter to congressional leadership and key senators Friday that the tax credits — proposed by Michigan lawmakers and benefiting the Detroit Three — violate trade agreements and discriminate against the Canadian auto industry.
If Congress decides to keep the tax credits in the Build Back Better bill, "Canada will have no choice but to forcefully respond by launching a dispute settlement process under the (United States-Mexico-Canada Agreement) and applying tariffs on American exports in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy," wrote Canadian Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng.
The officials plan to publish a list of U.S. products that would face Canadian tariffs in the coming days. Those products would "extend across a number of sectors" in addition to the auto industry, they wrote.
They said the tax credits would amount to a 34% tariff on Canadian-assembled vehicles and that it would be a significant change in the USMCA. In response, they would suspend provisions in the deal benefiting the U.S.
"To be clear, we do not wish to go down a path of confrontation," Freeland and Ng wrote. "There is an opportunity to work together to resolve this issue by ensuring Canadian-assembled vehicles and batteries are eligible for the same credit as U.S.-assembled vehicles and batteries."
The proposed tax credits, authored by Rep. Dan Kildee, D-Flint Township, and Sen. Debbie Stabenow, D-Lansing, would seek to incentivize American manufacturing of EVs and give a boost to the Detroit Three in particular.
The tax proposal would give consumers up to $12,500 off the price of a new electric vehicle, including $4,500 for cars built in the U.S. with union-represented workers. For the first five years, an additional $7,500 would apply to electric vehicles regardless of where they're produced. After five years, only vehicles made in the U.S. would qualify.
Canadian officials wrote in the letter that the issue is "at the top of Canada's agenda with the United States." When Prime Minister Justin Trudeau met with President Joe Biden last month, the administration appeared to stand by the proposal.
The European Union and Mexico, other key trading partners, have also expressed concerns over the provision, saying it will hurt American workers and discriminate against companies from foreign countries.
Sen. Joe Manchin of West Virginia has also recently expressed skepticism about tax credits. Manchin, a conservative Democrat and one of the senators the Canadian letter was addressed to, holds an immense amount of influence over the proposal in the evenly-divided Senate.
Foreign automakers doing business in the U.S. have also fought the proposal, which they say unfairly disadvantages workers who have chosen not to unionize. Ford Motor Co., General Motor Co. and Stellantis NV are the only automakers in the U.S. with employees represented by the United Auto Workers union.
“Senate leadership must listen to and take seriously the continued opposition over the discriminatory electric vehicle (EV) tax credit in the Build Back Better Act,” said Jennifer Safavian, president and CEO of Autos Drive America, which represents foreign automakers.
“Today’s letter from the Government of Canada is yet another warning shot that our closest trading partners will not tolerate the detrimental impact of the EV tax credit proposal."
Stabenow and Kildee have also said they stand by the proposal, which they argue would help ensure that the automotive jobs of the future provide good wages and benefits. The UAW has supported the industry's transition to EVs, but has raised concerns about potential job losses due to the need for fewer assembly workers, parts and upkeep necessary for battery-powered cars.
Senate Majority Leader Chuck Schumer has said he hopes to pass the Build Back Better bill, which contains the credits and other key items in Biden's agenda, by the end of the month.