How the Electric Vehicle Tax Credit Risks a “Renewal of the Canada-U.S. Partnership”

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President Joe Biden pledged to globally “revitalize” US-Canada relations when he released the “Roadmap for a Renewed US-Canada Partnership” alongside Canadian Prime Minister Justin Trudeau earlier this year last.

The Biden administration co-published the “road map” following a strained trade relationship between the Canadian government and the Trump administration.

Yet, at present, the only renewal on the horizon is retaliatory trade measures between the two governments.

In addition to increasing other tariffs and duties on Canadian exports, the Biden administration has exacerbated North American trade tensions by defending the Democratic Party’s Build Back Better Act, which includes a tax credit scheme for electric vehicles that would seriously harm Canadian industries.

The Biden administration’s current approach invites further retaliation from Canada and obscures any hope for genuine economic renewal in US-Canadian relations.

Early in his administration, Biden prioritized the far-reaching upgrade of the relationship between the United States and Canada. Trudeau received Biden’s first call to a foreign government, and soon after, Biden and Trudeau unveiled their “roadmap for a renewed partnership between the United States and Canada.”

This hopeful set of policy proposals outlines six areas for future cooperation: tackling COVID-19, promoting economic recovery, tackling climate change, promoting diversity and inclusion, strengthening security and defense and building global alliances.

The economy-focused “Build Back Better” roadmap provision recognizes the importance of “international regulatory cooperation to improve economic competitiveness and welfare,” presumably referring to the US-agreement. Mexico-Canada.

Despite the hope for change, the highly valuable trade relationship between the United States and Canada has grown increasingly strained throughout 2021, exemplified by tug-of-war over timber and milk.

Trade tensions peaked over part of the Democratic climate change agenda backed by Biden; namely, the tax credit for electric vehicles. This controversial provision would offer additional tax credits to U.S. buyers who purchase electric vehicles assembled by unionized U.S. workers.

Among many critics, opponents see this provision as unfree and unfair. They claim that the tax credit would disproportionately benefit the US auto industry and potentially encourage US manufacturers to build factories and vehicles in the United States rather than Canada.

Canadian industries fear that the tax credit will devastate Canada’s auto trade with its neighbor to the south. Canada fears major drops in trade worth billions of dollars a year for the United States and Canada.

For related reasons, the Canadian government has clearly opposed the Build Back Better Act tax credits by placing tax credits “at the top of Canada’s agenda with the United States.”

A bipartisan Canadian parliamentary delegation lobbied in Washington to remove the tax credit from the law, to no avail.

Two Canadian government ministers also wrote a pointed letter to senior US Congressional leadership in December that equated the Biden administration’s electric vehicle tax credits to “a 35% tariff on electric vehicles assembled in Canada.” , a threat to Canadian auto production, and a “de facto repeal of the USMCA.”

Mexico has also threatened retaliation against tax credits for electric vehicles, if enacted.

In November, Biden and Trudeau met to review the progress of their “road map.” No progress on the “Build Back Better” part of the roadmap has been announced. The trade dispute erupted again in December. Canada and Mexico have filed a lawsuit in USMCA proceedings, calling for an arbitration panel to assess potential USMCA violations committed by Democrats’ proposed electric vehicle tax credits .

The panel is expected to be held this month. The Canadian government has already pledged to slap “a number of sectors” with retaliatory tariffs to “defend its national interests”. Canada has committed to publishing a full list of US industries targeted by its tariffs “soon”.

With growing trade tensions, time is running out for the Biden administration to rework its strategy toward Canada. US industries will soon pay the price for the administration’s trade policy decisions by bearing the brunt of rising Canadian tariffs and duties.

If Biden is serious about “renewing the US-Canada partnership,” he needs to focus his future phone calls, bilateral meetings and initiatives, and multilateral summits with the Canadian government on resolving the Build Back Better Act Electric Vehicle Tax Credit dispute. , a giant thorn. on the side of US-Canadian relations.

A real improvement in US-Canadian relations would require the United States to pull the spine in recognizing and engaging the top priorities and concerns of the Canadian government.

Once the thorn is removed, the formidable US-Canada partnership can focus its efforts on promoting mutual prosperity and countering common threats.

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