Mexico and Canada are pushing back against a critical element of President Joe Biden’s climate agenda, saying it could damage the North American auto industry and may even violate the countries’ trade rules.
Biden’s trillion-dollar Build Back Better plan includes thousands in tax credits for those who purchase electric vehicles in the coming years — but to qualify for some of the credits, the cars need to be made in the United States.
Congress has yet to pass Biden’s legislation, but as written, it would offer car buyers up to $12,500 in tax credits for purchasing electric vehicles. Of that amount, $4,500 is for electric vehicles assembled at unionized factories in the U.S., and $500 is for electric vehicles with batteries and at least half of their remaining parts made in the U.S.
The proposal has caused deep consternation within the governments of Mexico and Canada. They say that the measure will hurt not just their economies but also the complex and already-strained automotive supply chains between all three countries.
The opposition came as Biden was set to host the leaders of Mexico and Canada at the White House on Nov. 18 for the first North American Leaders’ Summit, informally known as the Three Amigos summit, since 2016, before the election of former President Donald Trump.
It also comes as other long-standing trade disputes regarding softwood lumber, dairy products, migration, and pipelines between the allies have resurfaced, complicating Biden’s pledge to restore the bond between the countries after a rocky period under the former administration.
But the electric vehicle tax credit has been chief among those concerns in recent weeks, with Canada launching a full-force campaign against the provision and threatening to retaliate if Congress passes the president’s massive social and climate policy bill in its current form.
“They understand that legislation like that would generate a response on the Canadian side,” Canadian Innovation and Industry Minister Francois-Philippe Champagne told Reuters after meeting with Commerce Secretary Gina Raimondo and other U.S. officials in Washington earlier this month. “We have always responded appropriately to these types of legislation.”
In 2018, when Trump imposed tariffs on Canadian steel and aluminum on national security grounds, the Canadian federal government responded with tariffs of its own on U.S. goods such as whiskey and yogurt.
If the bill becomes law as is, the electric vehicle tax credit it contains could become “the dominant issue” for a Canada-U.S. relationship that’s already strained, Canadian Deputy Prime Minister Chrystia Freeland told reporters in Washington after meeting with congressional Democrats on Nov. 17, the day before the summit.
That same day, Canadian Prime Minister Justin Trudeau was on Capitol Hill to meet with top Democrats in a final push to have the tax credit proposal changed before the trilateral meeting at the White House.
Mexican Economy Minister Tatiana Clouthier also warned of the tax credit’s consequences in the days leading up to the trilateral meeting, saying the recent U.S. move toward protectionist policies was “incomprehensible” — and going so far as to say the measures would worsen the migration issues at the southern U.S. border by increasing Mexico’s economic woes.
“This business of them apparently not wanting migration coming their way, they’re causing it by closing themselves off. And if they carry on, they’ll cause more of it,” she said, Reuters reported. Clouthier was scheduled to attend the summit as part of Mexican President Andres Manuel Lopez Obrador’s delegation.
But congressional leaders and the Biden administration showed little signs of budging — while Trudeau made his rounds on the Hill, Biden was testing the acceleration of an electric Hummer at a General Motors plant in Detroit, touting the tax credit and his administration’s focus on reducing emissions.
Chris Meagher, deputy White House press secretary, said there’s “a long history of using tax credits to incentivize choices” when asked about the opposition from Canada and Mexico. Canada does offer a federal tax credit to those who buy electric vehicles but does not limit the credit based on where the vehicles are manufactured.
“The president, when he took office, promised to rebuild the backbone of this country, and that’s the middle class,” Meagher said aboard Air Force One while en route to Michigan for the GM plant tour.
“There are ample opportunities that already exist to work with Canada and Mexico on collective approaches to supply chain resilience, a shared vibrant North American economy, and we’ll work together to address those issues related to public procurement,” he said.
Champagne, the Canadian federal innovation minister, previously said the tax provision would violate the USMCA, the trade deal between the U.S., Mexico, and Canada that recently replaced the North American Free Trade Agreement. Champagne also told Reuters the tax credits “would be really contrary to the spirit … of what we have been trying to achieve with our American colleagues” to fight climate change.
Champagne’s comments followed a letter from Mary Ng, another Canadian Cabinet minister, to congressional leaders and top Biden administration officials in October. “If passed into law, these credits would have a major adverse impact on the future of [electric vehicle] and automotive production in Canada, resulting in the risk of severe economic harm and tens of thousands of job losses in one of Canada’s largest manufacturing sectors,” said Ng, Canada’s international trade minister, according to CBC News. “U.S. companies and workers would not be isolated from these impacts.”
Clouthier, Mexico’s economy minister, has also sent letters to U.S. lawmakers urging them to change the proposed tax credit. Other countries, such as Japan, Germany, and France, have joined in, making pleas to Washington to change the proposal, saying it violates World Trade Organization rules.
More recently, Canadian Foreign Minister Melanie Joly addressed the issue with U.S. Secretary of State Antony Blinken, her office said. “Minister Joly raised concerns about the negative impact on jobs and economic recovery on both sides of the border created by U.S. local content requirements, including ‘Buy America’ provisions, notably about the United States’ current consideration of tax credits for electric vehicles,” her office said on Nov. 12. “She affirmed that as close partners with deeply integrated supply chains, particularly in the automotive sector, Canada and the United States must work together to find a mutually beneficial solution.”
Peter Frise, the director of the Centre for Automotive Research and Education at the University of Windsor, told the Washington Examiner magazine that “it is absolutely true that the supply chain is very, very integrated” and that the electric vehicle tax credit could damage that.
The city of Windsor, Ontario, is Canada’s automotive capital and sits directly across the border from Detroit. All day, trucks carrying car parts and assembled vehicles can be seen crossing the bridge that joins the cities. “I don’t think it makes sense to look at a car or a truck as an American car or truck or a Canadian car or truck. It’s a North American car or truck,” Frise said.
One company in Windsor makes molds for headlight and taillight lenses for most of the world’s largest auto manufacturers, Frise said, including American ones. “They all use those molds because these guys are really, really good at making those molds,” he said.
“You can’t simply say, ‘Well, fine, we’ll buy them in the states,’” Frise said. “When? Starting next year, or starting in five or six years, when American companies have retooled to make those products? And who’s going to pay for all that retooling? Well, people who buy the cars are — and they would be Americans.”
“You might create a few jobs here and there, but you will drive the price up, you will disrupt the supply chain, probably hurt product quality, hurt innovation, violate international laws and trade laws, and probably provoke retaliation from both Canada and Mexico,” Frise said.
The electric vehicle tax credit is the latest in a series of moves by the Biden administration to use federal dollars to support American industries at a time when communities are still reeling from the loss of manufacturing jobs in recent years.
Though Canada was unsuccessful in securing changes to other Buy America provisions in the massive infrastructure bill that Biden just signed into law, it may have an opportunity to notch a win this time around, thanks to both its position as a natural source for the elements needed to make batteries for electric vehicles and Democrats’ razor-thin majority in the Senate.
Despite planning to use the reconciliation process to pass the bill without Republican votes, Senate Democrats need all of their members to support the legislation — and one of the party’s most influential centrists has already voiced criticism of the tax credits.
West Virginia Sen. Joe Manchin has questioned the proposal’s focus on unionized factories in the U.S., telling Automotive News that he immediately confronted Michigan Sen. Debbie Stabenow, a sponsor of the provision, when he found out about it. Stabenow’s state stands to benefit from the tax credit, as it is home to the Big Three American automakers and their unionized workforces.
“I said, ‘This is wrong. This can’t happen. It’s not who we are as a country. It’s not how we built this country, and the product should speak for itself,’” Manchin reportedly recalled. “We shouldn’t use everyone’s tax dollars to pick winners and losers. If you’re a capitalist economy … then you let the product speak for itself.”
Manchin, whose home state is home to a nonunionized Toyota plant, said he hoped the tax provision would “be corrected.”
