Canada Threatens Tariffs, Suspension of USMCA Provisions If Congress Passes EV Tax Credit
Canada's finance and trade ministers said that an electric vehicle purchase tax credit that excludes Canadian batteries or Canadian-assembled cars abrogates the USMCA, and they asked senators to write the tax credit differently than the House approach. That House tax credit would only be allowed for American-built cars after 2027, and would be more generous for American-built cars from 2023 to 2026.
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The letter told the leaders of the Senate, along with three committee chairmen and ranking members, that if the tax credit continues to discriminate against Canadian-assembled electric cars, it's the equivalent of a 34% tariff on those vehicles.
"We have been building cars together for over 50 years. Given the deep integration of our respective automotive industries, the proposal would have important repercussions in the U.S., affecting American production and jobs," they wrote. They noted that Canadian assembled vehicles have about 50% U.S. content, and that Canada imports more than $22 billion in auto parts from the U.S. annually. "These parts come from suppliers in numerous states, including Michigan, Ohio, West Virginia, Virginia, Indiana, Kentucky, Illinois and New York, among others."
They said if the Senate does not change the EV tax credit, "Canada will have no choice but to forcefully respond by launching a dispute settlement process under the USMCA 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.
"Beyond possible retaliatory actions, if the U.S. proceeds with the tax credit provisions as drafted, we would see this as a significant change in the balance of concessions agreed to in the USMCA. As such, we would consider the possible suspension of USMCA concessions of importance to the U.S. in return. Those concessions could include suspending USMCA dairy tariff-rate quotas and delaying the implementation of USMCA copyright changes.
"In the coming days, we are preparing to publish a list of U.S. products that may face Canadian tariffs if there is no satisfactory resolution of this issue."
Finance Minister Chrystia Freeland and Trade Minister Mary Ng said in conclusion, "To be clear, we do not wish to go down a path of confrontation. That has not been the history of the relationship between our two countries -- nor should it be the future." Mexico's Economy Minister previously threatened tariffs over this tax credit (see 2112060033).
The CEO of Autos Drive America, which represents most foreign-owned auto manufacturers with operations in the U.S,, reacted to the letter, saying, "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. Strong international trade agreements are critical to the success of the U.S. auto industry and have been key to the expansion and growth of the auto sector in North America. "