Canadian Prime Minister Justin Trudeau said Monday he has proposed harmonizing rebates with the United States for electric vehicles to avoid a trade conflict over Washington’s go-it-alone plan that risks gutting Canada’s auto sector.
His remarks followed threatened retaliatory tariffs on American goods and Ottawa’s suspension of parts of the landmark North American free trade agreement if Washington went ahead with electric vehicle tax credits for EVs made in US union shops.
“Canada and the United States have been making cars together for over 50 years now. Our supply chains are deeply integrated,” Trudeau told a news conference. “That is why we are working very hard with the United States on getting them to understand that this proposed EV rebate for American-built cars only is not good obviously for Canada, but also not good for the United States,” he said.
Trudeau added that “a number of solutions” have been suggested to Washington, including “to align our incentives in Canada and in the United States to make sure that there is no slippage or no unfair advantages on one side or the other.”
The proposed US tax credit is included in President Joe Biden’s $1.75 trillion spending package pending in Congress. It would encourage US production of electric vehicles by offering a bigger tax credit for local union-built electric vehicles (EV) and phases out for imported EVs after five years. In a letter to US senators on Friday, Deputy Prime Minister Chrystia said it would amount to a 34 percent tariff on Canadian assembled electric vehicles.
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Canada fears the tax credit for American manufacturers will undermine its own efforts to produce electric vehicles in Ontario – the country’s industrial heartland – and also undermine the integrated North American auto industry.
The proposed $12,500 EV tax credit would include $4,500 for EVs built in the United States by union workers, effective after 2027. It is included in the Biden administration’s sweeping climate and social spending legislation now under consideration by Congress.