Biden electric vehicle tax credits spark cross-border battle


WASHINGTON –
The tax credit program that US President Joe Biden is proposing to encourage American consumers to buy more electric vehicles may never be implemented in its current form, according to seasoned observers of the North American auto industry and relations Canadian-American.

If they are, however, tax incentives of up to US $ 12,500 on cars and trucks assembled in the United States with unions could spell the end of the road for the Canadian auto industry.

“We’re at a really hesitant time,” said Dimitry Anastakis, professor of Canadian business history at the Rotman School of Management at the University of Toronto.

Consider what would happen if the $ 83 billion U.S. auto market, which is rapidly ditching the internal combustion engine, were suddenly faced with the possibility of saving up to almost 25% on a $ 55,000 electric vehicle, provided it is assembled on American soil. by unionized workers.

That would be the equivalent of what the federal government in Ottawa calls a 34% tariff. 100% on vehicles built in Canada. The imbalance would mark overseas-made cars with a scarlet letter and send automakers and their more than 125,000 jobs to scramble across the border.

Worst-case scenario sparked by what Anastakis calls a ‘disintegration’ of more than half a century of trilateral auto manufacturing, with companies abruptly resuming stakes and canceling plans they already plan to spend billions for their Canadian and Mexican operations.

“You would see a removal and cancellation of all those announcements that have already been made for investments, and probably no future investments in passenger vehicles at all,” he said, “which would obviously be the end of industry as we know it. “

But Anastakis and others are convinced it won’t come to this.

It doesn’t make economic sense to anyone – not the consumers, not the manufacturers, whether foreign or domestic, and not even the government that is proposing it in the first place.

“Already established manufacturers have a lot of money invested in Canada and Mexico, and they have a lot of benefits to gain from an integrated industry,” said Anastakis.

“There are all kinds of benefits to doing what they’ve done in the last 50 or 60 years – they make money out of it. There’s a reason the Big Three made their production decisions the way they did, because they’re trying to maximize (profits).

It has long been a basic tenet of Canada-US relations that the only way to effect change in DC is to set Canada’s priorities based on American self-interest. In other words: hurting us hurts you.

“Given the deep integration of our respective auto industries, the proposal would have significant repercussions in the United States, affecting American production and jobs,” Deputy Prime Minister Chrystia Freeland and Minister of Commerce wrote last week. Mary Ng to key members of the US Senate.

The letter made it clear that Canada would launch a barrage of targeted retaliatory tariffs and suspend key parts of the new North American trade deal if the provision, nestled deep in Biden’s 2,135-page Build Back Better bill , gets approval from Capitol Hill. .

But we are not there yet.

“There are solutions to this; it is not an insoluble and insoluble problem, ”Prime Minister Justin Trudeau said in an interview with The Canadian Press on Thursday, although he did not speculate on the solutions that might be on the table.

“Canadian supply chains and Canada’s interconnection with the United States are such that it could prove extremely unpleasant for American workers, for American politicians, for the American economy, to have to fall into this kind of disagreement, this disagreement, with Canada. “

Canada offers a highly skilled, world-class manufacturing workforce with half a century of institutional knowledge in building cars and trucks, not to mention the financial advantages of a country with an 80-cent dollar and public health care. Union leaders like Bob White, the founding president of the Canadian Auto Workers after his separation from his American counterpart, have used these advantages at every opportunity.

“Bob White used to say that for every Canadian car that came off the line, you might as well put $ 1,500 in cash on the hood of that car, because that was the only difference between the cost of caring. health, ”said Anastakis.

“I can’t imagine it going like this because it’s going to be so disruptive to the industry.”

So why is this happening in the first place? Politics.

Biden is an old-school Democrat who remembers the glory days of America’s auto industry, not to mention his party’s traditional base: hard-working middle-class voters.

“He has that kind of long-standing blue-collar appeal that has always been a part of his political personality,” said Christopher Sands, director of the Canadian Institute at the Wilson Center in Washington, DC.

“You get the feeling from his campaign in 2020 that he thinks blue collar voters were basically stolen from the Democratic Party by Trump with a lot of nationalist language. And while he doesn’t agree with Trump on a lot of things, he’s trying to appeal to that same group and muster votes for Democrats to get those voters back.

Like so much of what the Biden administration has done to build public support, it doesn’t seem to be working.

The president’s approval ratings have reached new depths in recent months, despite a seemingly robust economy – despite COVID-19 – and two notable legislative victories in Congress: a pandemic relief bill of 1.9 trillion dollars and a 1.2 trillion dollar infrastructure package.

Passing the $ 1.75 trillion Build Back Better bill, which now seems unlikely before the new year, would be a remarkable triumph for a president who, despite grappling with an equally divided Senate , has repeatedly demonstrated the consensus-building skills he perfected over more than 40 years as a US legislator.

Despite this, most political observers in the United States are predicting a Republican game midway through next year. This could ultimately work in Canada’s favor by forcing the president to veer more to the center.

“If you can just buy the time, then maybe the political math will change,” Sands said. “Canada does not want to burn its bridge for the future, and it does not want to go too hard in this particular fight because it may not come to fruition. “

Even if the Senate passes the bill, he added, a lot can change in the implementation process, when various federal agencies come together to design the rules that will govern how the various laws of the legislation must be implemented. This could mean expanding the definition of “assembled in the United States” to include North America, for example, if the law as drafted does not provide enough choice for consumers.

Duncan Wood, a senior advisor at the Mexican Institute at the Wilson Center, said he suspected the bill would eventually pass with some form of tax credit still intact.

“And then I think we’ll see some sort of accommodation with the Mexicans and the Canadians,” Wood said. “But I think it’s going to be a long process.”

This report by The Canadian Press was first published on December 17, 2021.

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