Biden Sticks It to . . . Canada

Ottawa says new EV subsidies violate the USMCA trade deal

WSJ editorial. 

"Canadians are known for their congeniality, at least by world diplomat standards. So it’s worth noting that our neighbors to the north are becoming increasingly frustrated with the way President Biden and Democrats are treating them.

The latest evidence comes in a stiff letter by two Canadian ministers to U.S. Senators objecting to the electric-vehicle subsidies in the Build Back Better legislation. Finance Minister Chrystia Freeland and trade minister Mary Ng advertise their stalwart climate credentials. But they say they “are deeply concerned” that the EV credits in BBB violate the U.S.-Mexico-Canada trade deal.

“The proposal is equivalent to a 34 per cent tariff on Canadian-assembled electric vehicles,” they write to the two Senate party leaders and six chairmen or ranking Members. “The proposal is a significant threat to the Canadian automotive industry and is a de facto abrogation of the USMCA.”

They are referring to the bill’s tax credits for consumers who buy an EV. The credit is $8,000 if the vehicle is made at a non-union U.S. plant, but rises to $12,500 if it’s made in a union-organized plant. The credit drops $500 if the car’s battery isn’t made in America, and after 2026 only cars assembled in the U.S. would qualify for the basic $7,500 credit.

The Canadians are right that the subsidies would harm the country’s auto industry, which exports a huge chunk of its production to the U.S. It would also hurt U.S. auto suppliers. Vehicles assembled in Canada contain content that is 50% American, and the country imports about $22 billion a year in U.S. automotive parts.

BBB’s domestic-content provisions are blatant protectionism that violates America’s World Trade Organization commitments as well as the USMCA. The tax credits and union-only provisions are a way to protect less efficient U.S. producers ( Ford and GM mainly) and limit competition.

“The issue is at the top of Canada’s agenda with the United States,” they write. Without a “satisfactory resolution,” they “will have no choice but to forcefully respond” by launching a dispute-settlement action under the USMCA and imposing tariffs on U.S. exports to Canada. They are drawing up the list of U.S. products that would be hit by new Canadian tariffs.

They also say they view the EV credits as a change in the USMCA. Canada will respond by suspending concessions it made in the trade deal that are important to the U.S. “Those concessions could include suspending USMCA dairy tariff-rate quotas and delaying the implementation of USMCA copyright changes.” Look out, Wisconsin dairy farmers.

Canadians can be forgiven for wondering what the Biden Democrats have against them. First Mr. Biden canceled the Keystone XL pipeline that would have carried Canadian oil. Then he imposed new tariffs on softwood lumber. He has also failed to support U.S. treaty obligations and order Michigan Gov. Gretchen Whitmer to cease her efforts to shut down Pipeline 5 that carries oil products to the Midwest.

The BBB trade dispute highlights how climate subsidies are going to become new vehicles for protectionism. The Canadians want the U.S. to extend the EV subsidies to Canadian vehicles, but then U.S. taxpayers would be subsidizing foreign production. Better to drop the subsidies and let EV auto makers compete on their own merits."