Canada Threatens Trade Action Over Biden Electric Car Plan

Canada on Friday threatened to impose sweeping tariffs on American goods and suspend parts of a landmark North American trade deal if Washington rewards electric cars made in US union shops, to the detriment of Canada's auto sector.

In a letter to US senators, Deputy Prime Minister Chrystia Freeland said Ottawa is "deeply concerned" by an electric vehicle tax credit proposed in the Build Back Better Act that it says violates the United States-Mexico-Canada Agreement.

The proposed tax credit is equivalent to a 34 per cent tariff on Canadian assembled electric vehicles, Freeland said, adding that this poses "a significant threat to the Canadian automotive industry and is a de facto abrogation of the USMCA."

The proposal, included in US President Joe Biden's $1.75 trillion spending package pending in Congress, encourages 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.

The proposed tax credit is equivalent to a 34% tariff on Canadian assembled electric vehicles, Freeland said.

Mexico and Canada have argued that it threatens the integrated North American auto supply chain enabled by the USCMA signed in 2020 following tortuous negotiations.

Non-union automakers led by Toyota and Tesla have also balked at the Biden proposal, calling it a sop for the United Auto Workers labor union that could hinder the transition to EV autos.

If the measure is passed, Freeland said Canada could impose retaliatory tariffs on the US auto industry and several other sectors, suspend US access to the Canadian dairy market and hold up implementation of new copyright rules in the USMCA.

Freeland said a list of US products that may face Canadian tariffs would be released in the coming days.