Canada is threatening a retaliatory barrage of punitive tariffs and to reverse a number of dairy-related trade concessions if the United States goes through with its controversial plan to encourage the development and sale of U.S.-made electric vehicles.
In a stern letter dated Friday to key members of the Senate leadership, Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng promised to impose tariffs on a raft of U.S.-made products if President Joe Biden’s tax credit proposal becomes law.
They said the proposal amounts to a 34 per cent tariff on electric vehicles assembled in Canada and violates the terms of the U.S.-Mexico-Canada Agreement, or USMCA.
“We want to be clear that if there is no satisfactory resolution to this matter, Canada will defend its national interests, as we did when we were faced with unjustified tariffs on Canadian steel and aluminum,” the ministers write.
“In that regard, 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.”
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Canada is getting ready to publish a list of U.S. products it would be willing to target, including within — but not limited to — the auto sector, continues the letter. Democratic Sen. Chuck Schumer of New York and Kentucky Republican counterpart Mitch McConnell, the respective majority and minority leaders in the Senate are among the addressees.
So is West Virginia Sen. Joe Manchin, a moderate Democrat known for voting his conscience and widely seen as the likely deciding vote in the 50-50 Senate on Biden’s Build Back Better bill, which includes the proposal.
If passed, it would eventually create incentives worth up to $12,500 on certain electric vehicles, provided they were built in the United States and assembled with union labour.
Manchin, who hails from a state where Toyota is a major employer, has already expressed misgivings about the idea. He also worries about what the $1.75-trillion climate and spending package might do to the inflation rate, which topped out Friday at 6.8 per cent, a 39-year high.
Vehicles built in Canada comprise about 50 per cent U.S. content, the letter continues, with more than $22 billion worth of American auto parts being imported north of the border every year.
It goes on to list the states that supply those parts: “Michigan, Ohio, West Virginia, Virginia, Indiana, Kentucky, Illinois and New York, among others.”
“To be clear, we do not wish to go down a path of confrontation,” the letter reads. “That has not been the history of the relationship between our two countries — nor should it be the future.”
One potential solution, it says, would be to ensure Canadian-assembled vehicles and batteries are eligible for the same tax relief.
The letter also threatens to hit the pause button on certain concessions Canada has already made to U.S. dairy producers under USMCA, arguing that the EV tax credit would comprise “a significant change in the balance of concessions” agreed to under the deal.
“Those concessions could include suspending USMCA dairy tariff-rate quotas and delaying the implementation of USMCA copyright changes.”