October 15, 2021
For months now, a legislative proposal inching its way through the U.S. Congress has been stoking consternation across the border.
Canadian policy-makers and businesses have been warily eyeing Buy American proposals designed to shift auto production to the U.S.
Deputy Prime Minister Chrystia Freeland said during a trip this week to Washington that she raised some of those concerns with U.S. Treasury Secretary Janet Yellen.
“It’s a focus. It’s a priority,” Freeland told a news conference Thursday after she attended global financial meetings. “I am very aware of the proposals being discussed here in the United States.”
At issue are two massive trillion-dollar bills currently before Congress that form the heart of President Joe Biden’s domestic agenda. The next few weeks could decide whether they pass.
One is a bipartisan infrastructure bill that’s already passed the Senate. It’s loaded with Buy American provisions.
The other bill has more specific implications for the auto sector.
It’s the sprawling budget legislation intended to advance numerous Biden priorities on climate change, health care, daycare, parental leave and possibly immigration.
In that bill, Democrats plan to offer $12,500 US in tax credits for the purchase of electric vehicles. Parts of those credits would be reserved for cars assembled in the U.S.
‘A critical period’ for auto investment
The timing has some Canadians particularly unnerved. Auto companies are on the cusp of making long-term choices about where to build and assemble their electric vehicles.
Auto-industry analyst Kristin Dziczek said the budget legislation could create an incentive to build new production lines in the U.S.
She said Canada has actually gotten off to a strong start in electric vehicle investment, with Detroit’s Big Three all making major commitments there in recent months. Battery production is also growing in Canada.
But she added it’s still early days in the electrification race.
Most of the important investments will be made in the next few years, said Dziczek, vice-president of the Center For Automotive Research.
“It could be problematic [for Canada],” she told CBC News.
“We’re really in the early stages. The investments made between now and 2026 are going to chart the course of the industry for decades to come. We are in the critical period.”
She said the plan as currently drafted would block foreign-assembled cars from some credits immediately and from the entire $12,500 after 2026.
There are actually two versions of the legislation — one in the House of Representatives and the other in the Senate — and they differ slightly.
Dziczek said the House version is slightly stricter but both plans offer credits for cars built by union workers, cars assembled in the U.S., and batteries made in the U.S.
The plan is to boost Michigan plants
It’s intended to make Michigan’s big unionized factories more competitive against non-union manufacturers, including those based in the southern U.S.
Canadian officials have been pushing for exemptions for Canada.
They argue that the plans as currently designed would hurt North American competitiveness — and also hurt union workers in Canada.
They’ve argued that the idea of penalizing electric vehicle production in Canada even runs counter to the stated goals of the U.S. administration.
The Biden administration has promised to work with Canada to develop electric vehicles, and to lean on Canada for more extraction of the minerals needed to make them.
Similar appeals for a Canadian exemption, however, fell flat in the infrastructure bill: it passed the Senate recently with no specific carve-out.
“We’re watching this very closely,” said Brian Kingston, CEO of the Canadian Vehicle Manufacturers’ Association. “It’s problematic.”
Plan compared to a 33 per cent tariff
Another auto industry official compared the plan to a 33 per cent tariff.
That’s because, after 2026, the whole $12,500 credit would be subject to Buy American rules — meaning a price advantage for U.S. electric cars worth one-third their average value — said Flavio Volpe.
“We’re all kind of anxious,” said Volpe, head of Canada’s Automotive Parts Manufacturers’ Association.
“It’s an investment-chiller, potentially … It is concerning.”
Insiders watching this file say the people most likely to scupper the provisions are Democrats in the southern U.S., whose non-union plants would be put at a disadvantage.
The tax plan has been championed primarily by two Democrats, both from the northern industrial belt in Michigan: Dan Kildee in the House and Debbie Stabenow in the Senate.
In May, when her proposal advanced through a Senate committee, Stabenow cast it as a matter of competing with China on next-generation technology.
“China has hundreds of companies making electric cars, and they have help — over $100 billion of help so far from the Chinese government,” she said.
“Our automakers and workers are the best in the world. They are making the private sector investments needed to electrify the industry, but they can’t do it alone.”
Ottawa polled Americans on ‘Buy American’
The fact that Biden-era Democrats back Buy American politics is no surprise. It was clear well before they took power.
And it’s a reason the Canadian government sought a better understanding of U.S. attitudes on Buy American issues in the lead-up to Biden’s inauguration.
Ottawa commissioned a poll last winter for $129,853.54 that asked Americans and Canadians questions about continental issues, including trade.
It found U.S. respondents supported Buy American policies by a huge margin — but they supported a “Buy North American” policy by an even larger margin, with 79 per cent in favour and 17 per cent opposed.
Plan B — lawsuits
So what happens if Canada’s arguments don’t sway Washington lawmakers?
The next step could be lawsuits. Volpe said that if the plan advances, he would expect to see a trade-discrimination case filed either before the World Trade Organization or through the dispute panels of the new North American trade agreement.
Freeland, meanwhile, said Canada has other levers to pull.
She said U.S. companies get about $1 billion a year in business from Canada’s federal government.
And she said this year’s federal budget, which included historic spending, also included a provision promising that Canada would take a reciprocal approach with countries on procurement.
“What Canada is saying to our partners is, ‘Our procurement opportunities will be open to your companies just as much as your procurement opportunities are open to ours,'” Freeland said Thursday.
She said she discussed that with Yellen as well.