What is EV tax credit and why is Canada threatening the U.S. with tariffs? – National

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Canada, in its most aggressive stance to date against a proposed US electric vehicle tax credit scheme, has threatened to impose new tariffs on its largest trading partner.

The threats, which were sent in a stern letter to several members of the Senate leadership on Friday, included a promise to impose taxes on some American products should President Joe Biden’s proposed plan to encourage the development and sales of in US-made electric vehicles become law.

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Canada threatens new tariffs on US exports if it approves the electric vehicle tax credit

The development is the latest in a month-long dispute between Canadian and US leaders over a provision in the President’s Build Back Better Act that, if passed, would allow Americans to incentivize thousands of dollars for some electric vehicles to claim.

With the plan seriously threatening Canada’s auto sector, valued at tens of billions of dollars in exports to the US alone, here’s everything you need to know about the dispute so far.

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Biden better rebuilds

Biden’s Build Back Better Plan – an essential part of the then-presidential candidate’s platform in the 2020 election – includes a very enticing $ 12,500 incentive for Americans looking to buy US-made and built EVs.

The Biden administration sponsored the tax break plan to improve American middle-class families’ access to electric vehicles, which would also enable the US to create millions of jobs and meet its climate change goals.


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The bill has already passed in the US House of Representatives and is now awaiting approval from the US Senate – shared by 48 Democrats, 50 Republicans and two independents closely linked to the Democrats.

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US Vice President Kamala Harris, a Democrat, is holding a decisive vote in the Senate, but it represents an opportunity for the law to be passed if all Democrats, Independents, and the Vice President vote in favor.

How is that going to harm Canada?

Canada has a lot to lose if the bill goes into effect.

Canadian-made exports were estimated to be about $ 43 billion in 2020, of which about 93 percent – or about $ 40 billion – were in the U.S., according to the Canadian Vehicle Manufacturers’ Association (CVMA).

According to recent government statistics, automakers and parts makers employ up to 125,000 Canadians. The auto industry itself also indirectly employs around 370,000 people in Canada, including those in sales and finance.

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Trudeau “a little worried” about Biden’s US electric vehicle tax credit

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As part of the economy itself, auto manufacturing accounts for at least $ 12.5 billion of Canada’s GDP and is the second largest export sector after oil and gas.

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Automakers like General Motors are also planning to invest billions in modernizing factories in Ontario that are building new electric vehicles for the US market.


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The industry’s response to the upcoming law in Canada has also been far from encouraging.

Flavio Volpe, President of Canada’s Association of Auto Parts Manufacturers, said in November that the proposed US incentives “pose a greater threat than anything Donald Trump has pointed out”.

And that same month, Ontario Prime Minister Doug said the loan was against trade rules and promised to “do whatever it takes” to ban Canada from “buying America.”

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“It will hurt both sides of the border if he continues like this.”

After the Senate promised to vote on the bill by Christmas Day, Canada sent its most damning reprimand of the bill to date on Dec. 10, threatening direct threats to impose tariffs on a number of US goods.

In a letter to the Senate leadership on Friday, Deputy Prime Minister Chrystia Freeland and Secretary of Commerce Mary Ng threatened, adding that the proposal would include a 34 percent tariff on Canadian-made EVs – and that it violates the U.S.-Mexico-Canada accords (USMCA).

“We want to make it clear that Canada will defend its national interests if there is no satisfactory solution to this matter, as we did when we faced unjustified tariffs on Canadian steel and aluminum,” the ministers wrote.

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“In this regard, Canada will have no choice but to respond vigorously by initiating dispute settlement proceedings under the USMCA and levying tariffs on American exports in a manner that affects American workers in the auto sector and several other sectors of the US economy will affect. “

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Canada also threatened to end certain concessions already made to US milk producers under the USMCA on the grounds that the adoption of the EV tax credit would “significantly change the concessions made under the trade agreement.”

The recipients of the letter included Senate Majority Leader Chuck Schumer, Senate Minority Leader Mitch McConnell, and the chairs and senior members of the Senate’s finance, external relations, and energy and natural resources committees.

Vehicles made in Canada make up about half of the U.S.’s content, the letter said, with more than $ 22 billion in U.S.-made auto parts imported into the county each year.

The states that are supplying the parts – and that would feel the consequences if it happened – were “Michigan, Ohio, West Virginia, Indiana, Kentucky, Illinois, and New York, among others,” the letter reads.


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However, ministers offered one possible solution to the dispute: ensure Canada-made vehicles and batteries receive the same credit.

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“To be clear, we do not want to take a route of confrontation,” says the letter. “That was not the history of relations between our two countries – nor should it be the future.”

However, Canada’s direct threats come not without months of warning, with federal ministers repeatedly voicing concerns about the proposed law.

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In a letter to US lawmakers in late October, Ng said that if approved, the loans would “have a major negative impact on the future of electrical and automotive manufacturing in Canada.”

On November 4, Minister for Innovation and Industry Francois-Philippe Champagne said Canada would respond “appropriately” to the proposed tax credit, adding that it would harm workers on both sides of the border.

Later that month, Prime Minister Justin Trudeau said Canada was “a little concerned” about the crime and planned to have a conversation with the President on the matter.

“We are a little concerned about the mandates or discounts for zero-emission vehicles that are being put forward in Congress in the current proposal,” Trudeau said.

“But that’s part of the conversation we’re going to have today to make sure people understand that together this is good for all of us, good for jobs, good for the future as we tackle climate change and build wealth. ” in North America.”

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– With files from Reuters and Brian Hill of Global News

© 2021 Global News, a division of Corus Entertainment Inc.

What is EV tax credit and why is Canada threatening the U.S. with tariffs?