Biden not budging on EV tax credit shows America still comes first

Prime Minister Justin Trudeau ended a two-day trip to Washington, D.C., this week without assurances that a massive spending bill making its way through Congress would be adjusted to avoid harming Ontario’s automobile industry, raising further questions about whether United States President Joe Biden is any better for Canada’s economic interests than Donald Trump.

Trudeau and various cabinet ministers descended on the U.S. capitol for the first North American leaders summit in five years. Biden revived the gathering to signal his commitment to a reciprocal relationship between the U.S. and its two neighbours, Canada and Mexico. Relations were strained by Biden’s predecessor, Trump, who threatened to blow up the North American Trade Agreement and regularly harassed Canada and Mexico with trade sanctions based on questionable grounds.

After Biden bested Trump in the 2020 presidential election, there was hope in Ottawa that various trade spats would be resolved. The Biden and Trudeau teams knew each other and shared similar politics. It was widely assumed a more simpatico relationship between the men and women in power in Washington and Ottawa would result in a smoother flow of trade between the two nations after four years of extreme uncertainty under Trump.

There’s this misguided impression that we get along better with the Democrats

Lawrence Herman, a trade lawyer and lead counsel at Herman & Associates

But it hasn’t worked out that way. Trudeau’s U.S. counterpart has continued to forge ahead with an America First agenda. On his first day in office, Biden denied a permit for the Keystone XL pipeline, killing a project backed by a $1.3-billion investment from Alberta’s government. The current administration maintained tariff measures on Canadian softwood lumber that Trump applied in 2017. Another irritant the Biden administration has laid on Canada involved a dispute initiated in May over dairy, with the U.S. claiming their farmers were denied access as set out in the trilateral trade pact.

“There’s this misguided impression that we get along better with the Democrats than we do with the Republicans when they’re in office,” said Lawrence Herman, a trade lawyer and lead counsel at Herman & Associates. “Canada underestimated the protectionist bent of the Democrats.”

Trudeau went to Washington a day earlier to lobby U.S. lawmakers to reverse course on yet another irritant. The House of Representatives was on the verge of passing a nearly US$2-trillion spending plan that aims to create jobs, tackle climate change and rebuild infrastructure. The legislation — which passed Nov. 19 and is now on its way to the Senate — worries representatives of the automobile industry in Canada and Mexico because it includes a US$12,500 tax credit for purchases of electric vehicles made by unionized American workers and which include American-made batteries.

Americans purchasing vehicles assembled in the U.S. but from a non-union plant would qualify for an US$8,000 incentive.

On the first day in Washington, Trudeau and Deputy Prime Minister Chrystia Freeland met with House majority leader Nancy Pelosi and House minority leader Kevin McCarthy as well as Senate majority leader Chuck Schumer and Senate minority leader Mitch McConnell — all key players in passing the U.S. bill. On the second day, Trudeau and Freeland met separately with Obrador and Biden before a trilateral meeting but no clear signals emerged that Biden would budge.

During a photo opportunity between the two leaders, Biden said he would wait until the bill passes through the Senate before considering changes for Canada.

At a press conference at the Canadian embassy after the summit wrapped, Trudeau highlighted the strong relationship with the U.S. and noted the need for cooperation to “rebuild better,” but stressed the threats the tax credits pose to the auto sector.

“The Americans are very aware of Canada’s position on this and our concerns around it and, quite frankly, the threats it poses to over 50 years of integrated auto-making in our two countries that was most recently reaffirmed through the Canada-US-Mexico Free Trade Agreement,” Trudeau told reporters after the conclusion of the summit on Nov. 18.

If you want to get into a tit-for-tat war, Canada will always lose. Always. It’s just a matter of reality

Mark Warner, a Canadian and American trade lawyer at MAAW Law

Trudeau said there are a number of ways Canada can solve the issue, but held back on providing specifics. Instead, he touted Canada’s “significant” investments in zero-emission vehicles and the stock of critical minerals, such as lithium and cobalt, the country possesses that are important for green technology such as batteries and solar panels. “We can and must be a strong player in the integrated North American auto-production market.”

Omar Allam, director and leader of global trade and investment at Deloitte, said if the bill passes, Canada should move to diversify and beef up the value chain of critical mineral production to reassert its importance in the future of car production. “We need to really look at how to effectively and responsibly build reliance on Canada,” he said. “Critical minerals have the potential to enhance America’s security.”

Herman was skeptical such an approach would work. Canada hasn’t done enough lately to align itself with the Biden administration’s geopolitical priorities, he said, citing Canada’s lack of stringent measures against Huawei Technologies Co. Ltd. when allies such as the U.S., United Kingdom, Australia and New Zealand have either banned or severely restricted the company’s operations in their respective countries. He also said Ottawa’s military investment has been weak as has the country’s ice-breaking technology to access further critical minerals and reserves of oil and gas frozen in the Arctic.

“We’re going to have to use whatever bits of ammunition we have on our side,” Herman said. That could mean taking it to a dispute settlement panel under the new NAFTA, “which will take years to resolve” or taking “immediate steps” by reducing access to Canadian supplies of strategic minerals or raising tariffs on other U.S. imports. “None of these are particularly palatable, but we may have no choice but to go down that route,” he said, also pointing out that Biden’s focus is America First.

If a trade war breaks out, though, Canada would get a beating, said Mark Warner, a Canadian and American trade lawyer at MAAW Law. “This is just math,” he said. “Canada is one-tenth the size of the United States. If you want to get into a tit-for-tat war, Canada will always lose. Always. It’s just a matter of reality.”

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