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A bilateral spat over President Joe Biden’s proposed EV tax credit has escalated with Canada formally threatening retaliatory tariffs targeting the auto sector “and several other sectors of the U.S. economy” if the controversial provision remains intact.
There have been a few trade disputes and policy differences related to electric vehicles between the two countries in recent years.
One of the main disputes between the US and Canada related to electric vehicles has been over the US’s Section 232 tariffs on Canadian steel and aluminum. In 2018, the US imposed a 25% tariff on steel imports and a 10% tariff on aluminum imports from Canada, which had a significant impact on Canadian automakers who rely on these materials to produce vehicles, including electric vehicles. Canada has retaliated with its own tariffs on US goods, including some American-made electric vehicles.
Another issue that has come up is the difference in government incentives for electric vehicles in the two countries. The US has a federal tax credit for electric vehicle purchases, while Canada has a patchwork of provincial incentives that vary by region. Some US automakers have expressed concern that this discrepancy could put them at a disadvantage in the Canadian market.
President Biden’s proposed tax incentive on the purchase of electric vehicles may indeed end up helping the US economy and the environment. Canada has voiced concerns over the requirements for Americans to take advantage of this incentive. Most vehicles produced in North America contain parts from Canada, Mexico, and the US. Currently, vehicles being assembled in North America cross the US/Canada border multiple times before completion. The manufacturing companies do so to take advantage of the production capabilities on both sides of the border. There are exemptions to duties and taxes specifically for vehicle manufacturers under the terms of the USMCA. The Canadian government views the electric vehicle tax incentive as a potential deathblow to the Canadian automobile manufacturing sector. Excluding Canadian-made electric vehicles and parts would create uncertainty about cross-border trade, disrupt supply chains, and cost jobs.
While there have been some disputes and differences in policy between the US and Canada related to electric vehicles, it wouldn’t be accurate to characterize them as a full-blown trade war at this time.
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