Simmering Canada-U.S. trade dispute erupts into the open

An emerging trade irritant between Canada and the U.S. that's been quietly simmering for months has now bubbled into the open. The Canadian government sent a letter to U.S. officials expressing dismay over a proposal involving autos, and hinting that it might prompt a trade action.

Ottawa sends U.S. officials letter expressing dismay over autos proposal, hints at trade action

GM workers in Michigan connect a battery pack to a partially assembled 2018 Chevrolet Bolt EV in 2018. A potential trade dispute between Canada and the U.S. involves tax credits for electric vehicles being proposed as part of a key American budget bill. (Rebecca Cook/Reuters)

An emerging trade irritant between Canada and the United States that had been quietly simmering for months has now bubbled into the open.

The Canadian government sent a letter to nearly a dozen senior U.S. officials Friday expressing dismay over an idea being considered in a key American budget bill.

As reported last week by CBC News, Canadian officials have been concerned about a Buy American-type proposal they fear might disrupt the auto sector.

Now Ottawa has put those views in writing to the congressional leadership from both parties, other key members of Congress and two cabinet-level officials.

Minister of International Trade Mary Ng, seen at a conference last year, sent a letter outlining concerns about an idea being considered in a key American budget bill to nearly a dozen senior U.S. officials. (Justin Tang/CP)

'Very serious concerns'

The letter from Canada's International Trade Minister Mary Ng expressed several worries — of a historic decline in Canada-U.S. auto co-operation; tens of thousands of lost Canadian jobs; and collateral damage to those U.S. auto workers involved in the cross-border auto trade.

"I am writing to convey Canada's very serious concerns," said Ng in the letter.

"This proposal would undermine decades of United States-Canada co-operation to foster a mutually beneficial integrated automotive production and supply chain. …

"If passed into law, these credits would have a major adverse impact on the future of [electric vehicle] and automotive production in Canada, resulting in the risk of severe economic harm and tens of thousands of job losses in one of Canada's largest manufacturing sectors. U.S. companies and workers would not be isolated from these impacts."

At issue is the massive budget bill that forms the heart of U.S. President Joe Biden's domestic agenda.

U.S. Senator Debbie Stabenow, seen here last month, is one of the Michigan Democrats pushing the tax plan. (Elizabeth Frantz/Reuters)

Electric vehicle credits worry Ottawa

Democrats are hoping to hammer out a deal among themselves to pass a bill with around $2 trillion in initiatives on climate change, child care, parental leave and health care.

They want an agreement soon — before Biden heads to the Glasgow climate summit that's set to start on Oct. 31 — and they want to have legislative progress they can show voters before a batch of state-level elections on Nov. 2.

One of the major climate provisions being contemplated involves incentives for the purchase of electric vehicles.

Under different proposals in the House of Representatives and the Senate, the Democrats would offer $12,500 in tax credits for people who buy an electric vehicle.

What has irked Ottawa and Canada's auto sector are provisions that would reserve parts of that credit strictly for vehicles assembled in the U.S.

In five years, the entire $12,500 credit would apply only to U.S.-assembled cars. 

What worries Ottawa most is the timing: Companies are now making investment decisions about where to build electric vehicles and they fear this tax credit might steer investors out of Canada.

Canada recently saw a gusher of investment in the construction of electric vehicles, including some announced by Prime Minister Justin Trudeau at a Ford facility in Ontario last year. Some observers say those investments could dry up if the U.S. tax plans pass. (Sean Kilpatrick/CP)

Possibility of trade retaliation

Ng's letter hints at the possibility of trade retaliation. It says the proposal violates U.S. commitments under the new North American trade agreement and under World Trade Organization rules.

She also says it runs counter to U.S. commitments to work with Canada to develop electric vehicles and the mining of critical minerals used to build them.

The reason so much of the president's agenda is riding on this one bill is that budget legislation has the best chance of passing Congress.

Budget bills can get through the Senate on a simple majority vote through a process known as reconciliation and this omnibus package could become law once all Democrats vote for it.

Ng's letter was sent to the leaders of the House of Representatives and Senate, Nancy Pelosi and Chuck Schumer, as well as the top Republicans in both chambers, the heads of key committees, and Biden's trade and commerce secretaries.