World·Analysis

Remember that electric-vehicle spat with the U.S.? The Europeans are still steaming

Canada managed to resolve its most pressing complaint about the Buy-American provisions in the U.S. Inflation Reduction Act. But the Europeans are still steaming over what it could mean for electric vehicle manufacuring. The French president's visit to Washington highlights lingering trade tensions at a perilous trans-Atlantic moment.

French president's visit to Washington highlights tensions at perilous trans-Atlantic moment

French President Emmanuel Macron exchanged warm words with U.S. President Joe Biden during a state visit to Washington Thursday. Macron, however, offered heated words about U.S. trade policy. (Jonathan Ernst/Reuters)

For Canada, it's the old irritant that cooled off months ago. For Europe, it's still burning hot and causing sweats in its relations with the U.S.

Remember that electric-vehicle dispute with the U.S.?

France sure does. As does the rest of Europe, and Asia. President Emmanuel Macron's state visit to Washington this week emphasized this big-money brouhaha remains very much alive.

At issue is the unprecedented sums Washington has pumped into clean-energy production under the new Inflation Reduction Act, lavishing hundreds of billions to turbocharge the transition to zero-emissions technology.

Canada and Mexico escaped one of its most worrisome provisions: A stipulation that only vehicles assembled in the U.S. qualified for certain tax credits.

It caused cross-border palpitations for a few months. Policy-makers to the U.S.'s north and south contemplated the potential wipeout of next-generation manufacturing jobs.

We caught a break in the final version of the bill. It granted preferential treatment to all North American vehicles. 

That fortuitous news came amid a hot streak for Canadian auto-manufacturing, with billions in new auto-plant investments, and Canada zooming to No. 2 in Bloomberg's worldwide rankings for electric battery supply chains.

"The last 18 months have been unprecedented. There hasn't been another stretch like that, even a 10-year stretch like that, in the history of the Canadian auto sector," said Flavio Volpe, head of Canada's auto-parts lobby. 

"A year ago we were faced with the prospect of exclusion from the U.S. market – from the market that pays our bills.… It's a real table flip."

Canada and Mexico, he said, are the only two jurisdictions inside the U.S. tent.

And countries outside the tent, like France, are steaming. 

That's because only North American-made cars are eligible for the full $7,500 tax credit; U.S. consumers get a smaller refund for buying cars from other countries.

WATCH | Canada relieved by changes to U.S. electric vehicle tax credits:

U.S. EV tax credit changes a relief for Canada’s auto sector

10 months ago
Duration 2:06
Canadian automakers breathed a sigh of relief after a U.S. climate bill that would have seen consumer tax credits for American-made electric vehicles expanded to include North American-produced EVs, batteries and critical minerals.

Macron to U.S.: 'Put yourself in my shoes'

That frustration was emphasized during Macron's state visit, the first of Joe Biden's presidency. 

In various stops during his visit, Macron called U.S. subsidies "super aggressive;" he lamented that they could "destroy" numerous clean-energy jobs in Europe. 

He repeated his complaints while meeting with the president, with U.S. lawmakers, and with French citizens in Washington.

"Put yourself in my shoes," Macron said on Capitol Hill. "Nobody contacted me when the [Inflation Reduction Act] was being discussed." 

He shared a fear with a gathering of French expats: that as America prepares for a long-term rivalry with China and frantically re-engineers its trade routes, it might forget old allies.

"Let's not kid ourselves: There's a risk here," Macron said, speaking in French.

"[That], in a way, Europe, and France, become collateral damage."

Prime Minister Justin Trudeau expressed alarm about the U.S. electric-vehicle credit, here, during a 2021 trip to Washington. Months later, the policy was softened to the benefit of Canada and Mexico. (Jonathan Ernst/Reuters)

Europe has problems, well beyond Washington

Those worry lines are etched everywhere.

From the European Union surveying car companies to find out who might be relocating operations to the U.S., to Volkswagen officials suggesting North America is a more attractive investment destination.

U.S. trade policy is just one problem with Europe's automotive sector. High energy prices in Europe are another. As are other factors, including Brexit, that date back years.

One Politico piece from Berlin suggested European politicians are just looking to use the U.S. as an easy scapegoat. 

It's a particularly fraught moment in trans-Atlantic affairs as the European economy suffers the brunt of the war in Ukraine and officials there say U.S. subsidies are weakening trans-Atlantic unity at this perilous period.

The Europeans are hoping for an amicable resolution through a U.S.-EU body that holds a ministerial meeting in several days.

Their options are limited, though.

Joe Manchin, the West Virginia Democratic senator, is the one who torpedoed the original Build Back Better bill last year. The legislation was reborn months later as the Inflation Reduction Act, with modifications that brought relief to Canadian manufacturing. (Sarah Silbiger/Reuters)

Final details of U.S. rules expected imminently 

The uncomfortable truth is that taking the complaint to the World Trade Organization is a slow process at the best of times and it's perhaps downright pointless now; the WTO dispute process no longer works properly.

The U.S. has boycotted the organization's appellate body after its longstanding complaints about the organization went unresolved. 

It's way too early to assess the international impact of the Inflation Reduction Act, said one prominent auto-industry analyst.

We haven't even seen the fine-print details for the electric vehicle credit: they're still being drafted, though they're supposed to take effect in weeks.

U.S. regulators are gathering input as they draft the regulations. Unsurprisingly, the Europeans are submitting alarmed comments, casting the vehicle credits as discriminatory and illegal; the Canadian government submission is, equally unsurprisingly, more sanguine.

"All the devil in the details is happening right now [with the writing of those regulations]," said Kristin Dziczek, an auto-industry analyst at the U.S. Federal Reserve Bank in Chicago.

"We don't know yet how that plays out."

Canada worries about some parts of U.S. law 

She also cautioned that certain parts of the Inflation Reduction Act might also hurt Canada: for example, there's a credit for companies building clean-energy projects, worth an estimated $31 billion over a decade, and it goes only to U.S. companies.

She said that could be worth thousands per vehicle and pull investments from other countries, including Canada and Mexico: "That's difficult to compete with."

Acknowledging that potential pressure, Canada has just responded with its own tax credit for manufacturers, worth up to 30 percent.

Some in the auto sector aren't even certain the consumer credit that attracted so much relief in Canada will actually amount to much, based on their read of the language in the law.

They say it's possible no cars will benefit from the credit, at least not for now; they say it requires North American battery content that simply doesn't exist yet.

WATCH | Canada's auto-parts lobby makes the case for EV manufacturing here:

1st all-Canadian electric vehicle partially unveiled at Windsor parts show

8 months ago
Duration 1:55
Automotive Parts Manufacturers’ Association president Flavio Volpe teases the Project Arrow vehicle in Windsor.

Still, Volpe said, there's a bigger-picture story here. 

And that is that car companies are making long-term decisions about where to build electric vehicles and they've just been told, in U.S. law, that if they build cars in Canada and Mexico, they will qualify for consumer credits in the colossal U.S. market.

"Companies are in the business of making bets many years in advance. It takes that long to develop a product," Volpe said. 

If you're going to make a bet, as a carmaker, Volpe said, you're going to bet that preferential treatment for North American cars will last.

Both he and Dziczek concurred that Canada's proximity to battery-making minerals worked in its favour: the domestic industry is still in its infancy but the Canadian and American governments are both looking to fund its development.

Volpe said it's simply easier to build near raw materials. Dziczek, of the Federal Reserve, said: "Canada has a natural endowment that should be an advantage."

ABOUT THE AUTHOR

Alexander Panetta is a Washington-based correspondent for CBC News who has covered American politics and Canada-U.S. issues since 2013. He previously worked in Ottawa, Quebec City and internationally, reporting on politics, conflict, disaster and the Montreal Expos.

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