How Canada could retaliate if tariff-like U.S. electric car policy goes ahead

A new U.S. government plan that would offer tax credits for electric vehicles and batteries made by unionized labour in the United States puts Canada in a difficult position, according to both Canadian environmentalists and trade experts.

Part of the "Build Back Better" plan passed by Congress at the end of last week, it gets a thumbs up from many battling climate change on both sides of the border.

Offering an effective $12,500 US subsidy if American residents buy an electric vehicle rather than one with a traditional engine, the move is considered a positive step toward coaxing gas-powered vehicles — and their emissions — out of the market.

But there are cries from Canadian economic nationalists that if the subsidy only goes to American-made cars, as planned, it could simultaneously squeeze Canada out of the business of making EVs, resulting in an unfavourable effect on well-paying Canadian jobs.

It could also fracture North America's deeply integrated automotive supply chain, with repercussions in the U.S. as well.

"Any cars made in Canada would not get the subsidy and would be a lot more expensive. In a way, it would be like imposing a high tariff," explained Patrick Leblond, who teaches public and international affairs at the University of Ottawa.

It means that if U.S. residents — who make up the vast majority of North American vehicle buyers — were to buy an identical or similar car made in Canada, it would cost them thousands of dollars more.

Existing Canadian plants making internal combustion vehicles might not be affected, but that would change as automakers plan new factories. And the Buy American policy could influence those plans now.

"Obviously, the big carmakers would build their plants in the U.S. instead of in Canada," said Leblond.

And just like when Donald Trump slapped tariffs on Canadian steel, aluminum and forest products, some say Canada must examine how it can make some sort of counter-threat, perhaps even offering up a list of products made in the U.S.,  but not in Canada, that would face tariffs here if the tax credit goes ahead.

"Sometimes, at least, the threat is a way to say, 'Hey, let's get our friends in the U.S. that depend on the Canadian economy to put pressure on Congress or the administration to make this thing go away,'" said Leblond.

As several of those I spoke to pointed out, offering a similar tax advantage for Canadian-made cars would not have the same effect, due to our unequal market clout. And putting tariffs on American-built EVs would simultaneously be bad for both climate change and Canadian auto-parts producers.

But one place Canada could take action would be on the production of key minerals needed to make EV batteries; Canadian mines, while currently undeveloped, could be a reliable and nearby non-Chinese source for the U.S. as demand for electrified transport ramps up. 

Dan Ciuriak, a senior fellow at the Centre for International Governance Innovation in Waterloo, Ont., compares the battery-mineral situation to the time when Trump banned the export of masks to Canada — before realizing the fine pulp to make those masks actually came from Canada. That was the reason Trump backed off, he said.