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Canada threatens US with tariffs over EV tax credit

Canadian officials tell senators retaliation would hit U.S. auto sector

Another bump in the road for US-Canada trade relations. (Photo: Ken Lund/Flickr CC BY-SA 2.0)

The Canadian government is threatening to impose tariffs on U.S. exports and suspend select provisions of the United States-Mexico-Canada Agreement over a proposed tax credit for U.S electric vehicles.

Tariffs would target U.S. exports “in a manner that will impact American workers in the auto sector” as well as other industries, Deputy Prime Minister Chrystia Freeland and Trade Minister Mary Ng wrote in a letter to eight U.S. senators Friday. Additionally, Canada is considering suspending parts of USMCA, including concessions related to dairy quotas. 

The retaliation would come if the Build Back Better bill passes with tax incentives for EVs produced by unionized workers in the U.S. Buyers of eligible vehicles could receive tax credits of up to $12,500.

Watch: Protectionism vs. free trade — and the implications for freight

“The proposal is equivalent to a 34 per cent tariff on Canadian-assembled electric vehicles,” Freeland and Ng wrote in the letter. “The proposal is a significant threat to the Canadian automotive industry and is a de facto abrogation of the USMCA.”

The proposed EV tax credit has also generated significant pushback from Mexico, as well as non-Big Three automakers, including Toyota and Tesla

The dispute over the tax credit is threatening to bring a return to the costly tit-for-tat trade spats between the U.S. and Canada during the Trump administration. 

Tariffs on steel and aluminum imposed by the U.S., along with Canada’s retaliation, were felt across the supply chain, including trucking companies with significant flatbed and specialized operations. 

Freeland and Ng did not detail which U.S. exports would be targeted. They will be published in the coming days. Canada previously targeted selected U.S.-made consumer products including bourbon and maple syrup in response to the steel and aluminum tariffs

Freeland and Ng called on charges to be made to the proposed EV credit to make Canadian-manufactured vehicles and batteries eligible.

“We are also prepared to work closely with you to support the transition to EVs and leverage the deep integration of Canada-U.S. automotive trade,” they wrote. 

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Nate Tabak

Nate Tabak is a Toronto-based journalist and producer who covers cybersecurity and cross-border trucking and logistics for FreightWaves. He spent seven years reporting stories in the Balkans and Eastern Europe as a reporter, producer and editor based in Kosovo. He previously worked at newspapers in the San Francisco Bay Area, including the San Jose Mercury News. He graduated from UC Berkeley, where he studied the history of American policing. Contact Nate at [email protected].