The tax credit program proposed by President Joe Biden to encourage American consumers to purchase electric vehicles may never be implemented in its current form. If it is, it could be the end of the Canadian auto industry.
This is what seasoned observers of the North American auto industry and Canada-US relations believe.
The tax incentives proposed by Joe Biden could reach US $ 12,500 and would apply only to vehicles assembled in the United States by unionized workers.
Pivotal moment
“We are at a really important time,” said Dimitry Anastakis, professor of Canadian business history at the Rotman School of Management at the University of Toronto.
Imagine what would happen if the $ 83 billion U.S. auto market – which is quickly ditching the combustion engine – suddenly offered an opportunity to save up to almost 25% on a $ 55,000 electric vehicle, provided that ‘it is assembled on American soil by unionized workers.
That would be equivalent to what the federal government in Ottawa is calling a 34% tariff on vehicles built in Canada. The imbalance would brand cars made in Canada with a hot iron and send automakers and their more than 125,000 jobs to scramble across the border.
The end of the Canusamex triangle
This worst-case scenario would cause what Anastakis calls the “disintegration” of more than half a century of trilateral auto manufacturing, with companies abruptly withdrawing their stakes and canceling plans to spend billions on their Canadian and Mexican operations.
We would see the removal and cancellation of all recent investment announcements; and there would probably be no future investment in personal vehicles. This would obviously be the end of the industry as we know it.
Dimitry Anastakis, Professor of Canadian Business History at the University of Toronto.
But Mr. Anastakis and other experts are convinced it won’t come to that.
Economically, it is illogical for all parties: consumers, manufacturers – foreign or national – and even the government which offers this type of subsidy.
“Already established manufacturers have a lot of money invested in Canada and Mexico, and they have a lot of benefits to gain from an integrated industry,” said Anastakis.
“There are all kinds of benefits to doing what they’ve been doing in the last 50 or 60 years; they make money with it. There’s a reason the Big Three made their production decisions the way they did: to maximize (their profits). “
Not an “insurmountable” problem, says Trudeau
It has long been a fundamental tenet of Canada-US relations that the only way to effect change in Washington is to set Canada’s priorities solely in the interests of the United States. In other words: hurting us hurts you.
“Given the deep integration of our respective auto industries, the proposal would have significant repercussions in the United States, affecting American production and employment,” Deputy Prime Minister Chrystia Freeland and Minister of the United States wrote last week. Commerce Mary Ng to key members of the United States Senate.
Threat of Canadian Retaliation
The letter made it clear that Canada would launch a series of targeted retaliatory tariffs and suspend key parts of the new North American trade deal if the provision, nestled deep within the bill Build Back Better of President Biden’s 2,135 pages, gets congressional approval.
But we are not there yet.
“There are solutions to this; it is not an insurmountable problem, insoluble, declared Thursday the Prime Minister Justin Trudeau in an interview with The Canadian Press, although he did not reveal any of the envisaged solutions.
“Canadian supply chains and Canada’s interconnection with the United States are such that it could prove extremely unpleasant for American workers, for American politicians, for the American economy, to have to fall into this kind of disagreement, this disagreement, with Canada. “
Canada offers a highly skilled manufacturing workforce with half a century of institutional knowledge in car and truck construction. Not to mention the financial benefits of a country where the dollar is equivalent to about 80 cents US and workforce health care is publicly funded. Union leaders like Bob White, the founding president of the Canadian Auto Workers, have used these advantages at every opportunity.
“Bob White used to say that for every Canadian car that came off the line, you might as well put $ 1,500 in cash on the hood of that car, because that was the difference in health insurance costs. ”Said Mr. Anastakis.
“I can’t imagine it going like this because it’s going to be so disruptive for the industry,” he added.
Biden wants to rally blue collar workers
Joe Biden is an old-school Democrat who remembers the heyday of America’s auto industry, not to mention his party’s traditional base: hard-working middle-class voters.
“He has that kind of long-standing blue-collar appeal that has always been a part of his political personality,” said Christopher Sands, director of the Canadian Institute at the Wilson Center, based in Washington.
“You get the feeling from his campaign in 2020 that he thinks blue collar voters were basically stolen from the Democratic Party by Trump with a lot of nationalist talk,” Sands said. And while he disagrees with Trump on a lot of things, he’s trying to appeal to that same group and rally the voices of Democrats to get those voters back. “
Like so many other initiatives of the Biden administration to gain popular support, this doesn’t seem to be working.
The president’s approval ratings have hit new lows in recent months, despite a seemingly robust economy – despite COVID-19 – and two notable legislative victories in Congress: a pandemic aid bill 1900 billion dollars and another investment in infrastructure of 1.2 trillion dollars.
Pass the bill Build Back Better $ 1.750 billion, which now seems unlikely before the New Year, would be a remarkable feat for a president who, despite grappling with an equally divided Senate, has repeatedly demonstrated his skills in finding a consensus, perfected over more than 40 years as a US legislator.
Despite this, most political observers in the United States are predicting a breakthrough by the Republican Party in the midterm elections next year. This could ultimately work in Canada’s favor by forcing the president to veer more to the center.
“If we can just buy time, then maybe the political math will change,” Sands said. Canada does not want to burn its relationship for the future, and it does not want to go too hard in this particular fight because it may not come to fruition. “
Even if the Senate passes the bill, he added, a lot can change in the implementation process, when various federal agencies come together to design the rules that will govern how the various laws of the legislation must be implemented. This could mean expanding the definition of “assembled in the United States” to include North America, for example, if the law as drafted does not provide enough choice for consumers.
Duncan Wood, senior advisor at the Mexican Institute at the Wilson Center, said he suspected the bill would eventually pass with some form of tax credit still intact.
“And then I think we’ll see some sort of accommodation with the Mexicans and the Canadians,” Wood said. But I think it’s going to be a long process. “