A deal struck among Democrats in the U.S. Senate to support key sections of the Biden administration’s climate and tax agenda appears to have eliminated a threat hanging over Canada’s nascent electric-vehicle manufacturing industry.
An agreement announced late Wednesday between Senate Democratic Leader Chuck Schumer and Senator Joe Manchin of West Virginia is expected to give Democrats the votes they need to pass legislation that would increase corporate taxes, reduce the national debt, invest in energy technologies and lower the cost of prescription drugs.
Mr. Manchin, who serves as a swing vote in the U.S. Senate, late last year blocked passage of President Joe Biden’s US$1.75-trillion Build Back Better bill, effectively killing it.
The bill’s successor effort is a slimmed-down piece of legislation called the Inflation Reduction Act and includes US$430-billion in new spending on energy, electric-vehicle credits and health insurance. It more than pays for itself by raising minimum taxes for big companies and enforcing existing tax laws, Mr. Schumer and Mr. Manchin said in a statement.
The deal includes key elements from the Build Back Better bill such as tax credits for Americans who buy electric vehicles.
This revised legislative proposal changes the terms of tax credits for electric vehicles that as previously written would have exclusively applied to autos assembled in the United States.
The amended language does away with the made-in-America criteria and instead says the tax credit would apply to electric vehicles assembled “within North America,” which means not only the United States but Canada and Mexico.
The proposed changes also require that the critical minerals used to build batteries for the electric vehicles “are extracted or processed in any country with which the United States has a free-trade agreement.”
Canada’s auto industry and the federal government celebrated the development. International Trade Minister Mary Ng had previously warned the U.S. that a Buy-America-style tax credit for electric vehicles would cause “serious and irreparable harm” to the Canadian automotive sector.
“Now we can all breathe a sigh of relief,” Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, said Thursday.
“We make two million cars a year in Canada. Eighty per cent of them are exported to the U.S., so the old tax-credit wording was as big a threat as any we’ve ever faced from Washington,” Mr. Volpe said.
Ms. Ng lauded news of the revised tax-credit proposal, and credited “Team Canada advocacy” by Ottawa, Canadian industry and provincial governments for the change. Prime Minister Justin Trudeau raised the matter in his White House meeting with Mr. Biden last November.
“This is good news for Canadian workers, jobs and our manufacturing industry,” the International Trade Minister said in a statement. “We are encouraged by the recognition of the unique North American trading relationship and the tightly integrated Canada-U.S. supply chains.”
The original wording was part of an effort by Democrats to secure the electoral backing of unions such as the United Auto Workers, whose membership is concentrated in Midwestern swing states such as Michigan. Electric vehicles require significantly less workers than cars that contain internal-combustion engines and fuel systems – a concern for auto-industry unions as governments push a shift to greener options.
Mr. Schumer said he plans to pass the bill through a Senate manoeuvre called reconciliation that allows him to proceed with just a 51-vote majority, bypassing normal rules that require 60 of the 100 senators to agree to most legislation. That could allow him to pass the bill with only Democratic votes, if necessary, if every Democrat is on board.
Canada late last year threatened tens of billions of dollars in trade retaliation against the United States – including U.S. autoworkers – if Washington approved legislation on made-in-America electric-vehicle incentives that could devastate auto assembly in Canada.
Mr. Volpe said companies including Ford Motor Company of Canada Ltd., Toyota Canada Inc., Stellantis Canada and General Motors of Canada Co. have all announced investments in Canada for electric-vehicle manufacturing. He said the news from Washington removes a cloud that was hanging over these plans.
“They’ve all made those bets in the [past] year and a half. Now those bets don’t have to be hedged. They can all go ahead.”
The latest legislative proposal expands an existing tax credit by removing a cap of 200,000 vehicles per manufacturer and adds a US$4,000 tax credit for the purchase of used EV vehicles.
The new EV tax credits would be limited to trucks, vans and SUVs with a suggested retail price of no more than US$80,000 and to cars priced at no more than US$55,000. They would be limited to families with adjusted gross incomes of up to US$300,000 annually.
With reports from Reuters