Joe Biden came to tell Canada not to fear his grand, green vision, but to join it.
The U.S. Inflation Reduction Act, a centrepiece of the U.S. President’s economic strategy, really has sown worry in Canada’s business world because it offers massive subsidies for green technology and industry that will lure plants to the U.S. And that could lure industry away from Canada.
But here was Mr. Biden framing the IRA as the underpinning of a North American economic bloc, offering both countries opportunities to build a highly competitive industrial base for the future economy. Mr. Biden was talking about Canada and the U.S. building supply chains together.
That’s just the kind of thing Canada’s business community wanted to hear: Mr. Biden has talked about bringing jobs back to America just as much as his predecessor, Donald Trump, and it’s been a long time since a U.S. president has talked about North America’s integrated economy with this much zeal.
The catch is that the IRA really does pour buckets of money into industrial subsidies, and Canada still has reason to fear that will draw investment south of the border. And competing in that massive subsidy game would mean spending billions and billions, too.
But what Mr. Biden had to say was clearly what Prime Minister Justin Trudeau wanted to hear, too. And you can bet that some of it will be pretty close to what Finance Minister Chrystia Freeland has to say next Tuesday, when she delivers her 2023 budget. That’s when the Liberal government is going to table its own green-industry subsidy plan.
It is no accident those two things are fitting together within a few days of each other. Mr. Biden’s big industrial strategy has effectively forced the Liberal government to decide whether it will enter the same game. The answer is yes. The early celebrity endorser of that decision is Joe Biden.
The visit of the U.S. President provided a high-profile, high-powered argument for the kind of industrial strategy the Liberals are about to propose. And it also framed it as both the cornerstone of North American economic co-operation of the future – and the challenge of our time.
Mr. Biden talked about the opportunities for Canada in a competitive North American economy. He cited John F. Kennedy’s famous promise to send a man to the moon, “not because they are easy but because they are hard.” He recounted the one-word descriptor of the United States that he gave to Chinese President Xi Jinping – “possibilities” – and said it applies to Canada. The U.S. President was selling his economic plan to Canada as a joint plan.
And it was coming from a President who was – unlike Mr. Trump – playing all of the grace notes of U.S.-Canada friendship. He was effusive. In the House of Commons, many MPs from all sides seemed starstruck by his visit. He came to announce the kind of deals Canada was looking for on the border, too.
At a press conference later in the day, Mr. Biden said he “didn’t get” why some Canadians see the IRA as a threat to Canadian business, and argued jobs would flow to Canada by building North American supply chains. The U.S. and Canadian governments also agreed to set up an Energy Transformation Task Force to discuss co-ordination in clean-energy supply chains.
But the massive scale of U.S. industrial subsidies simply can’t be ignored. In addition to the US$280- billion CHIPS and Science Act, which subsidizes semiconductor and high-technology manufacturing, Credit Suisse estimated that the IRA’s clean energy subsidies could amount to US$800-billion.
Inside Ottawa, the IRA certainly started a lot of fretting, but the Liberals decided it can’t be stopped, so Canada will have to join the subsidy game.
Mr. Trudeau’s rhetoric at the press conference was that of a prime minister who has absorbed the Biden administration’s approach into his political DNA.
He talked about bringing supply chains for things like critical minerals back from authoritarian countries like China and Russia, and about the need to transform the industrial base to address climate change and emphasized that this is a moment of opportunity.
And now we can expect that Mr. Trudeau will argue that Canada’s economic competitiveness depends on building its own version of Mr. Biden’s industrial strategy. Mr. Biden has just effectively endorsed that idea by coming to Ottawa and asking Canada to join in.