President Joe Biden pledged to holistically “revitalize” US-Canada relations when he released the “Roadmap for a Renewed U.S.-Canada Partnership” alongside Canadian Prime Minister Justin Trudeau early last year.
The Biden administration co-released the “road map” following strained trade relations between the Canadian government and the Trump administration.
Yet currently, the only renewal on the horizon is reciprocal retaliatory trade action between the two governments.
In addition to raising other tariffs and duties on Canadian exports, the Biden administration has exacerbated North American trade tensions by championing the Democratic Party’s Build Back Better Act, which includes a tax credit program for electric vehicles that would seriously harm Canadian industries.
The Biden administration’s current approach invites further Canadian retaliation and dims hopes for genuine economic renewal in Canada-US relations.
Early in his administration, Biden prioritized far-reaching improvements in the U.S.-Canadian relationship. Trudeau received Biden’s first call for a foreign government, and soon after, Biden and Trudeau unveiled their “road map for a renewed partnership between the United States and Canada.”
This set of hopeful policy proposals outlines six areas for increased cooperation: fighting COVID-19, promoting economic recovery, tackling climate change, advancing diversity and inclusion, strengthening security and defense and create global alliances.
The roadmap’s economy-focused ‘Build Back Better’ provision recognizes the importance of ‘international regulatory cooperation to improve economic competitiveness and well-being’, likely referring to the agreement -United-Mexico-Canada.
Despite hope for change, the highly valued trade relationship between the United States and Canada has faced mounting strains throughout 2021, exemplified by tug of war over timber and milk.
Trade tensions have peaked over part of the Biden-backed Democratic climate change agenda; namely, the electric vehicle tax credit. This controversial provision would offer additional tax credits to American buyers who buy electric vehicles assembled by unionized American workers.
Among many critics, opponents view this provision as unfree and unfair. They say the tax credit would disproportionately benefit the U.S. auto industry and could incentivize U.S. manufacturers to build plants and vehicles in the United States rather than Canada.
Canadian industries fear the tax credit will swing a sledgehammer on Canada’s auto trade with its neighbor to the south. Canada fears significant declines in trade representing billions of dollars per year for the United States and Canada.
For related reasons, the Canadian government has made clear its opposition to the Build Back Better Act tax credits by placing tax credits “at the top of Canada’s agenda along with the United States.”
A bipartisan Canadian parliamentary delegation lobbied Washington to remove the tax credit from the law, to no avail. Two Canadian government ministers also penned a pointed letter to senior US Congressional leadership in December that equates the Biden administration’s electric vehicle tax credits to “a 35% tariff on electric vehicles assembled in Canada.” a threat to Canadian auto production and a “de facto repeal of the USMCA.
Mexico has also threatened retaliation against tax credits for electric vehicles, if passed.
In November, Biden and Trudeau met to review progress on their “road map.” No progress on the “Building Back Better” component of the roadmap has been announced. A trade dispute erupted again in December. Canada and Mexico filed suit through USMCA proceedings, calling for arbitration panel to assess potential USMCA violations by Democrats’ proposed electric vehicle tax credits .
The panel is expected to take place later this month. The Canadian government has already pledged to slap “a number of sectors” with retaliatory tariffs to “defend its national interests”. Canada has pledged to publish a full list of US industries that will be targeted by its tariffs “soon”.
Given growing trade tensions, time is running out for the Biden administration to rework its strategy toward Canada. US industries will soon pay the price for the administration’s trade policy decisions by bearing the brunt of increased Canadian tariffs and duties.
If Biden is serious about “renewing the U.S.-Canadian partnership,” he must focus future phone calls, bilateral meetings and initiatives, and multilateral summits with the Canadian government on resolving the dispute over the Build Electric Vehicle Tax Credit. Back Better Act, a giant thorn in the side of US-Canadian relations.
A real improvement in US-Canada relations would require the United States to pull the thorn out by recognizing and engaging the top priorities and concerns of the Canadian government.
Once the thorn is removed, the formidable US-Canadian partnership can focus its efforts on promoting mutual prosperity and countering common threats.
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