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A trade war between Canada and the US over subsidies for electric vehicles (EV) makes no sense for either country.
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It would hurt workers and consumers on both sides of the border for a niche product – currently around 3% of new car sales – for governments to fight over a subsidy, which is one of the most inefficient and costly methods of reducing greenhouse gases.
Problem is President Joe Biden’s plan to offer US consumers a tax credit of up to $ 12,500 on purchases of American unionized electric vehicles through his Build Back Better initiative.
That would devastate Canada’s EV industry – small today, but given Prime Minister Justin Trudeau’s mandate that requires 50% of all new car, SUV and pickup truck sales to be zero emissions by 2030, and 100% of all sales by 2035.
The Trudeau government says Biden’s tax credit is 34% duty on electric vehicles made in Canada, in violation of the U.S.-Mexico-Canada Trade Agreement (USMCA) and leaving Canada no choice but to put up with applicable tariffs to avenge selected US products.
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This would lead to higher consumer prices and job losses on both sides of the border, compounded by the high level of integration between the Canadian and US auto sectors.
Obviously, a negotiated solution is preferable to a trade war, provided the heads are cooler, but even that ignores the underlying problem that EV subsidies are an expensive and ineffective way to reduce greenhouse gas emissions.
They benefit disproportionately from higher incomes and lead to carbon prices of hundreds of dollars per ton of emissions – compared to Trudeau’s current carbon price of 40 dollars per ton, which will rise to 170 dollars per ton in 2030.
The only incentive to buy EV vehicles should be rising gasoline prices, which drivers are already paying a premium for due to Trudeau’s carbon tax and, in the future, its upcoming clean fuel standard, which will come into effect next year.
Adding subsidies to the purchase of electric vehicles – which the federal governments, Quebec and British Columbia are already doing – will delay the time it takes automakers to produce electric vehicles that are competitive in price, range, and performance with gasoline-powered ones, especially at cold weather.
