Canada urged Biden to drop a Buy American idea Seems hes sticking to it

This item is part of Watching Washington, a regular dispatch from CBC News correspondents reporting on U.S. politics and developments that affect Canadians. 

What's new

A long-awaited announcement from U.S. President Joe Biden is going to make some Canadians unhappy. 

Biden released updated highlights of his key budget plan Thursday and it includes language Ottawa has been worrying about: a Buy American-type provision for the auto sector.

It involves a tax credit for U.S.-made cars that the Canadian government describes as potentially damaging, and also illegal under international trade law. 

It came in an announcement from the White House of its list of priorities after months of negotiations among Democrats resulted in a smaller version of its original multi-trillion dollar budget package.

One idea that made the cut was a maximum $12,500 US tax credit for people who buy electric vehicles, with some conditions: "[The] tax credit will lower the cost of an electric vehicle that is made in America with American materials and union labour," said the White House.

Then, later in the day, congressional Democrats released the full text of their 1,684-page budget bill; it confirmed new details of a tax credit favouring U.S. vehicles.

The plan would grow in two phases.

At first, a part of the $12,500 credit â€" $4,500 of it â€" would be reserved for vehicles assembled in the U.S. Then, starting in 2027, only U.S.-assembled vehicles would qualify for any of the $12,500 credit.

What's the context

Ottawa has been fretting about this idea for months. It's worried about the effect on a Canada-U.S. auto industry that has long been integrated, with parts repeatedly moving back and forth across the border.

Those concerns were publicly voiced in a letter last week to nearly a dozen U.S. officials by Canada's Trade Minister Mary Ng. 

Its stated concerns are threefold: Potential future job losses in Canada, alleged violations of international trade agreements and disruptions to cross-border supply chains that could also hurt Americans who supply parts to Canadian plants.

Minister of International Trade Mary Ng, seen here at a conference last year, sent a letter outlining concerns about a Buy American-type provision for the auto sector in the budget bill to nearly a dozen senior U.S. officials. (Justin Tang/CP)

The move comes as the auto sector is making long-term decisions about where to build future electric fleets and the fear in Ottawa is that the tax credit creates an unfair incentive to invest in the U.S. 

Biden unveiled the nearly $2 trillion suite of programs Thursday before leaving for G20 and climate summits in Europe. 

This budget package forms the heart of his domestic legislative agenda â€" touching on climate change, child care, health care and corporate taxes. 

However it's a much more modest package after some democratic senators insisted on trimming numerous ideas from Biden's plan. Among the ideas nixed was his most important climate policy forcing utility companies to go green. 

Eager to have a policy to show at the UN climate summit in Glasgow, and to make progress on some priorities before a batch of state-level elections next week, Biden revealed his remaining priorities for the budget bill; the vehicle tax credit included. 

The Buy American vehicle idea was initially championed by Michigan Democrats in both chambers of Congress. 

What's next

There's still no guarantee this will become law. Progressive Democrats are deeply disappointed in the reduced scope of the bill and it's unclear if it will receive the votes required in the House of Representatives and Senate. 

Representatives of the Canadian auto industry have hinted that they envision lawsuits if the measure goes forward. 

The Canadian government did not make that explicit threat in Ng's public letter, but it did describe the idea as contrary to international trade rules. 

Kirsten Hillman, Canada's ambassador to the U.S., said on Thursday evening that it's "too soon" to speculate about how Ottawa would respond if the bill becomes law.

She is instead arguing that the policy will harm businesses in both Canada and the U.S.

"We're emphasizing that trade is not a zero sum game. It's not a question of winners and losers," Hillman said during an interview on CBC's Power & Politics.

"Working together creates jobs on both sides of the border. Breaking down those supply chains loses jobs on both sides of the border."

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