‘Damaging’ EV Tax Credit Has Canada, Mexico Seeking United Front

(Bloomberg) -- Mexico’s ambassador to Canada said his government and that of Justin Trudeau are of one mind about how to counter the Biden administration’s Buy American tax credits for electric vehicles as the proposal heads for a vote in the U.S. Senate.

While Mexico’s economy minister has explicitly threatened commercial retaliation against other U.S. goods if the measure is passed, Canada has taken a more cautious public line. But the top Mexican diplomat in Ottawa said in an interview the two countries are united.

“Not only are we on the same page, but we see the next steps in a very similar way,” Juan Jose Gomez Camacho said.

At issue is a provision in the $1.75 trillion Build Back Better Act that offers an additional $4,500 in tax credits to buyers of electric vehicles made by unionized U.S. workers.

Gomez Camacho argued that runs counter to the trilateral trade pact between the three countries, the U.S.-Mexico-Canada Agreement, and risks demolishing the continental integration he said is crucial to making cars produced in North America competitive around the world.

“It’s self-defeating for the U.S. and for the region,” the ambassador said. Unraveling the integrated auto market now would be “very damaging, and it can’t bring about positive results.”

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There is still plenty of uncertainty around the overall bill. The Senate parliamentarian is reviewing provisions -- including the EV tax credit -- to see if they’re in compliance with legislative rules governing budget bills, and political wrangling could still delay a vote until into the new year.

Trudeau’s trade minister, Mary Ng, who spent last week in Washington on a diplomatic blitz, continues to press U.S. lawmakers and labor leaders on the issue. 

“Canada will not sit by and allow our industry and workers to be unfairly hurt by protectionist policies,” Alice Hansen, Ng’s press secretary, said Thursday by email. “Several senators have agreed to look into this issue further and opened the door to work on this issue together.”

The Canadian government is also “considering next steps” on a separate dispute over the interpretation of auto content rules under USMCA. Consultations on the rules between the three countries failed to produce a resolution, and both Canada and Mexico are weighing a request for a formal arbitration panel under the trade deal.

“It’s smart for us to be to be working with the Mexicans, and the Mexicans are right to be pushing” on the EV issue, according to Meredith Lilly, an international affairs professor at Carleton University in Ottawa who served as trade advisor to former Prime Minister Stephen Harper.

Lilly warned against a “hub-and-spokes relationship where the Americans are at the center and Mexico and Canada are not working together.” 

She also said it’s not surprising Andres Manuel Lopez Obrador’s government is talking tougher in public.

“Prime Minister Trudeau likes to be perceived to be getting along with the Americans and working effectively with the Biden administration,” Lilly said by phone. “President Lopez Obrador is less constrained.”

But Canada and Mexico still face a big challenge in getting their concerns on the radar of U.S. lawmakers. 

“We don’t have the ear of Washington on this issue because it is buried in a much larger bill that reflects a range of domestic issues in the United States that are getting most of their attention right now,” Lilly said. 

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