Do you remember this quarrel of electric vehicles with the United States? Europeans still smoke
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For Canada, it’s the old irritant that subsided months ago. For Europe, it is always burning and it makes sweat in its relations with the USA
Do you remember that dispute over electric vehicles with the United States?
France yes. Like the rest of Europe and Asia. President Emmanuel Macron’s state visit to Washington this week underscored that this big-money hubbub remains alive and well.
At issue are the unprecedented sums Washington has pumped into clean energy generation under the new Cut Inflation Act, spending hundreds of billions to accelerate the transition to zero-emissions technology.
Canada and Mexico escaped one of its most worrisome provisions: a stipulation that only vehicles assembled in the United States were eligible for certain tax credits.
It caused cross-border palpitations for a few months. Policymakers in the northern and southern United States have contemplated the potential demise of next-generation manufacturing jobs.
We caught a break in the final version of the bill. It gave preferential treatment to all North American vehicles.
The fortuitous news came amid a meteoric streak for Canadian auto manufacturing, with billions invested in new auto plants, and Canada jumped to second place in Bloomberg. world rankings for electric battery supply chains.
« The past 18 months have been unprecedented. There has not been another period like this, even a 10-year period like this, in the history of the Canadian automotive industry, » said Flavio Volpe , head of the Canadian auto parts lobby.
« A year ago, we were faced with the prospect of being shut out of the US market – the market that pays our bills. … It’s a real table-turner. »
Canada and Mexico, he said, are the only two jurisdictions inside the American tent.
And the countries outside the tent, like France, smoke.
That’s because only cars made in North America qualify for the full $7,500 tax credit; US consumers get less reimbursement for buying cars from other countries.
WATCH | Canada relieved by changes to U.S. electric vehicle tax credits:
Canadian automakers breathed a sigh of relief after a US climate bill that would have seen consumer tax credits for US-made electric vehicles expanded to include electric vehicles, batteries and critical minerals produced in North America.
Macron in the United States: « Put yourself in my shoes »
This frustration was underscored during Macron’s state visit, the first of Joe Biden’s presidency.
In several stops during his visit, Macron called US subsidies “super aggressive”; he lamented that they could « destroy » many clean energy jobs in Europe.
He repeated his complaints when he met with the president, with American lawmakers and with French citizens in Washington.
« Put yourself in my shoes, » Macron said on Capitol Hill. « No one contacted me when the [Inflation Reduction Act] was under discussion. »
He shared a fear with a gathering of French expats: that as America prepares for a long-term rivalry with China and frantically rearranges its trade routes, it might forget its former allies.
« Let’s face it: there is a risk here, » Macron said, speaking in French.
« [That]in a way, Europe, and France, become collateral damage. »
Europe has problems, far beyond Washington
These lines of concern are etched everywhere.
Of the European Union survey automakers to find out who could relocate their operations to the United States, to Volkswagen officials to suggest North America is a more attractive investment destination.
US trade policy is just one of the problems for the European automotive sector. High energy prices in Europe are another. In the same way other factors, including Brexit, that date back years.
A Berlin Politico article suggested that European politicians are simply looking to use the United States as an easy scapegoat.
This is a particularly difficult time in transatlantic affairs, as the European economy bears the brunt of the war in Ukraine and officials there say US subsidies are weakening transatlantic unity in this perilous time.
Europeans hope for amicable resolution through US-EU deal body who is holding a ministerial meeting in a few days.
Their options, however, are limited.
Final details of US rules expected shortly
The uncomfortable truth is that filing a complaint with the World Trade Organization is a slow process at the best of times and perhaps downright unnecessary now; the WTO dispute settlement procedure no longer works properly.
The United States boycotted the organization’s appeals body after its longstanding complaints against the organization went unresolved.
It is far too early to assess the international impact of the Inflation Reduction Act, said a prominent auto industry analyst.
We haven’t even seen the fine print for the electric vehicle credit: it’s still in the works, though it’s supposed to go into effect in a few weeks.
WE regulators collect feedback while they are writing the regulations. Unsurprisingly, the Europeans submit alarmed comments, presenting vehicle credits as discriminatory and illegal; the Canadian government submission is, unsurprisingly, more optimistic.
« All the devil in the details is going on right now [with the writing of those regulations]said Kristin Dziczek, an auto industry analyst at the Federal Reserve Bank of the United States in Chicago.
« We don’t know how it’s going yet. »
Canada concerned about parts of US law
She also warned that parts of the Inflation Reduction Act could also harm Canada: for example, there is a credit for construction companies clean energy projects, with an estimated value $31 billion over a decade, and that only goes to American companies.
She said it could be worth thousands of dollars per vehicle and attract investment from other countries, including Canada and Mexico: « It’s hard to compete with. »
Recognizing this potential pressure, Canada has just replied with its own manufacturers tax credit, worth up to 30%.
Some in the auto industry aren’t even sure that the consumer credit that’s gotten so much relief in Canada will actually amount to much, based on their reading of the language of the law.
They say it’s possible no cars will benefit from the credit, at least not for now; they say it requires North American battery content which just doesn’t exist yet.
WATCH | The Canadian auto parts lobby is making the case for electric vehicle manufacturing here:
Automotive Parts Manufacturers Association President Flavio Volpe teases the Project Arrow vehicle in Windsor.
Still, Volpe said, there’s a bigger story here.
And it’s that automakers are making long-term decisions about where to build electric vehicles and they’ve just been told, in US law, that if they build cars in Canada and Mexico, they’ll have entitled to colossal United States consumer credit market.
« Companies are in the business of making bets many years in advance. It takes that long to develop a product, » Volpe said.
If you’re going to bet, as an automaker, Volpe said, you’re going to bet preferential treatment for North American cars will last.
He and Dziczek agree that Canada’s proximity to battery minerals works in its favor: the domestic industry is still in its infancy, but the canadian and American both governments seek to finance its development.
Volpe said it’s just easier to build near raw materials. Dziczek of the Federal Reserve said: « Canada has a natural endowment that should be an advantage. »
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