Canada threatens trade war over Biden’s $12,500 union-made electric vehicle tax credit

The Canadian government is threatening a trade war against the U.S. if President Biden’s mammoth social welfare and climate bill includes a lucrative tax credit for elective vehicles made by union workers in America.

Chrystia Freeland, Canada’s deputy prime minister, sent a letter on Friday to Senate leaders threatening retaliatory tariffs unless the White House strips the proposed tax credits from the roughly $1.75 trillion Build Back Better Act.

“We are deeply concerned that certain provisions of the electric vehicle tax credits as proposed in the Build Back Better Act violate the United States’ obligations under the United States-Mexico-Canada Agreement,” Mrs. Freeland wrote, referring to the three-way trade pact. “The proposal is equivalent to a 34% tariff on Canadian-assembled electric vehicles.”

Mr. Biden’s big bill, if enacted, would provide a $7,500 tax credit for consumers that purchase electric vehicles throughout 2026. Car buyers would be eligible to receive a further $4,500 credit if they purchase a vehicle manufactured at a union-run U.S. plant.

The $12,500 credit poses a significant “threat to the Canadian automotive industry,” according to Mrs. Freeland.

“This issue is at the top of Canada’s agenda with the United States,” she wrote. “We want to be clear that if there is no satisfactory resolution to this matter, Canada will defend its national interest … [by] applying tariffs on American exports in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy.”

In her letter, Mrs. Freeland noted that Canada is the number one market of U.S. “automotive exports, buying about 10% of” all American produced vehicles annually.

Neither the White House nor State Department immediately responded to requests for comment.

Senate Majority Leader Charles E. Schumer is pushing to hold a vote on the spending package before the Christmas holiday, though Capitol Hill insiders are skeptical the Democrats can make that self-imposed deadline.

“We remain on schedule to bring this bill to the floor of the senate before Dec. 25,” said Mr. Schumer, New York Democrat.

Not all Senate Democrats are on board with the bill. One of the main holdouts, Sen. Joe Manchin III of West Virginia, has raised concerns about the package, including the electric vehicle tax credit.  

Last month in an interview with Automotive News, Mr. Manchin argued that subsidizing electric vehicles from union shops would be “un-American” and “wrong.”

“We should not use everyone’s tax dollars to pick winners and losers,” Mr. Manchin told the auto industry trade publication.

Any defection would be fatal for the bill given that Democrats plan to pass it on a party-line vote via budget reconciliation. That process allows some spending bills to pass the evenly split Senate by a simple majority, rather than the 60 votes usually needed to overcome a filibuster. To succeed, Mr. Schumer must keep all 50 Senate Democrats in line.