Manchin-Schumer deal changes tax credits for electric vehicles

WASHINGTON-

The existential crisis facing the Canadian auto industry may finally be over.

Democratic U.S. Senators Chuck Schumer and Senator Joe Manchin have agreed to propose scrapping a tax credit scheme that favored electric vehicles made in the United States.

Instead, the Senate Majority Leader and West Virginia moderate is proposing an amendment to Joe Biden’s climate and health bill that would expand the appropriations to include all of North America.

To be eligible for credits, the amendment would also require vehicle batteries to contain a certain percentage of materials from US “free trade” partners.

The legislation is still a long way from passing — it’s sure to infuriate Senate Republicans, who will be reluctant to give the Democrats a legislative victory with the midterm elections looming in November.

Manchin is a crucial vote in the equally divided Senate, but the bill, which is expected to reach the Senate floor next week, will still need 60 votes to avoid Republican stonewalling tactics.

“I am very pleased to see that our message has been heard and is reflected in the bill,” Kristen Hillman, Canada’s ambassador to the United States, said in a statement.

Canada has been “relentless” in its efforts to convince Congress and the White House to abandon a plan “that discriminates against Canada and breaks up the highly successful integration of our auto sector,” Hillman said.

“We all brought the facts to the table.”

Just two weeks ago, Schumer and Manchin, wary of inflation and China, found themselves at an impasse over Biden’s climate and health spending bill, a scaled-down version of the ambitious $2 trillion social spending enterprise known as Build Back Better.

Instead, they stunned Washington on Wednesday night with a $700 billion deal that includes a series of spending measures for climate and energy projects, deficit reduction, prescription drugs and health bonuses.

“The investments will be fully paid for by closing tax loopholes on high net worth individuals and corporations,” the senators said in a statement.

“The Cut Inflation Act 2022 will make a historic deficit reduction installment to fight inflation, invest in domestic energy generation and manufacturing, and reduce carbon emissions by about 40% by 2030.”

Biden, a self-proclaimed champion of Buy American protectionism and organized labor, originally wanted to save the wealthiest tax incentives for electric vehicles assembled in the United States with unionized workers.

Since then, the federal government, the Canadian Embassy and stakeholders across the Canadian auto industry have consistently lobbied against the plan.

“This is a great example of how to elevate critical bilateral issues with Americans and get results by focusing on solutions that benefit them,” said Flavio Volpe, president of Auto Parts Manufacturers’ Toronto Association.

It meant illustrating – again and again – the interconnected nature of the cross-border automotive sector to drive home a simple point: Incentivizing only US-made electric vehicles would be little more than a self-inflicted shot in the foot.

Every American automaker, let alone companies that supply parts, materials, tools and equipment, would have felt the pain, Volpe said — and the United States would suddenly find itself without a vital competitive advantage in the global marketplace.

“When the United States targets Canadian industrial capacity, particularly in the production of electric vehicles, lawmakers handicap their own country’s ability to compete with China.”

This report from The Canadian Press was first published on July 28, 2022.

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