President Biden’s long-awaited visit to Canada is set to take place next month. Newly elected presidents tend to make the customary trip up north early on in their term, and Biden expressed enthusiasm for visiting last year, but his visit faced several delays including COVID-19 travel restrictions, Russia’s invasion of Ukraine, and the 2022 midterm elections. Better late than never, state visits are an opportunity to strengthen bilateral relations and discuss matters of mutual interest. However, one issue that will be top of mind for Prime Minister Trudeau will be how to approach the increasingly protectionist policies being put forward by our largest trading partner and closest ally.
Inflation Reduction Act
One matter of concern for Prime Minister Trudeau is the Inflation Reduction Act (IRA). Signed into law last year, the IRA is a landmark piece of legislation focused on lowering inflation and implementing various social and climate policies. As part of investments to address the climate crisis, the IRA maps out attractive incentives such as uncapped tax credits to draw in private investments in key sectors, including clean energy, posing a competitive threat to countries like Canada who are in danger of losing out on valuable capital.
In response, Deputy Prime Minister and Minister of Finance Chrystia Freeland signalled that the federal government will implement measures of its own to ensure Canada remains an attractive place to do business. Government sources have revealed that Canada will need to implement targeted measures as it cannot rival the breadth and depth of the incentives offered in the IRA.
Such targeted action has already been taken, with tax credits for clean technologies and clean hydrogen included in the 2022 Fall Economic Statement (FES). Also included in the FES was a commitment to additional measures in the 2023 Budget to “ensure Canada’s competitiveness and create jobs.”
At the Finance Ministers’ Meeting earlier this month, Minister Freeland met with her provincial counterparts to discuss key priorities for Canadians and singled out the clean economy transition as one of the two major spending pressures for the government, which is operating in a time of fiscal restraint and must therefore be targeted with its investments. She noted that the IRA provides a “huge economic opportunity” for Canada that must be seized, calling on the provinces to take a “Team Canada” approach, and warning them that they will have to play a part by offering provincial incentives to attract investment in key sectors.
State of the Union Address
President Biden’s recent State of the Union address, which included several protectionist nods, will likely also shape Prime Minister Trudeau’s approach to the visit. The State of the Union address is a message delivered at the beginning of each year by the President to the US Congress where the President reflects on the accomplishments of the past year and outlines plans for the upcoming year. In this year’s address, President Biden declared that the US will “Buy American” for federal infrastructure projects and noted that the Buy American policy is “totally consistent with international trade rules.” The rules he referred to are the World Trade Organization (WTO) agreement on procurement, which Canada is party to and thus may provide Canada with some leeway.
However, WTO rules do not apply to state and local contracts, which, coupled with President Biden’s strong statements on buying Made in America products, has left Canadian manufacturing organizations worried about their place in the US procurement market.
Both the BC Lumber Trade Council and Canadian Manufacturers and Exporters released statements denouncing the address, with pleas for clarity on how this impacts Canadian producers and calls to take decisive access and safeguard Canadian access to the US procurement market. In response to the address, Minister of International Trade, Export Promotion, Small Business and Economic Development Mary Ng affirmed that the government will “always stand up for” Canadian stakeholders and noted the importance of “fair trading systems” for the creation and stability of jobs and growth.
The outcry prompted David Cohen, the US ambassador to Canada, to reassure Canadian industries that they would not be significantly impacted by the Buy American regulations. During an appearance on CTV’s Question Period over the weekend, he noted that the rules would not apply to large amounts of trade between Canada and the US or the free trade environment between the two nations. However, Cohen’s assurances contradict statements Kirsten Hillman, Canada’s ambassador to the US, made last week on CTV’s Power Play. She stated that Canada is currently “not in a position of achieving reassurances” on whether producers are guaranteed a place in President Biden’s new regulations and disclosed that conversations are occurring about how these rules fit into the Canada-US economic relationship and resilient supply chains.
As Prime Minister Trudeau prepares to welcome President Biden, he will need to take a strategic approach to position the interests of Canadians impacted by the US’s protectionist policies and statements while balancing a host of competing shared priorities. Stakeholders will be waiting with anticipation for the outcomes of the state visit. One thing is clear – Canada cannot take this lightly. Otherwise, it risks falling behind.
