Mexico Threatens Tariffs If EV Tax Credit Limited to US-Built Cars and Trucks
Cabinet-level officials in both Mexico and Canada are furiously lobbying U.S. senators to change an electric vehicle incentive in the Build Back Better bill, so that it does not discriminate against cars built in their countries. As passed by the House, the incentive gives larger credits for cars built in the U.S. with U.S. batteries and with at least 50% U.S. content; and in 2027, only cars assembled in the U.S. would be eligible for the purchase credit.
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Mexican Economy Secretary Tatiana Clouthier said during a press conference Dec. 2 that she and other officials are engaged in constant activity to communicate to senators the consequences of an incentive structured that way. Clouthier emphasized repeatedly that auto exports account for 25% of Mexico's total exports, and that they support more than 1 million jobs in Mexico. She said she is telling the Senate that the Mexican states where automotive factories are concentrated are states that traditionally sent migrants to the U.S. If the EV tax credit harms the Mexican auto industry, that could lead both Mexicans and Central Americans "to seek new horizons in the U.S.," she said.
In her opening remarks, Clouthier said in Spanish that if the incentive passes so that American production is given preferential treatment, "Mexico will resort to the legal tools it has to defend its rights."
When asked in follow-up questions what legal recourse Mexico has, Clouthier talked about commercial retaliation, and said that Mexico will target U.S. products and regions "that will cause pain to the other side." And, she said, the tariffs would be targeted "so the consequences can be felt."
Canadian press quoted Trade Minister Mary Ng, who had just returned from her own lobbying trip, as saying there is still a chance to get the tax credit revised so that it doesn't harm the Canadian auto industry. She spoke to reporters on Dec. 3, after she, other members of parliament, business leaders and Canadian union leaders spoke to senators.
Some senators -- including Sen. Joe Manchin, D-W.Va., one of the most pivotal votes for the Build Back Better legislation -- have said they oppose the incentive as written. But their criticism has focused on the extra money for union plants, not the American-made aspect.
As written, from 2022 through 2026, buyers could get a $7,500 tax credit for buying any electric vehicle. (Currently, that credit has been phased out for GM and for Tesla.) But, in order to receive a $12,500 credit, the car would need to be assembled in a U.S. union plant, using a U.S.-made battery.
“I heard from senators that they were not ready to vote on this, that they have work to be done," Ng said. "To me, that continues to, therefore, be an opportunity for Canada to keep doing this piece of work to find a solution.”