MAY 3, 2023
Good afternoon everyone and thanks, Chris, for that very nice introduction. While I have been pleased and honored to participate in multiple Wilson Center Canada Institute events virtually, it’s great to be here with you in-person today, and it’s great to see that actually some of you showed up in person as we continue the transition of coming back to work from the pandemic.
The Canada Institute holds itself out as the only public policy forum in the world dedicated to exploring the entire range of U.S.-Canada relations – and in a nonpartisan and informed manner. And I agree with that characterization. So, I am particularly gratified to be invited here today to address one of the most common questions I receive as U.S. Ambassador to Canada – and that’s from elected officials, reporters, regular people on the street – what is the state of the relationship between the United States and Canada today?
Well, I am pleased to say that I think the state of our countries’ relationship is truly excellent – it is at a real high-water mark. The strength of the relationship – and the closeness of our partnership in the trade, defense, and intelligence contexts – all bound together by our shared values and so many friendships by individual citizens living on both sides of the border – was really driven home by President Biden’s extraordinary visit to Canada in late March.
On multiple occasions during his visit, President Biden highlighted that, as the closest of friends and allies, the United States and Canada are committed to making life better for people in both our countries, and building a more free, equitable, secure, and prosperous world. That’s a pretty good credo for any two countries in the world to subscribe to.
By way of example, in his address to Parliament, the President spoke about what the future holds for our partnership. He said, and I quote, “It’s a future built on shared prosperity, where Canada and the United States continue to anchor the most competitive, prosperous, and resilient economic region in the world.” Unquote. Further, in their closing Joint Statement, President Biden and Prime Minister Trudeau pledged to work together to deepen our economic integration and create good jobs while catalyzing clean energy.
Notwithstanding the size and strength of the trade relationship between the United States and Canada, there has been some noise in Canada about alleged protectionist policies of the United States, probably in part a vestige of past Administration policies, and probably exacerbated by a recent series of legislative packages and programs that have attracted a lot of attention because of their boldness – and I mean boldness, but you can also say their size. These include the Inflation Reduction Act, or as we call it the IRA, the bipartisan Infrastructure Act, the CHIPS and Science Act, modifications to the Defense Procurement Act, and a number of other programs.
I’ve said that I think this view is the product of largely uninformed opinion – that’s me being diplomatic and I’m not going to go any further than that today either. So, I want to take this opportunity to be clear, to be absolutely clear: America is not pursuing protectionist trade policies and any intimation that these programs and legislation are protectionist could not be further from the truth.
In fact, these incentive laden programs will help to build integrated supply chains and make North America more competitive. Signed into law by President Biden last year, the IRA contains the biggest investment in history to curb emissions, promote clean energy technologies, advance environmental justice, and bolster climate adaptation efforts. That is why Deputy Prime Minister Freeland called the IRA, and I’m quoting, a “truly historic, once-in-a-generation economic moment.” And that is why in the Joint Statement following the President’s visit to Canada last month, President Biden and Prime Minister Trudeau touted the IRA, embraced it as a, and I quote again, “foundational element to leading the clean energy future.” That’s what the IRA is, it’s not about protectionism.
The fact of the matter is that the collection of programs capped off by the IRA presents incredible opportunities for the United States, and for Canada and Mexico, to open new avenues for trade and manufacturing in clean energy, and to strengthen regional supply chains, which are the lifeblood of our economies.
So today, I’d like to take the opportunity, in a thoughtful way, befitting of the Canada Institute, to put to bed the inaccurate rhetoric that the United States is being protectionist in adopting policies and programs that will be harmful to Canada in particular. I am asked all the time why the United States can’t adopt a Buy North America policy instead of Buy America – and the simple answer is that that is exactly what we are doing. We are furthering North American prosperity, North American competitiveness, development of North American businesses, and creating an allyship for taking on climate change.
So, I’m a lawyer and I can’t quite get away from my legal roots, so I apologize, because I’m going to take this issue on with seven points. And I know the rule is you should never have more than three because no one can remember more than three, but I can’t do this in three points. So, you’ll have to listen to seven points.
First, let’s not bury the lede. Every day, 2.65 billion U.S. dollars in trade – that’s 3.25 billion in Canadian dollars – crosses between Canada and the United States – 2.65 billion dollars a day – generating millions of jobs on both sides of the border. Our trade between Canada and the United States grew 19 percent year over year in 2022. Almost all of that is free trade, not subject to any restrictions. That makes Canada the number one trading partner for the United States – and it makes the United States the number one trading partner for Canada. Our trade relationship, in short, is the envy of the world. More than 30 states count Canada as their largest export partner. And all of that is the case even under current Buy America and Buy American standards and policies.
This does not sound very protectionist to me! Not even close.
Second, let’s remember that Buy American is not new. Buy American provisions have been a part of federal infrastructure policy and programs in the United States since 1933. This didn’t come along a year ago, two years ago, they’ve been around since 1933.
Third, it is critical to understand just how limited Buy American provisions are. Those provisions apply only to federal government public procurement. They do not relate at all to private commercial trade. And in this sense, the United States is no different than other countries where the playing field is sometimes tilted toward domestic businesses – including Canada I might add, which has Buy Canada provisions littered through federal procurement policies.
So, let me quantify this for you a little because the numbers really drive this point home: Let’s focus, if we can, on the Bipartisan Infrastructure Law, one of the central elements of that package of programs I discussed, that will be the source of the bulk of United States infrastructure investment in the coming years, and it includes Buy American provisions and the same provisions the President spoke of in his State of the Union address. That act includes 1.2 trillion dollars in spending, generally over five years – all of it subject to Buy American provisions. That’s a couple hundred billion dollars per year in federal government infrastructure projects. On the other side of the scale, the U.S. economy – our GDP – is over 25 trillion dollars, so the total federal procurement spending in the Infrastructure Law makes up less than one percent of the U.S. economy per year.
So, let’s be clear – at the most, we’re talking about less than one percent of the overall trade economy that is subject to Buy American provisions under the Bipartisan Infrastructure Law. Contrast that to the value of U.S.-Canadian trade in goods in 2022 – which was more than three times the approximate annual spending under the Bipartisan Infrastructure Law! The total here, which I guess you could call the denominator, dwarfs the dollars that are subject to Buy America or Buy American provisions.
But even these numbers assume that Canadian businesses are competing for 100 percent of the opportunities available under these programs, including the IRA. And that is just not true. An insightful analysis by CBC News disclosed that among the top 25 products exported by Canada to the United States, only two of them – lumber and aluminum – are even covered by Buy American provisions. And in the case of lumber, the Canadian lumber industry has effectively moved to avoid the application of Buy American provisions by buying mills inside the United States, to which Buy American provisions will not apply.
Fourth, too often ignored, are the exceptions and waivers that are built into Buy American and historically negotiated for the benefit of Canada. For example, written into Buy American regulations is a provision that permits waivers when buying American costs 25 percent more or hurts the public interest – that’s the standard by the way, hurts the public interest. And the granddaddy of all waivers – while not related to Buy American, because it applies to an incentive program — has already been written into the IRA to benefit Canada – and that is the extension of the EV consumer tax credit to automobiles assembled or manufactured in Canada.
So now, electric vehicles assembled in Canada (or Mexico for that matter) are eligible for the tax credits. As President Biden has pointed out, there’s a simple reason for this: recognizing how interconnected our auto industries and our workers are.
Given the closeness of our relationship, Canada and the United States talk continuously on these issues. But to fix a problem requires identification of the problem and what harm is being done. Can’t just say, “Buy American hurts Canada.” How does it hurt Canada? What industry is being hurt? What businesses are Canadian companies not being permitted to bid for? Given the complexity of our trade relationship, this is not always easily done. But our history – including our IRA history with EV tax credits – makes me confident that we are capable of fixing anything substantial that needs fixing.
Sixth, the critics of the IRA and associated programs fail to acknowledge the eligibility of Canadian companies for funding and for tax credits under some of these programs. For example, President Biden has made $250 million of funding under the Defense Production Act available for U.S. and Canadian companies to mine and process critical minerals, with awards to be announced this spring or summer. And the United States has announced a further $50 million in DPA funding for U.S. and Canadian companies to develop advanced packaging for semiconductors and printed circuit boards. So, I’m in Washington this week for the Select USA Conference, and talk about good timing, I met a company today at this conference. It’s a company called Li-Cycle. L-I-cycle. It’s a lithium recycling firm and they were so proud to tell me that that company – a Canadian company – has been awarded 370 million dollars by the Department of Energy to develop a new facility in Rochester, New York, to engage in their recycling program. Canadian company. Canadian employees. Applying for funding under that package of programs and getting 370 million dollars to develop that plant. And what were they at the Summit for? To talk to us about other opportunities that they have under the IRA, under the Defense Production Act, to apply for U.S. funding to continue to build their business. They don’t feel that they’re being hurt by Buy American. I mean, Buy American didn’t stop them from getting 370 million dollar grant from the United States government. And they’re not discouraged at all in applying for additional funding to support their lithium recycling business.
Finally – we’re now at number seven – it’s important to observe that advancing our investment and climate change objectives does not require the United States and Canada each to do everything – there can be a complementary approach. For example, on semiconductors, our countries can facilitate production of semiconductors in the United States through several significant projects as had been done in Arizona, Ohio, and New York, while Canada can emphasize advanced packaging, testing, and assembly, as it is doing in conjunction with IBM in Bromont. In this way, the United States and Canada can develop a true, North American semiconductor supply chain – and they don’t necessarily need to take advantage of each other’s incentive programs to do this. And as Prime Minister Trudeau has noted, the more semiconductors that the United States manufactures, the more jobs will be created in Canada as those chips are assembled in Bromont, which is the largest such facility in North America. In short, rising tide in the United States, therefore, will lift boats in Canada as well.
President Biden made it very clear when he was in Ottawa: “Our destinies are intertwined and they’re inseparable,” he said. “Not because of the inevitability of geography, but because it’s a choice — a choice we’ve made again and again.”
The President told Canadians that “the United States chooses to link our future with Canada because we know that we’ll find no better partner, no more reliable ally, and no more steady friend.”
Today, that future includes working together as friends and partners to combat the climate crisis by investing in clean energy technologies. In its 2023 budget, for example, we saw Canada increase investment in clean tech manufacturing, net-zero power generation, and critical minerals – all of which work toward advancing our countries’ shared goals on climate change and energy security.
As President Biden said in his address to Parliament, the IRA “is a model for future cooperation,” – if you notice a certain repetitiveness of the words being used here, I want to assure you that’s not accidental, that’s actually what we’re talking about, it’s actually what we’re trying to do, cooperate, build together, complement each other’s work, and our goal is to have “both our nations investing at home to increase the strength of our industrial bases, making sure that products manufactured in North America are not only manufactured, but they’re the best in the world.”
The IRA will spur clean energy investments all over the world. It will grow the pie, not split it up.
And that is why we were so pleased to see the new incentive programs in Canada’s 2023 budget, including a new Clean Technology Manufacturing Tax Credit for investments in nuclear and renewable energy equipment manufacturing, grid-scale electrical energy storage equipment, net zero-emission vehicles, and electric vehicle battery components.
These incentives I will argue are not competitive with the United States – they are complementary, designed to enable a like-minded nation like Canada to further accelerate its own clean energy transition economy. This is exactly what we hoped for in the IRA in trying to take on the capacity of unfriendly nations around the world in this space and erode the advantages principally of China, but of China and Russia in this space – and it’s already working!
Now – if you’ll indulge me one more time, I’d like to leave you with one final quote from President Biden’s address to Parliament on March 24. It’s one that I feel really captures our partnership and our friendship: “Canada and the United States can do big things. We stand together, do them together, rise together. We’re going to write the future together, I promise you.”
I think those words capture the way the United States pursues the energy transition, our climate change objectives, and growing our trade relationship with Canada – it’s not a matter of competition, it’s not a matter of protectionism, it’s a matter of working together to grow a North American economy .
Thank you all for your attendance today. Chris, once again, thank you for hosting me. I’m happy to take some questions.