My Take | US Inflation Reduction Act has its allies running scared

For years, the West criticised China for its state subsidies, which wise economists said were not only unfair to competitors but also inefficient and wasteful. Only the free market could do the trick. Now, though, triggered by US President Joe Biden’s newly favoured industrial policy, Western countries are engaged in a subsidy war against each other. As they say, if you can’t beat them, join them!

As a Canadian taxpayer who pays more than one in every three dollars of earnings to the taxman, I find it quite astonishing that the Liberal government of Justine Trudeau has decided to commit at least C$32 billion (US$24 billion) to carmakers Stellantis and Volkswagen in the past few weeks. That will be over a decade, and Ottawa tells everyone they are good investments.

It’s hard to see how. The federal offers are more indicative of the Trudeau government’s unreflective enthusiasm for anything that has “environment” and “green energy” in the title.

Just as critics thought Volkswagen did a masterful job squeezing C$13 billion out of the federal government, Stellantis does one better – C$19 billion – for doing essentially the same thing – building an EV battery plant. Granted, Stellantis is even more ruthless, but it’s hard to see how they could have done it without Biden.

The EV battery factory is a joint venture between Stellantis and South Korean LG Energy Solution. Last year, they announced the plant would be built in Windsor, Ontario, and started construction. But just as promptly, they stopped and demanded more subsidies. They said it was only fair that their financial aid from Ottawa should be no less than what they would have received under Biden’s Inflation Reduction Act (IRA) if they were building the plant south of the border.

In the crucial clean energy part of the IRA, generous grants and tax subsidies are offered to manufacturers or any commercial bodies that work to lower carbon and other greenhouse gas emissions.