According to a letter sent by the Canadian government on Friday, US proposals to create new electric car tax credits for American-built automobiles might hurt the North American auto industry and violate trade agreements.

The credits, if accepted, “would have a severe adverse impact on the future of EV and automobile manufacture in Canada,” Canadian Trade Minister Mary Ng wrote to US senators and the Biden administration in a letter dated Oct. 22.

She warned the danger of serious economic impact and tens of thousands of job losses in one of Canada’s main manufacturing sectors would increase, and that US companies and workers would not be exempt from the consequences.

The letter also said that the “proposals are inconsistent with US obligations under the United States Mexico-Canada Agreement (USMCA) and the World Trade Organization”.

In September, a US House panel passed legislation to increase electric vehicle incentives to up to $12,500 per vehicle, including $4,500 for union-manufactured automobiles made in the US and $500 for batteries made in the US. To be eligible for the full $12,500 in tax credits, automobiles must be produced in the United States starting in 2027.

Because they all assemble their American-made automobiles in union-represented plants, the credits would cost $15.6 billion over ten years and would disproportionately favour Detroit’s Big Three automakers – General Motors, Ford Motor Co, and Chrysler parent Stellantis.

Although the US Trade Representative’s Office did not respond immediately, the Biden administration praised the recommendations.

The union tax incentive has been contested by international automakers’ US subsidiaries. Tesla has also been criticised, despite the fact that the United Auto Workers union firmly supports it.

Canada is concerned about the “protectionist components” of the planned tax credits, according to Ng, who claims they discriminate against electric vehicles and parts made in Canada.

“Canada is also necessary for the United States to achieve its electric vehicle objectives in the future,” she wrote, adding that Canada is the only country in the Western Hemisphere that has all the critical minerals required to manufacture EV batteries.

Ng warned that the credits could “undermine the integrated nature of the North American automotive industry”.

She stated that the automotive industry in the United States and Canada rely on each other for both finished vehicles and components, with total automotive commerce exceeding $100 billion per year.