Electric-Vehicle Spat Looms Over Biden’s Meeting With Canadian, Mexican Leaders

The leaders had already expressed discontent with the Biden legislative agenda. A roughly $2 trillion healthcare, education and climate-change package being negotiated by House and Senate Democrats proposes to give consumers a tax write-off of as much as $12,500 if they buy electric vehicles assembled by union workers using American-built batteries. Automobiles produced in nonunion factories would qualify for $4,500 less.

The bill is in keeping with an administration goal to support union jobs and domestic manufacturing. Canadian and Mexican officials say the proposed measures could drive auto investment dollars out of Canada and Mexico and toward the U.S. Mr. Biden said at the start of a one-on-one meeting with Mr. Trudeau on Thursday that he expected to discuss the issue.

At a press conference after the summit, Mr. Trudeau said he conveyed to Mr. Biden Canada’s concerns about the tax rebate, and warned of the potential fallout for Canadian and U.S. auto workers.

“The Americans are very aware of Canada’s position on this and quite frankly the threat it poses to over 50 years of integrated automaking in our two countries,” he said.

Mr. Trudeau said he and the president agreed to talk and find solutions.

The provisions, Canadian and Mexican officials say, also violate the U.S.-Mexico-Canada trade pact, an upgrade of the North American Free Trade Agreement negotiated under the Trump administration. They say it will hurt U.S. suppliers of Canadian or Mexican plants and disrupt carefully choreographed supply chains among n the three countries.

The tax credit would “undermine the integrated nature of the North American automotive industry, would cause serious and irreparable harm to the Canadian automotive sector and, by extension, the automotive sector in the United States, and in particular companies and workers in the northern U.S. states who form a significant part of Canada’s automotive supply chain,” Canadian Trade Minister

Mary Ng

said in a letter to congressional leaders, the U.S. Trade Representative and the Commerce Department.

Mexican Economy Minister

Tatiana Clouthier

in a letter to U.S. lawmakers requested modifications to the bill to include incentives for all North American content and assembly “in a manner consistent with the USMCA.”

White House press secretary

Jen Psaki

said, “It’s not the first time that there have been incentives and tax credits to help consumers — lower prices for consumers, help incentivize a move towards a clean energy industry — something that is good for our climate; certainly, yes, good for businesses here in the United States.’’

A senior administration official said Mr. Biden has discussed shared interests on energy and climate with his Canadian and Mexican counterparts and expects to continue the dialogue Thursday.

The official said the U.S. was “looking at a future where we have to be competitive in electric vehicles and obviously invest in a climate-friendly future,” adding that both Canada and Mexico remained key partners in achieving those goals.

Should the House approve the tax credit along with the broader legislation as expected as soon as this week, the bill would then move to the Senate, where it is expected to undergo revisions.

Both Canada and Mexico, in an effort to address concerns from the former Trump administration, agreed to increase the amount of North American-made parts and content used in plants in their countries—from about 62% to 75%—to assemble cars in order for the finished product to enter the U.S. tariff free.

“We think it’s absolutely crazy,” said

Flavio Volpe,

head of the Automotive Parts Manufacturers’ Association in Canada. “Maybe the intention is noble, but it doesn’t reconcile with the way the auto sector works. Everything we negotiated in USMCA is threatened to be negated by this incentive.”

Unsettling the distribution networks would have implications beyond the three North American neighbors. Ambassadors from 25 countries noted in an Oct. 29 letter to congressional leadership that millions of American jobs rely on building and distributing foreign-made cars.

“Automotive companies headquartered in some of our countries have invested heavily in developing advanced manufacturing, workforce training, and R&D operations across America,” the letter said. “This legislation, if implemented, would violate international trade rules, disadvantage hardworking Americans employed by these auto makers, and undermine the efforts of these auto makers to expand the U.S. EV consumer market to achieve the Administration’s climate goals.”

Canada has for decades welcomed auto maker investment on the assumption its plants would be integrated into North American distribution networks. The cars produced in these plants were designed to sell in the U.S. market.

In 2019, the last pandemic-free calendar year, Canada shipped about $53 billion in assembled motor vehicles to the U.S., its second-largest U.S.-bound export after energy products, while importing $23.1 billion of U.S.-produced automotive engines and parts. About 75% of the cars made in Canada are U.S.-bound, auto industry officials say. About half of the parts used to assemble cars in Canada come from U.S. suppliers.

Mr. Trudeau and other Canadian officials on Wednesday met with the majority and minority leaders in the House of Representatives and Senate to convey their worries.

Ford Motor Co.

produces its Mustang Mach-E model at a plant north of Mexico City.

General Motors Co.

has said it plans to produce electric vehicles at its plant in the northern Mexican state of Coahuila starting in 2023, joining three GM plants in the U.S. and one in Canada for electric vehicles.

Mexico’s production of cars and light trucks fell 20% in 2020 after the industry was virtually shut down in April and May by the coronavirus pandemic. Expectations of double-digit growth early this year were dashed as the shortage of semiconductors and other supply-chain issues caused technical stoppages that affected most auto makers.

Production was up 1.9% in the first 10 months of the year but is expected to end 2021 below last year’s level as supply issues continue. Exports, most of which are destined for the U.S., were up 5.7% in the January-October period.

The labor-friendly provision of the social-spending and climate package also has touched off a lobbying battle by

Tesla Inc.,

Toyota Motor Corp.

, and other nonunion auto companies that say Mr. Biden is betraying the environment to help a political ally, the United Auto Workers. The White House said Mr. Biden believes “jobs taking on the climate crisis must also be jobs that build the middle class.”

On Wednesday, Mr. Biden visited a GM electric-vehicle assembly plant in Detroit, where he promoted his economic agenda’s investments in charging stations and clean vehicles.

“We’re going to make sure that the jobs of the future end up here in Michigan, not halfway around the world,” Mr. Biden said, while adding U.S. auto manufacturers would “set a new pace for electric vehicles.”

“Up until now, China’s been leading in this race,” he said. “That’s about to change.”

—Anthony Harrup

and Julie Bykowicz contributed to this article.

Write to Paul Vieira at paul.vieira@wsj.com and Sabrina Siddiqui at Sabrina.Siddiqui@wsj.com