Clean-Tech Subsidy War Erodes Safety Nets, Canadian Finance Minister Says

Canadian Finance Minister Chrystia Freeland warned American lawmakers about the risks of starting a clean-tech subsidy war, saying that a “race to the bottom” risks eroding the tax bases of the US and its allies.

(Bloomberg) — Canadian Finance Minister Chrystia Freeland warned American lawmakers about the risks of starting a clean-tech subsidy war, saying that a “race to the bottom” risks eroding the tax bases of the US and its allies.

Freeland, in a speech in Washington, hailed the US Inflation Reduction Act for helping to usher in a green-industry revolution, but said a strong domestic tax base is essential to support middle-class families and reduce economic inequality.

“That is all the more reason not to begin a new, mutually sabotaging competition to provide ever-richer corporate subsidies,” she said at the Peterson Institute for International Economics. “A corporate-subsidy war might be good for some shareholders, but would deplete our treasuries and weaken the social safety nets that are the foundation of effective democracies.”

Freeland published a federal budget last month that contained almost C$83 billion ($62 billion) in investment tax credits geared toward clean manufacturing and electricity generation, as well as carbon-capture systems, over the next decade.

American and Canadian policy should try to “work together to ensure our incentives drive innovation and investment, rather than create a vicious, beggar-thy-neighbor spiral,” Freeland said. She pointed to the European Union as the best example of how to proceed.

“For decades, within their union, they have balanced the need to drive industrial investment in their national economies against the danger of corporate-subsidy wars,” she said. “That is what we must try to do today, on a broader scale.”

She also encouraged the US to include allies — particularly the EU, Japan and South Korea — in the incentive regime for electric vehicles, as it did with Canada and Mexico.

Democracies must encourage free trade with each other while protecting against economic coercion from China and Russia, she said. Russia’s invasion of Ukraine and the energy shock that it caused in Europe showed the world once again that “economic security is a matter of urgent national security,” she said.

“These strategic vulnerabilities to authoritarian economies put our own security in jeopardy,” Freeland said. “We need to de-risk our economies, which means working more closely together.”

(Updates with additional comments starting in fifth paragraph)

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