Industrial Policy Imitation: A Critical Evaluation of Canada’s Adoption of the US Inflation Reduction Act

Publication Type:

Conference Paper

Source:

Gerpisa colloquium, Bordeaux (2024)

Keywords:

automobile; Electrification; Batteries; Canada, Industrial Policy, Inflation Reduction Act

Abstract:

Implementation of the US Inflation Reduction Act (IRA) in 2022 significantly changed the practice of automotive-related industrial policy in that country. Analysis of it is already extensive. However, instead of focusing on the IRA's effect in the United States, we scrutinize its influence on a third country, Canada, where, in response to the IRA, approximately CDN $50 billion has been committed to secure three battery plants with a value of just CDN $19 billion.

The purpose of our research is to determine a) if the incentive packages offered by Canadian governments were truly necessary to secure the investments, and b) if Canada can expect benefits comparable to those that similar supports would engender in the US, where the IRA was conceived. Our findings draw from and enrich insight into research that classifies automotive manufacturing jurisdictions into three distinct categories. These include “Core” automotive countries that serve as hosts to global automaker headquarters, possess a significant proportion of research and development capabilities, and have high levels of production. "Integrated peripheries” are distinguished by their ability to provide cost-effective labour. While these regions have experienced growing vehicle production, they struggle to attract knowledge-intensive portions of the automotive value chain. The final category covers “Semi-peripheries” like Canada. They have neither domestic automakers nor the benefit of affordable labour.

Based on our analysis, Canada's obligation to provide substantial incentives does not guarantee benefits on par with a core automotive country. As a semi-peripheral automotive nation, Canada's three new battery plants are unlikely to yield comparable outcomes bringing into question the effectiveness of Canada’s approach.

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