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Canada to Counter US IRA with Auto Production Plan

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  Published in Automotive and Transportation on Saturday, January 17th 2026 at 15:21 GMT by National Post

Ottawa, ON - January 17th, 2026 - In a strategic move to safeguard the Canadian auto industry, Bank of Canada Governor Tiff Macklem and Industry Minister Francois-Philippe Champagne are spearheading the development of a new auto production plan. The plan, currently in draft form, is specifically designed to incentivize companies to maintain and expand manufacturing operations within Canada, particularly focusing on electric vehicle (EV) and battery production. This initiative is a direct response to the growing influence of the US Inflation Reduction Act (IRA) and its disproportionate benefit to American automakers.

The IRA, enacted in 2022, offers significant US$7,500 tax credits to consumers purchasing electric vehicles assembled in North America. While seemingly benefiting the entire region, the credits largely favor U.S.-based manufacturers who are already well-positioned to capitalize on the incentives. This has created a competitive disadvantage for Canadian auto plants, raising concerns about potential job losses and a decline in domestic manufacturing.

The proposed Canadian plan aims to level the playing field by offering substantial incentives to companies that commit to maintaining or increasing their Canadian production footprint. These incentives are expected to be multi-faceted, potentially including tax breaks, direct subsidies, and investment in infrastructure related to EV and battery production. The goal is to make Canada a more attractive destination for automotive investment, effectively counteracting the allure of the IRA's benefits.

"We have to make sure that Canadian plants have a real future," stated a source familiar with the ongoing negotiations, underscoring the urgency and importance of the initiative. The Canadian government hopes to implement the plan before the IRA's impact on the Canadian auto industry becomes significant, potentially preventing a mass exodus of investment and production south of the border.

Balancing Protection and Trade Relations

However, the plan isn't without its potential challenges. Trade experts have voiced concerns that the Canadian strategy could be perceived as protectionist, potentially triggering retaliatory measures or challenges from Canada's trade partners. The line between protecting domestic jobs and erecting trade barriers is a delicate one, and the Canadian government is acutely aware of the risks involved.

"It's a difficult line to walk," remarked one industry analyst. "You want to protect Canadian jobs, but you also don't want to trigger a trade war." This sentiment highlights the complex geopolitical considerations at play. Canada is heavily reliant on international trade, and any actions that could disrupt these relationships must be carefully considered.

Future Implications and Details

While the details of the plan remain under wraps, discussions are reportedly focused on ensuring the incentives are structured to avoid violating existing trade agreements. The government is likely to consult with the auto industry, labor unions, and provincial governments to fine-tune the plan and maximize its effectiveness. Furthermore, attracting foreign direct investment (FDI) will be crucial, necessitating a stable and predictable regulatory environment.

This development underscores the escalating competition for EV manufacturing dominance globally. As the world transitions to electric vehicles, countries are vying to become hubs for production and innovation. Canada's response to the IRA signals its determination to remain a key player in the automotive sector and to protect its economic interests. The coming months will be critical as the plan is finalized and implemented, and its success will hinge on Canada's ability to navigate the complexities of international trade and maintain a competitive edge in the evolving automotive landscape. Further details and a finalized plan are expected to be released in the coming weeks, although the government has indicated that the proposal is still in its early stages and subject to change.