Crunch Time for Biden’s BBB Bill; U.S.-Canadian Trade War?
Author: Greg Valliere
December 13, 2021
RUNNING OUT OF TIME: It will take a Christmas Eve miracle to win passage of President Biden’s Build Back Better (BBB) bill this year. We don’t rule out some progress this week — a provision temporarily extending the child tax credit may move — but passing the enormous $2 trillion-plus package looks increasingly unlikely.
THE MAJOR OBSTACLE, AS USUAL, is Sen. Joe Manchin, who believes the bill is too expensive and is loaded with accounting gimmicks that assume — wink wink — that many of the provisions will expire in a year or two. They won’t expire, and the true cost of the ten-year package is $4 trillion or more.
MANCHIN BELIEVES THE BILL will worsen the inflation outlook, and he probably will get fresh ammunition on Wednesday, when the Fed releases its new economic forecast, which undoubtedly will show rising prices in 2022. Manchin also opposes several provisions, such as paid leave and a huge hike in the state and local tax exemption, which also is paid for with gimmicks.
SO THERE WILL BE HIGH STAKES when Biden meets with Manchin early this week. Our sense is that Manchin may pledge to carefully look at the bill during the holidays, with a vote on a scaled-back bill coming later this winter. That would hardly be a big victory for the president but it’s probably the best he can hope for.
THERE MAY BE AN EXTENSION of the child tax credit, which expires later this week, but over ten years that would gobble up most of the $1.7 trillion that is Manchin’s limit for the total package. We have suspected for months that this enormous bill could sink from its own weight, and we still think that’s the case.
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JUSTIN TRUDEAU GETS ALONG FINE with Joe Biden — but there’s a problem: the U.S. and Canada are headed for a trade war if Biden’s BBB bill contains $4,500 tax credits for Americans who purchase electric vehicles, which would hurt Canadian automakers.
CANADA HAS THREATENED SIGNIFICANT RETALIATION: In a sharply worded letter to leading members of Congress, Deputy Prime Minister Chrystia Freeland and International Trade Minister Mary Ng threatened to invoke the dispute resolution provisions in the U.S.-Mexico Canada trade treaty.
THE LETTER BLUNTLY STATED that Canada will weigh applying tariffs on American exports “in a manner that will impact American workers in the auto sector and several other sectors of the U.S. economy.” They identified “dairy tariff-rate quotas and delaying the implementation of USMCA copyright changes” as areas for potential retaliation.
THE CANADIAN LETTER CONTINUED: “In the coming days, we are preparing to publish a list of U.S. products that may face Canadian tariffs if there is no satisfactory resolution of this issue.”
CANADA VOWED THAT WHILE THE AUTO SECTOR IS A MAJOR TARGET, “our proposed retaliatory actions will extend across a number of sectors. At the same time, we intend to make clear which U.S. businesses and workers will be impacted.” A trade war with Canada, which is the last thing Biden needs, is still another reason why his BBB bill is in trouble.
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