WASHINGTON – Finance Minister Chrystia Freeland warned a U.S. audience Wednesday about the potential dangers of a global subsidy “race to the bottom” as government largesse fuels the growth of the new green economy.
Freeland, in the U.S. capital for the annual meetings of the World Bank and the International Monetary Fund, framed the warning with effusive praise for its principal catalyst: the Biden administration’s Inflation Reduction Act.
The controversial new law, rich with more than $369 billion in climate spending, is a “historic and transformative” bill that will “change the world for the better,” Freeland said.
The importance of having the U.S. onside in the fight against climate change, just six years removed from former president Donald Trump’s decision to abandon the Paris accord, can’t be overstated, she added.
“It is good for the United States, it is good for Canada, and it is good for the world.”
But she acknowledged the dismay the U.S. approach to kick-starting a climate-friendly economy – “the most significant transformation since the Industrial Revolution,” she called it – has engendered in some parts of the world.
European leaders, most prominently French President Emmanuel Macron, say the bill gives North American manufacturers an unfair edge, as do other incentives that competing nations may feel obliged to match.
That, Freeland said Wednesday, is where the danger lies.
“We all know that building a clean economy and creating good, middle-class jobs will require a lot of capital. So let us be aware of one danger: it will be all too easy for us to get drawn into a race to the bottom to attract it,” she said.
Past efforts to promote investment and jump-start economic growth, Freeland warned, ended up driving down corporate tax rates, undermining the domestic tax bases that are so essential to nurturing a thriving middle class.
Getting caught up in a global subsidy war would risk a “mutually sabotaging competition” that would benefit no one in the long run, she added.
“A corporate subsidy war might be good for some shareholders, but it would deplete our national treasuries and weaken the social safety nets that are the foundation of effective democracies,” Freeland said.
“It is in our collective interest as friends, as partners and as allies to work together to ensure that our incentives drive innovation and investment, rather than create a vicious spiral.”
Freeland also delivered a quintessentially Canadian defence of free trade, provided it doesn’t automatically send manufacturing jobs to the lowest international bidder or enrich corporations at the expense of workers.
“Working people in Canada, in the United States, and in democracies around the world have long understood that they draw the short straw in competition with the voiceless proletariat on the factory floors of authoritarian economies,” she said.
“There is a reason the industrial heartland became the Rust Belt. We should do everything we can to level the playing field for our people.”
Nor can any one country do everything alone, Freeland added.
“No single country, not even the United States, can invent all of the new technologies or possess all of the natural resources that the net-zero global economy requires,” she said.
“At the end of the day, all of us are seeking to build clean economies that protect working people. We should never forget that when done right, free and fair trade can help us do exactly that.”
Freeland used Russia’s war in Ukraine as a cautionary tale, one that demonstrated the perils of assuming that mutual economic benefit would serve as a firewall against future aggression.
Russian President Vladimir Putin “clarified a lesson that China had likewise been at-
tempting to teach us for years: that economic security is a matter of urgent national security.”
Hence the importance of “friendshoring,” U.S. Treasury Secretary Janet Yellen’s term for buttressing mission-critical supply chains through closer economic and trade ties with reliable, like-minded allies.
Freeland also took the opportunity to speak out in defence of Evan Gershkovich, the Wall Street Journal reporter detained last month in Russia on allegations of espionage that the U.S. and the newspaper insist are patently false.
“I personally, as a former journalist, am very, very concerned by the arrest of Evan Gershkovich. I think all people should be,” she said.
When Canada was dealing with China’s protracted arbitrary detention of Michael Kovrig and Michael Spavor, it was critically important to have the support of other countries around the world, including the U.S., she said.
“So I think it is really, really important for all of us to call urgently for the release of Evan. It’s just crossing this line, which should be incredibly sacrosanct, which is the freedom of journalists to work.”