WASHINGTON — Federal Treasury Secretary Chrystia Freeland warns of the dangers of a global “race to the bottom” as government spending spurs growth in the new green economy.

Ms Freeland made the “polite reminder” on Wednesday during a speech hosted by the Peterson Institute for International Economics in Washington.

The finance minister and deputy prime minister of Canada is in the American capital for the annual meetings of the World Bank and the International Monetary Fund.

She first praised the Biden administration and the Inflation Reduction Act, the controversial new law that envisages more than $369 billion in climate spending. It’s a “historic and transformative” bill that “will change the world for the better,” Ms Freeland said.

The importance of the United States’ involvement in the fight against climate change, just six years after former President Donald Trump’s decision to abandon the Paris Agreement, cannot be overstated, she added.

“It’s good for the United States, it’s good for Canada and it’s good for the world,” the deputy prime minister said.

But she acknowledged that the US approach to adopting a low-carbon economy – “the most significant transformation since the industrial revolution,” she said – has sparked consternation in some parts of the world.

European leaders, including French President Emmanuel Macron, say the bill gives North American manufacturers an unfair advantage, along with other incentives that may put rival countries under pressure.

Therein lies the danger, Ms Freeland said on Wednesday.

“We all know that building a clean economy and creating good middle-class jobs takes a lot of capital. So let’s be aware of one danger: it will be too easy to get caught in a race to the bottom to attract,” she said.

Ms Freeland warned that previous efforts to encourage investment and boost economic growth had resulted in a cut in corporate tax rates. The danger is that this will undermine national tax revenues, which are essential to the health of the middle class.

Getting involved in a subsidy war risks leading to “mutually sabotaging competition” that benefits no one in the long run, she said.

“A corporate subsidy war might benefit some shareholders, but it would drain our treasuries and weaken the social safety nets that underpin effective democracies,” Freeland said.

“It is in our mutual interest to work together as friends, partners and allies to ensure our incentives drive innovation and investment, rather than creating a vicious spiral.”

involve workers

Ms Freeland also urged her Washington audience to see free and fair trade as an engine of growth, provided the working class is not left out and manufacturing jobs are not automatically shifted to the lowest international bidder or to corporations at the expense of workers enrich .

“Workers in Canada, the United States, and in democracies around the world have long recognized that they are drawing straws when competing with the voiceless proletariat in the factories of authoritarian economies,” she said.

We must do everything in our power to create a level playing field for our people.

Nor can any country do everything alone, Ms Freeland added.

“No country, not even the United States, can invent all the new technologies or own all the natural resources that the global zero-emission economy needs,” argued the Canadian minister.

“Ultimately, we all strive to build clean economies that protect workers. We must never forget that free and fair trade, done right, can help us achieve that goal.”

Using Russia’s war in Ukraine as a cautionary tale, Ms Freeland demonstrated the dangers of accepting mutual economic benefits that would serve as a hedge against future aggression.

Russian President Vladimir Putin “clarified a lesson that China has also been trying to teach us for years: economic security is an urgent national security issue.”

Hence the importance of “friendshoring,” a term used by US Treasury Secretary Janet Yellen to strengthen key supply chains by strengthening economic and commercial ties with trusted allies who share the same ideas.

In defense of press freedom

Ms Freeland also took the opportunity to defend Evan Gershkovich, the Wall Street Journal reporter who was arrested in Russia last month on espionage charges that the United States and the newspaper say are patently false.

“Personally, as a former journalist, I am very, very concerned about the arrest of Evan Gershkovich. I think everyone should be,” she said.

As Canada faced China’s continued arbitrary detention of Michael Kovrig and Michael Spavor, it was important to have the support of other countries around the world, including the United States, she added.

“So I think it’s really, really important that we all urgently demand Evan’s release. He’s crossing that line that should be incredibly inviolable, which is the freedom of journalists to work.”