Photo: The Canadian Press

Ottawa is threatening a tit-for-tat with Washington over green tax credits and government procurement policies that risk freezing out Canadian businesses.

This year's federal budget announces two consultations aimed at responding to the Biden administration's massive spending bill, the Inflation Reduction Act, which sets out policies that advantage the U.S. domestic economy.

Ottawa is threatening to structure its own clean-energy tax credits in a way that would bar or disadvantage American firms, which it calls "reciprocal treatment in light of some of the eligibility conditions associated with certain tax credits" in Biden's bill.

The Liberals are also pondering policies aimed at "ensuring the government buys goods and services from countries that also grant Canadian businesses a similar level of access to their government procurement markets."

They say this could include working with provinces on policies that would make it harder for American companies to compete with Canadian firms for contracts, as well as "a preference program for Canadian small businesses."

Ottawa argues this still fits in with the concept of "friendshoring," a policy pioneered by Washington that seeks to shore up supply chains by forming deeper economic ties with allies and relying less on countries like China.