International Economic Law and Policy Blog and Environmental Capital have both discussed the  recent paper by Jeffrey Frankel titled, “Environmental Effects of International Trade.” More on my thoughts regarding “carbon tariffs” later. In a similar vein, Bernard Finel links trade policy with climate change in a recent article. Although I disagree with a lot of what he says, he makes a couple of good points:

In addressing this issue, it is important to make the distinction between pollution and climate change. Ultimately, each country has the right to pursue its pollution targets independently. While there are complicated moral issues associated with this kind of trade, if one country places a lower value on clean air and water than another, then it makes sense for the latter to export pollution-causing industries to the former. The advantage of sending pollution abroad is that it does, indeed, help the exporter maintain cleaner air and water.

This kind of tradeoff does not work with climate change, however. When other countries have weaker controls on greenhouse gas emissions, they are making a choice not only for themselves, but for countries that choose to limit their emissions as well. And if we reduce our emissions while they maintain theirs, we still get global warming. So when the United States exports production — and the greenhouse gas emissions that go with it — abroad, Americans continue to pay the cost of those emissions in terms of climate change at home. Because we gain nothing, it is a false trade. In order for the free market to function effectively, the costs for Americans to buy goods from India must include the costs we place on the negative effect such trade has on our climate change goals.

Categories: Trade Issues
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From Davos to Washington, it’s at the tip of everyone’s tongues again. It’s that ugly word that bleeds negative connotation. Yes, of course you guessed it. Protectionism! Just in the last week there have been over a thousand articles containing the P word.  As President Obama reviews the  $825 billion stimulus plan, leaders at the World Economic Social Forum and Republicans in the U.S. are berating Democrats on the “Buy American” provision. In Davos, trade ministers from Brazil, India, Japan, Switzerland, and elsewhere expressed worry over countries barricading their economies amidst the global financial collapse. The concern is a return to the Smoot-Hawley days of 1930, but most people are not recognizing the current need to reanalyze existing trade policies. Luckily, even former free traders are being revived from the smelling salts of the past two decades, a.k.a. evidence that aggressive trade liberalization has hurt the U.S. economy. Robert Cassidy, chief U.S. negotiator on China’s 1999 market access agreement with the United States, spoke at EPI last week.  He talked poignantly about the urgency to holistically revamp U.S. trade policy, but most of his reasons focused on the bilateral relationship between the United States and China over the past six years. Cassidy said that:

…U.S. exports to China have increased and, as the U.S. Trade Representative (USTR) often emphasizes, have increased at a higher rate than U.S. exports to any other country. But such claims distort the real truth ‐‐ that exports to China grew faster because they grew from a very low level. In absolute terms, the increase in U.S. exports of goods to the EU was almost 70% greater than the increase in U.S. exports of goods to China.  The increase in absolute terms was 40% more to Canada than to China. Neither of those trading partners made any trade concessions to the United States during this period.

Cassidy contends that the Obama Administration can invoke anti-dumping laws to mitigate unfair competition that results from China’s currency policy. It’s fantastic that someone from the U.S.T.R. office has learned that financial and corporate interests should no longer be prioritized over U.S. national interests. Hopefully, Cassidy’s message will permeate through to more mainstream economists.

Categories: Trade Issues
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