Over the past four years, Donald Trump presumably was the biggest threat to global trade.
His ignorant protectionism hurt American consumers and businesses – and undermined the competitiveness of the U.S. economy.
Over the next four years (and beyond), it’s quite likely that the biggest threat to global trade will be the European Union.
More specifically, politicians and bureaucrats in Brussels want to toss a hand grenade into cross-border commerce by imposing trade taxes on nations that don’t impose carbon taxes.
The Wall Street Journal has a must-read editorial about this threat to world commerce.
Western politicians have failed to persuade their own voters to commit economic suicide by banning fossil fuels, and forget about China, Russia or India. The climate lobby’s fallback, which is starting to emerge, is to punish the foreigners and their own consumers with climate tariffs. Bureaucrats at the European Commission are due to unveil the proposed Carbon Border Adjustment Mechanism (CBAM) later this month… Brussels wants to impose tariffs to bring the cost of carbon-dioxide emissions tied to an imported good into line with what a European producer would pay to produce the same good. …a carbon tariff would impose an enormous burden on companies seeking to sell to the EU—even the low-emitting firms—and as a result probably will trigger a trade war. …Under the leaked plan, foreign firms would have to undertake detailed carbon audits to report emissions to EU regulators, and then would have to work out what proportion of the emissions attributable to goods shipped to the EU already were covered by carbon taxes elsewhere. …The choice between costly compliance or a punitive default tariff risks deterring smaller foreign companies from trying to navigate this system.
Needless to say, the so-called carbon audits will create big openings for cronyism and favoritism.
Lobbyists will be fat and happy while businesses and consumers will get hit with higher costs.
The editorial’s conclusion wisely warns that it would be a big mistake for Europeans to trigger a trade war.
Western elites haven’t convinced their voters to pay the price of their climate obsessions. Like Donald Trump, they now want to blame foreigners. In the process they’ll force their consumers to pay more for imports and domestic goods, and they’ll harm their own exporters if countries retaliate. The last thing the world economy needs as it recovers from a pandemic is a climate-change trade war.
Writing for Forbes, Tilak Doshi speculates whether the United States will copy the Europeans.
…the European Parliament overwhelmingly endorsed the creation of a “carbon border adjustment mechanism” (CBAM) that would shield EU companies against cheaper imports from countries with “weaker” climate policies. …Now that the Biden administration has elevated climate change to its highest priority across the whole of government, it would seem that the EU and the US working together with like-minded governments in Canada and the UK would be in a position to set up a “trans-Atlantic climate club” and thereby impose a global cost on carbon emissions. …Australian Trade Minister Dan Tehan labelled carbon tariffs “a new form of protectionism.” …For most developing countries, “worries of an increasing carbon footprint generated by economic growth are second to worries that growth many not happen at all.” …What sets off this new protectionism from its predecessors is the sheer scope of its application.
I’m actually hopeful on this issue.
Biden and his team doubtlessly are sympathetic to the E.U.’s initiative, but I don’t think Congress will approve a carbon tax on the American people.
And if the U.S. doesn’t have a carbon tax, there wouldn’t be any reason to impose discriminatory taxes on other nations that also don’t have that levy.
That being said, the Biden Administration would have some leeway to cause problems. For instance, would they push for the World Trade Organization to accept the E.U.’s attack on free trade?
When dealing with politicians, I always hope for the best, but assume the worst.
P.S. Here are my seven reasons to support free trade, as well as my eight questions for protectionists.
P.P.S. You shouldn’t be surprised to learn that the French were early advocates of carbon protectionism.
P.P.P.S. Some American politicians have pushed for regulatory protectionism.
