Talking Carbon Tariffs
Here’s Paul Krugman, defending the proposed Waxman-Markey carbon tariffs:
What’s happening here, I think, is that people are relying on what Paul Samuelson called an economic “shibboleth” — they’re relying on some slogan rather than thinking through the underlying economics. In this case the shibboleth is “free trade good, protection bad”, when what the economics really says is that incentives should reflect the marginal cost of greenhouse gases in all goods, wherever produced — which in this case happens to imply border adjustments.
And here’s Ezra Klein, agreeing with him:
I think, again, that we’re in one of these situations where all else being equal, it would be better not to be mucking around with tariffs. But all else is not equal. We’re triggering the largest change in the climate since the Ice Age. That may, indeed, be a fate worse than tariffs.
Leaving aside the fact that the impact of global warming is quite a bit more ambiguous than this suggests, let’s take a look at how carbon tariffs would actually be implemented through the World Trade Organization.
The international framework for resolving environmental disputes is maddeningly vague. Under WTO law, a punitive tax on foreign imports can only be implemented if it is deemed a legitimate countermeasure to an unfair competitive advantage. The Agreement on Subsidies and Countervailing Measures defines the specific conditions under which a country can pursue import restrictions. If a government directly transfers funds to certain industries, forgoes the collection of due revenue, or provides goods and services to a company other than basic infrastructure, another country may legitimately impose countervailing measures. Beyond these narrow guidelines, the agreement defers to the General Agreement on Tariffs and Trade (GATT). And therein lies the problem. Article XX, section (g) of the GATT indicates that measures “relating to the conservation of exhaustible natural resources” are allowed as long as they are “made in effective conjunction with restrictions on domestic production or consumption.” Which seems to imply that any country with domestic greenhouse gas regulations has the right to impose punitive tariffs on neighbors who lack reciprocal emissions restrictions. The EU and France have already made threatening noises about exploring this possibility.
The WTO’s ambiguous guidelines pose a serious problem. Given the complexities of the scientific debate surrounding athropogenic global warming, I think it would be a bad idea to empower a body of non-experts to determine the costs of foreign emissions. Is the WTO really the appropriate forum for assessing the impact of the global warming? Keep in mind that this is an organization intended to mediate trade disputes, not formulate global environmental policy.
On a broader level, it’s a bit disconcerting to see liberals – many of whom oppose coercive diplomacy in other areas (non-proliferation, for example) – rush to support punitive measures that were added to the climate change bill as a sop to Midwestern business interests. Do we really think China and India are going to respond favorably to carbon tariffs? Really?
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Credit goes to Scott, my former debate partner, for inspiring this post and talking me through the WTO dispute mechanism.
I think plenty of liberals would be perfectly happy with tariffs or even sanctions used for non-proliferation. The Obama/McCain 2008 Iran argument seemed to be on whether we should start negotiating for some sort of deal where we trade lifted sanctions and recognition for arms inspections, or whether we just keep sanctions in place no matter what until the regime falls.
So even if these tariffs formed some sort of punitive measure, it would be perfectly within the liberal mainstream, and any accusation of hypocrisy on this score is just nonsense. But in reality they aren’t even punitive–it’s just a matter of treating imports with the same regulations as we treat domestic products.Report
Of course they’re punitive – they’re designed to force other countries to reduce emissions! There wouldn’t be much point otherwise.
To address your broader point, I think liberals have (rightly) stressed the value of engagement with countries like Iran. The fact that sanctions haven’t done much to modify the regime’s behavior is the same reason that punitive carbon tariffs are unlikely to convince India or China to mend their carbon-spewing ways.Report
Is applying a VAT to imported products designed to encourage other countries to adopt a VAT? Imposing new restrictions domestically while still importing goods from abroad lacking such penalties would push jobs overseas.Report
No, a VAT applied to imports is designed to discourage the flow of foreign goods. In other words, it’s still a punitive measure.
I agree that unilaterally enforcing domestic emissions controls is a bad idea, but imposing punitive tariffs to get other countries to follow suit is not a good solution either.Report
No, a VAT applied to imports is designed to discourage the flow of foreign goods. In other words, it’s still a punitive measure.
Applying the very same VAT to both foreign and domestic goods is a punitive measure? Huh?Report
three things worth noting-
1. non-proliferation sanctions are not subject to WTO jurisdiction, as they meet the national security exemption.
2. more important than the short-term retaliation that these tariffs may engender, the larger point is that we, upon passage of some form of cap and trade, have unilaterally disarmed and lost all leverage ahead of the multilateral discussions at Copenhagen.
3. while liberals may oppose some forms of coercive diplomacy (methinks the emphasis on negotiation with Iran during the ’08 election had more to do with policy that developed as a result of Obama misspeaking and an attempt to make find some issue upon which to part ways with the Bush administration on the Middle East), the 111th Congress is surely unopposed to coercive economics (Colombia, Mexican trucks, Buy America in the stimulus and highway bills, etc)Report
2 is totally false–once cap and trade is enacted, it can be repealed. Because it would likely be easier to repeal than it would be to enact, if anything we would actually gain leverage.
And on 3, liberal insistence on negotiation is just recognition that preconditions on negotiation are a stupid idea.Report
“No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we’ll ever see on this earth.”
–Ronald Reagan
So the leverage that a Democratic administration (with a fundamental campaign promise to enact a cap and trade program, backed by solid Democratic majorities in Congress, and decent public opinion in favor of the legislation) brings to Copenhagen is the possibility of repealing a program that was enacted months/weeks/days earlier? And how would the threat of repealing a more substantial emissions program convince China or India to sign on to a non-tiered multilateral climate regime?Report
Government programs never shrink? Tell that to the estate tax. Or the personal income tax. I could go on, but after the last years it’s a stretch to claim that our political system finds it too hard to cut taxes.Report
The point is that, despite the many problems with international negotations that must be ratified through a legislative process (see: every treaty in American history), the idea that there is a credible threat of repealing a climate change mitigation strategy by the exact same entities that not only endorsed it a few months before, but also spent substantial resources lobbying for it, is laughable. In order to effectively convince developing countries to sign on to a global climate regime that has some chance of putting a dent in runaway warming, the U.S. should enter negotiations with the carrot of more substantial domestic reductions targets in the future (instead of having already conceded the issue through a unilateral process that is unlikely to be undone in the 111th Congress).Report
International negotiation will take years/decades, not months. The costs of cap-and-trade are back loaded, so it would be later Congresses and Presidents who decide to undo it, not the current ones.Report
The anti-trade provisions in Waxman-Markey give Congressional Democrats the ability to claim that it’s a jobs bill. Without those provisions it’s patently a jobs-destroying bill and that would deal them a serious injury with key constituencies.Report
I think there is a wide gulf between carbon tariffs and economic sanctions designed to cripple another country’s economy. It may be true that both don’t work, but trying to lump them together without acknowledging the difference in goals and effects seems a bit simplistic.Report
Both carbon tariffs and sanctions are punitive measures designed to change the target country’s behavior. They may be aimed at different behaviors, but the mechanism is exactly the same.Report
Carbon tariffs are not just about pushing foreign nations to adopt similar environmental legislation, it would also be about making sure our industries aren’t disadvantaged economically.
The effects on the average person are also vastly different. In Iraq hundreds of thousands of children starved as a result of the sanctions on Saddam Hussein. Carbon tariffs might hurt pocket books on both sides of the Pacific, but it isn’t going to be the difference between life and death.Report
And economic sanctions aren’t just about preventing proliferation, they’re about reducing the risk of a nuclear strike on the American homeland.
As I said, the logic behind punitive sanctions and carbon tariffs is exactly the same. If you think the goal of carbon tariffs is a more worthy one, that’s fine, but there just isn’t a substantive difference between the two.Report
Alright… you win.
For now… 🙂Report
Carbon tariffs are not just about pushing foreign nations to adopt similar environmental legislation, it would also be about making sure our industries aren’t disadvantaged economically.
And economic sanctions aren’t just about preventing proliferation, they’re about reducing the risk of a nuclear strike on the American homeland.
There’s a huge difference here. The latter is an application of economic sanctions for some intended end, while the former reconciles intrinsic unfairness–it’s not that we want to apply carbon restriction to foreign and domestic goods for the sake of some other goal–symmetric application of the law is itself an intrinsic matter of fairness that has nothing to do with trying to change anyone’s behavior.Report
Intrinsically unfair by whose standards? Yours? I submit that most Third World leaders will beg to differ, pointing to the fact that no Western nation had to endure emissions restrictions during our developmental phase.
As I said above, carbon tariffs are a tool for modifying other countries’ behavior. You may think the goal of forcing other countries to agree to greenhouse gas regulations is a worthy one, but the mechanism itself is still punitive. And, as I argue above, likely to be ineffective under current trade rules.Report
Intrinsically unfair by whose standards?
GATT, by your own quote. “…made in effective conjunction with restrictions on domestic production or consumption.”
As I said above, carbon tariffs are a tool for modifying other countries’ behavior.
Again, is the VAT intended to modify other countries behavior? How is symmetrically applying a tax on both domestic production and foreign imports supposed to be “punitive”?Report
Just because it applies equally to both foreign and domestic goods doesn’t make it “fair.” The United States wasn’t hobbled by carbon tariffs during its industrial revolution, so why should Third World countries have to contend with tariffs?Report
Industrial Revolution-era United States faced whatever tariff any other nation felt like imposing on it. This was back when sovereign nations still had the right to set their own policies to benefit their own industries. If there’s any unfairness here, this is where you should look–other countries can’t rely on tariffs to support their industries the way we supported ours.
Look, if you just think the situation in the third world is unfair and you think we owe them something, fine, tell the Treasury to get out its checkbook. But there’s no reason for that aid or restitution to take the form of subsidizing their environmental destruction–that’s counter-productive for everyone.
If we want to help other countries, lets do so directly, not as a side effect of trade policies that are unfair to our own producers. Let’s help them with taxes collected from the wealthy, not lost jobs for the working class.Report