At Bloomberg View Ted Halstead proposes what appears to me to be a much better border adjustment tariff than the one proposed by the Trump Administration:
China is several times less energy-efficient than the U.S., emitting far more greenhouse gases per unit of economic output. Whether the industry is steel, cement, clothing or electronics, this amounts to an implicit subsidy for dirty production in China, at the expense of U.S.-based manufacturers. The way to level the playing field is to penalize China’s carbon intensity.
The Trump administration has instead based its trade strategy on the outdated notion that China is a currency manipulator. These days, the renminbi is, if anything, overvalued, not undervalued. The White House has also toyed with the idea of a border adjustment tariff as proposed by House Republicans. America’s retailers are fiercely opposed, however, and this proposal would probably run afoul of World Trade Organization rules.
The shrewd play for Trump would be to pivot to a border carbon-adjustment policy, something that would benefit most American companies and be compatible with WTO rules. It would tax the carbon contents of imports from all countries whose environmental standards are weaker than American ones, and rebate any carbon fees paid by U.S. companies on the products they export to those countries. This would enhance our terms of trade and substantially reduce the U.S. trade deficit with China.
To do that while remaining within World Trade Organization rules, we’d need to impose a carbon tax here. That could be done on a Pigouvian basis. The federal government is spending a lot to keep the trade in oil flowing. We’re keeping the sea lanes open, for example. And the trillions we’ve spent on military expeditions in the Middle East haven’t strictly been for humanitarian reasons, believe it or not.
Such a move would also provide a different way of thinking about our trade relationships with other countries not limited to China but particularly in the case of China. The list of possible border adjustment tariffs isn’t limited to carbon. There are clean air and water regulations, labor regulations, safety regulations, and any number of others.
Do we support safe workplaces just here in the United States or everywhere? Twenty years ago most rare earth elements used in the semiconductor and other industries were produced here. Now they’re produced in China. The reason that those industries and the jobs they supported pulled up stakes was due to air and water regulations. Rare earth refining operations can be damaging to the environment.
Do we just oppose environmental damage here in the United States or do we oppose it everywhere?
Mostly just here, unless it also affects us. That would include carbon but probably not so much labor regs. We are not that much into saving the world.
Steve