Cap and Trade, Part 1:
Compensating tariffs or trade war?
27 Jun 2009 in Regulatory Economics, Legislation
The House leadership plans to amend Waxman-Markey to impose trade sanctions on countries that do not reduce greenhouse gas emissions. International adherence to effective restrictions is essential for the bill to have any effect on global emissions. However, trade sanctions would have the effect of significantly reducing international trade and protect energy-sensitive US industries and their workers from foreign competition. This amendment would compel other nations (chiefly China) to adhere to US emission standards if they want to continue exporting to the US. These nations likely would interpret such demands as trade restrictions impermissible under existing WTO agreements.
Wall Street Journal reporters Stephen Power and Greg Hitt write:
House Democratic leaders Thursday weighed tough trade penalties on countries that don't cap so-called greenhouse-gas emissions, while President Barack Obama sought support from wavering lawmakers ahead of a vote on a climate bill.
The trade proposal is designed to protect a half dozen trade-sensitive U.S. industries, including steel, cement and chemical manufacturers, from competitors in countries that don't cap their output of greenhouse gases....
The inclusion of the trade-related provisions is meant to appease lawmakers from heavy industry states like Pennsylvania, Ohio and Michigan who worry that limits on U.S. emissions would put domestic industries at a disadvantage to competitors in countries like China that don't limit emissions.
The effect of such a trade provision is to compel China to either implement greenhouse gas emission controls or risk losing the US export market. The article does not offer any insight concerning which outcome supporters of the provision actually prefer. A close reading of the text of the amendment is necessary to gauge the magnitude of this risk, or draw inferences concerning sponsor intent.
