A Harsh Climate for Trade: How Climate Change Proposals Threaten Global Commerce

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The upcoming Copenhagen conference on climate change has led tocalls for the United States to adopt a climate change abatementprogram in advance. In an effort to minimize adverse effects oncertain domestic industries from higher energy costs, however,proponents of a cap‐​and‐​trade program for greenhouse gas emissionshave loaded up their proposal with giveaways, loopholes, andbarriers to imports from nations with less stringent emission caps.These trade measures are likely to be ineffective at best andharmful to U.S. interests at worst.

First, the key targets of the proposed import barriers, Indiaand China, are relatively minor sources of imports ofenergy‐​intensive goods. Most carbon‐​intensive imports to the UnitedStates come from other developed countries that have stricteremissions controls than the United States and will therefore likelyescape import penalties. Second, and more fundamentally, the tradeprovisions may be counterproductive. Global trade rules allowimport barriers to protect the environment under certainconditions, some of which the main climate change bill appears tocontradict. A trade dispute and possible retaliation is not inanyone’s interest, especially in a global downturn. Even if theUnited States was able to avoid formal dispute settlementproceedings, copycat regulations in other countries may be designedin a manner unfavorable to U.S. interests.

To the extent that global warming is a real problem warrantingaction, it needs to be addressed globally rather than throughunilateral efforts. Antagonizing trade partners through probablyillegal trade measures will undermine efforts to secure globalcooperation on climate change. A freer, more prosperous economy isa more auspicious path to ensuring a more rapid spread ofenvironmental technology and the global consensus needed to combatclimate change.

Sallie James

Sallie James is a policy analyst with Cato’s Center for Trade Policy Studies.