The cap-and-trade legislation passed recently by a House committee is Smoot-Hawley in drag: It contains provisions for tariffs on imports designated “carbon-intensive” — goods manufactured under less carbon-restrictive rules than those of the proposed U.S. cap-and-trade regime. Eco-protectionism is a recipe for reciprocity.
For more information check out the transcript about a Green Trade War on NPR’s Marketplace from May 26.
Protectionism can rise up in many other forms besides an increase in tariffs. It is worth noting that businesses are always eager to find ways to reduce competition. One method under our Safeguards law is to show that a surge foreign imports is injuring domestic firms. A new method after cap-and-trade legislation will be to argue that carbon-emissions by foreign firms exceed the limits required for domestic firms.
In every individual case people will wonder: are these actions merely an “excuse” that can help achieve the primary business motive to reduce competition … or are the foreign carbon emissions so substantial they threaten disastrous global effects if not reduced? Determining the answer will involve an enormous amount of calculation and investigation for each case. In this way jobs will be created for these investigations. Nonetheless, foreign firms will naturally suspect it is the former motive rather than the latter in most cases and this will surely inspire contentiousness in trade.