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Category — Protectionism

Government CO2 Pricing and Protectionism: Two Peas in a Pod (trade wars and worse as potential costs of GHG mitigation)

“From the East Coast to the West and across the political spectrum, House lawmakers remain divided over how to protect America from losing a competitive edge to China and other nations under climate change legislation.

“At issue is how to prevent cement, steel, aluminum and other energy-intensive industries from responding to proposed new laws that could have the effect of slashing emissions by shuttering factories only to reopen them in countries unfettered by costly regulations.”

- Lisa Friedman, “Climate law poses trade risks; lawmakers unsure how to respond” E&E News, April 28, 2009 (subscription)

Marlo Lewis’s post, Is Cap-and-Trade Inherently Protectionist?, linked carbon dioxide regulation, U.S.-side tariffs (“border adjustments”), and international protectionism. Indeed, the interventionist dynamic–regulation expanding from its own complications and shortcomings–is a major theme of political economy.

Lewis explained:

“Beyond the power shifts in Washington, D.C., there are basic reasons why cap-and-trade and protectionism are joined at the hip. First, how do you enforce compliance with a treaty like Kyoto? It’s a typical collective action problem. Even if one assumes that it is in the common interest of all nations to mitigate global warming, it is in the individual interest of each nation to bear less than its negotiated share of the collective burden—to reap the climate benefits (if any) of other nations’ compliance efforts, but to employ creative accounting on behalf of one’s own industries to give them an edge in international commerce.”

And there is another link that troubles students of international trade: protectionism fosters militarism. Lewis warns:

“But a moment’s reflection tells us that any [protectionist] campaign would fail, because developing countries would retaliate with economic sanctions of their own. We would get trade war, not compliance. Trade wars do not always end peacefully, and, as classical liberal thinkers have long warned, protectionism and militarism go hand-in-hand.”

“If goods do not cross borders, armies will,” a maxim in classical liberal circles goes.

Chu’s Trial Balloon–and China’s Reaction

And indeed, when Energy Secretary Stephen Chu raised this prospect last month, the verbal rebuke from China was swift. [Read more →]

April 29, 2009   3 Comments