Trading Pollution: Are Trade Barriers Ever Appropriate?

There seems to be no lack of subjects to write on with the passage of the climate bill through the House. Yet another provision in the bill is to impose import tariffs on goods from countries not meeting U.S. carbon-emitting requirements. As an economist, I would tote our party line that any barriers to free trade are inefficient – but I have to wonder, “Is that true in every case?”

Political reasoning for imposing import tariffs is simply protectionist. Politicians must support, or appear to support, domestic industry and are no doubt being lobbied by many such industries not wanting to conform to the new emission requirements.

But behind the politics there is another reason for why import tariffs might not be considered inefficient. The objective of the climate bill is not, or should not, be to make American industry more or less competitive, nor to make the American people better or worse off financially; the objective is to reduce greenhouse gas emissions through a system of cleaner technology and domestic and international offsets. The climate bill is not for political or economic gain – it is to delay adverse effects of our carbon-excessive lifestyles.

If this is the case, then imagine the effects the bill would have if this provision were not included. Suddenly, it would get more expensive to produce virtually all goods and firms would choose to either trade carbon credits or invest in offsets. These offset opportunities are much more plentiful outside the U.S. and are much less expensive as well, which would entice firms’ offset activities abroad. As domestic prices rise, importing will become more attractive. It should be noted that this does not necessarily imply that goods will be imported from countries allowing total environmental degradation for the purpose of manufacture, but demand for goods will increase in these areas. Consumers would essentially be substituting goods to non-environmentally-regulated countries from regulated-countries; thereby undermining the objective of the bill since the same amount of global carbon will be emitted.


By imposing import restrictions, the government is essentially taxing countries for not upholding certain environmental standards. Unfortunately, there are so many wrongs that go with these sorts of trade barriers that the above argument could not even begin to neutralize.

First, this is the classic case of the U.S. trying to impose American mores on other countries. The U.S. did not sign the Kyoto treaty because we did not want to be held to internationally agreed upon standards; essentially, the U.S. was not ready. Now that the U.S. has decided to take on some environmental responsibility, it assumes every other nation is ready. While many might argue that the U.S. has had the capability of environmental responsibility for years and has recoiled, there are truly many countries that are simply not ready. Who is the U.S. to demand the path in which other countries take?

Further, the provision says that barriers will be imposed on those countries lacking “similar” programs – but what constitutes as similar. Our program focuses on carbon emissions, but there are many other foci a program would take to promote environmental health. China might implement a clean water program which would drastically increase their production costs in just about every industry; and while the objective of the program is the same, to promote a healthier planet, it is quite different and is likely to not be counted as a similar program.

Finally, there is a question of magnitude; will countries be fined a flat tax for not having similar programs? Or will it be based upon a variable element, such as emissions per capita of that country or average emissions of producing a good? Surely, this would create the correct incentives for countries and firms who would adjust production methods until the marginal cost of decreasing emissions equals the increase in marginal revenue from decreasing emissions.

There is always the inevitable trade war that occurs when unilateral trade barriers are imposed – but that is only one of the adverse reactions that will result from import tariffs.