As we have previously opined, the cap and trade bill passed by the House of Representatives earlier this month, does not represent America’s best thinking on climate change for a whole host of reasons. But one clause in the bill actually makes good sense to us and also makes sense to the US domestic steel industry. That clause relates to the imposition of import tariffs on goods coming from countries such as China and India who do not implement similar emission reduction programs.
Let us re-phrase that last sentence. We think the imposition of an import tariff scheme makes little sense as a policy from an administrative and enforcement standpoint. But in terms of changing behavior, we find it intriguing. The clause has raised the ire of China and India. President Obama has also come out against the imposition of these tariffs for fear that it could provoke a trade war. But the trade wars have already started so what difference does this clause make?
Commerce Secretary Gary Locke recently said to the American Chamber of Commerce in Shanghai, quoting from Reuters, It’s important that those who consume the products being made all around the world to the benefit of America ” and it’s our own consumption activity that’s causing the emission of greenhouse gases, then quite frankly Americans need to pay for that. According to the Wall Street Journal blog post, the argument suggests that China is producing these goods for export and not for domestic consumption therefore, emissions costs should be borne by those who consume the goods.
China supports Commerce Secretary Locke’s statement. Of course one ramification to higher prices could be reduced demand. As we like to say around here, nothing kills high prices like high prices. Long term, the Chinese would pay dearly for having the American consumer bear the brunt of the environmental burden. But perhaps higher cost imports would limit our insatiable demand for overseas goods from countries that can’t and won’t limit their emissions in the name of industrialization.
And we can support the notion of paying more for imports as we have previously espoused as a means for reducing our trade deficit. (See this earlier post on Warren Buffet’s plan to reduce the trade deficit). Of course if the clause on imports causes the cap and trade bill to die, well, wouldn’t that be icing on the cake?