Protectionism is always bad policy. But protectionism during an economic downturn, after taxes have already risen, and in addition to a massive $2 trillion tax on energy consumption is, well, not good.
Yet that is exactly what Energy Secretary David Chu seems to be edging towards.
In response to the notion that American companies will move overseas when CO2 is capped, Secretary Chu suggested that the U.S. simply levy a carbon tariff on imports.
This is why Secretaries of Energy should stick with energy and not economic policy. This is why free-markets work and command and control economies do not.
At any rate, the supposed logic goes something like this.
Since energy, predominately fossil fuel, is the lifeblood our economy, industries across the board will be hit with higher energy costs. Particularly hit hard will be the manufacturing sector. In the first 20 years, the Lieberman-Warner cap and trade bill would have destroyed over 900,000 jobs, caused nearly 3 million job losses in the manufacturing sector by 2029, caused some manufacturing sectors (e.g., paper, chemicals, and plastics).
The logical solution for these companies is to move overseas where they can make more efficient use of labor and capital and won’t be put at a competitive disadvantage in the United States. In response, according to the Wall Street Journal:
Energy Secretary Steven Chu on Tuesday advocated adjusting trade duties as a “weapon” to protect U.S. manufacturing, just a day after one of China’s top climate envoys warned of a trade war if developed countries impose tariffs on carbon-intensive imports.
Mr. Chu, speaking before a House science panel, said establishing a carbon tariff would help “level the playing field” if other countries haven’t imposed greenhouse-gas-reduction mandates similar to the one President Barack Obama plans to implement over the next couple of years. It is the first time the Obama administration has made public its view on the issue.
‘If other countries don’t impose a cost on carbon, then we will be at a disadvantage…[and] we would look at considering perhaps duties that would offset that cost,’ Mr. Chu said.”
The Heritage Foundation has already documented how costly a cap-and-trade implemented in the United States would be. Our Center for Data Analysis calculated the costs of global warming cap-and-trade legislation in the U.S. alone and the cumulative GDP losses for 2010 to 2029 approach $7 trillion. Single-year losses exceed $600 billion in 2029, more than $5,000 per household. Annual job losses exceed 800,000 for several years. That’s a scary price to pay for what little, if any, environmental benefits we receive.
A carbon tax on imports makes all of that worse.
Here’s why:
• Increase costs for consumers. Not only will our energy costs be higher but now everything we import will be more expensive too. Say goodbye to affordable foreign goods.
• Could cause a trade war. Protectionism begets more protectionism. Other countries will view this as unfair, because it is, and respond by implementing more tariffs in retaliation.
• De-develop the developing world. Developing countries rely heavily on free trade to prosper. Exporting goods in which countries hold a comparative advantage is critical their economic growth, just like it is ours.
• Punishes developing world for using cleaner technology. The developing world is doing just that, developing. For that reason, the technologies they use are newer, cleaner, and more efficient. Penalizing nations for developing is nonsensical.
• Sour relations with major trade partners. One of the countries most upset by this is China. Looking at Census Foreign Trade Statistics, American purchase a lot from China. Damaging our relationship with China over a carbon tariff would be economically disastrous.
• May be illegal under established international trade law. A carbon tariff does not abide by rules established under the World Trade Organization.
Energy is the lifeblood of our economy, but free trade is one of the fundamental aspects of prosperity, not only in the United States but everywhere. When the United States specializes in the production of certain goods and services they can produce more efficiently, it allows other countries to do the same with other products. The result is lower prices and a higher standard of living for us and our trading partner.
Russ Roberts explains it well:
We export so we can have money to buy the stuff that’s hard for us to make—or at least hard for us to make as cheaply. We export because that’s the only way to get imports. If people would just give us stuff, then we wouldn’t have to export. But the world doesn’t work that way.
It’s the same in our daily lives. It’s great when people give us presents—a loaf of banana bread or a few tomatoes from the garden. But a new car would be better. Or even just a cheaper car. But the people who bring us cars and clothes and watches and shoes expect something in return. That’s OK. That’s the way the world works. But let’s not fool ourselves into thinking the goal of life is to turn away bargains from outside our house or outside our country because we’d rather make everything ourselves. Self-sufficiency is the road to poverty.”
So are tariffs, quotas, and carbon capping legislation. Having cap-and-trade with carbon tariffs would be doubly bad.
