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Global Supply Chain News: Not Surprisingly Climate Change Policy Changes are Impacting Global Trade



Here Come the Carbon Tariffs

Feb. 22, 2023
SCDigest Editorial Staff

There was never any real doubt that policy changes, particularly in Europe and the US, to mitigate climate change would have a significant impact on global trade. Now, as more severe policies, such as so called “carbon taxes” on imports from high emission countries, are at or near reality, those impacts are starting to be felt.

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The theory is the belief that domestic companies will struggle to compete against foreign rivals that have lower costs because they do not have to keep up with Euro or US style emissions requiements.  

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As recently reported by the New York Times’ Ana Swanson, “These new clashes over climate policy are straining international alliances and the global trading system, hinting at a future in which policies aimed at staving off environmental catastrophe could also result in more frequent cross-border trade wars.”

There are already signs that we’ll see climate change-related policies that will trigger more frequent trade wars among friendly and less friendly countries alike. For example, both the US and Europe have proposed or introduced subsidies, tariffs and other policies aimed at speeding a transition to green energy, such as promoting electric vehicles.

However, the Times notes, critics claim these policies often put foreign companies at a disadvantage, as governments subsidize their own industries or place new tariffs on foreign products – a form of protectionism.

US imports continue to rise despite talk of more “reshoring” by US companies, as prices for goods from apparel to appliances can be sourced out of low cost countries at still very low cost.

But, environmentalists and many policy makers say that more needs to be done to reduce imports of products made with lax attention to pollution or carbon emissions.

The most controversial US policy is probably the new US tax credits for clean energy equipment and vehicles made in North America, included as art of a sweeping climate and health policy bill that President Biden signed into law in 2022.

Euro officials have called the measure a “job killer” for their countries and raised concerns they will lose out to the US to supply these products.

In response, the Times said, European Union officials just started their own plan to subsidize green energy industries - a move “that critics fear will plunge the world into a costly and inefficient “subsidy war,” the Times article reported.

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The Biden administration has looked at perhaps changing some of the policy, but claim they are very limited in their ability to do so. That even as some members of Congress say they intentionally worded the law to benefit American manufacturing, the Times notes.

Not surprisingly, some European officials have said that they might bring a trade case at the World Trade Organization seeking imposition of tariffs on American products in retaliation.

In other words, a costly green subsidy war.

The Times also reports that in mid-December, the European Union took a major step toward a new climate-focused trade policy, reaching a preliminary accord to impose a new carbon tariff on certain imports. The so-called carbon border adjustment mechanism (i.e., a carbon tax that environmentalists have called for for years) would apply to products from all countries that fail to take strict actions to cut their greenhouse gas emissions.

The theory is the belief that domestic companies will struggle to compete against foreign rivals that have lower costs because they do not have to keep up with Euro or US style emissions requirements or might benefit from lower energy costs if using fossil fuel-based sources.

Still the possible imposition of such tariffs has countries such as China and Turkey complaining loudly.

But “proponents of new climate-focused trade measures say discriminating against foreign products, and goods made with greater carbon emissions, is exactly what governments need to build up clean energy industries and address climate change, the Times reports.

Global trade, having already slowed a crawl, seems certain to face more hurdles as these Green policies play out.


What are your thoughts on climate change policies and global trade? Let us know your thoughts at the Feedback section below.

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