TRADE ON REAL COSTS

Cost Includes Emissions, Risk, National Security

The Biden team is now proposing to the European Union creation of an international consortium that would impose tariffs on trade in metals like steel and aluminum based on the greenhouse gas emissions created by their production. Low emissions would mean zero or low tariffs while high emissions would mean high tariffs.

I am pleased to say that this is an idea that I proposed in my recent book, THE WORLD TURNED UPSIDE DOWN: America, China and the Struggle for Global Leadership.

The reasoning is simple and straight forward. Steel, aluminum, and many other prices of traded goods do not reflect any costs arising from the greenhouse gas emissions generated by the methods of their production and shipping or the potential breakdown of their far flung supply chains or the possible threat to national security of being import dependent upon them. Emissions arising from production and shipping, risk of breakdown of far flung supply chains, and risk of import dependence on trading partners hostile to free world values are all real costs. Yet, so far, none of them are included in the prices of the goods and services we all consume.

There is also another cost that escapes counting and inclusion in the pricing of the goods and services we use every day. That is what is known as the cost of adjustment. For example, if imports of widgets cause a domestic producer to shut down and lay off workers, there is a cost attached to shutting down, and, of course, the lost income to the workers is a cost.

Complete and fair pricing in international trade should be set so as to cover all of those costs. Were they to be included, production of many goods and employment and wages in goods making industries would rise, while imports and U.S. trade deficits would fall.

The U.S.-EU discussion of pricing greenhouse gas emissions into the cost of imports and exports is a big step in the right direction.