Rather than allowing itself to be dragged into Donald Trump’s destructive trade games, the European Union should turn them on their head, by introducing a CO2 levy, including border adjustment. Such a response would help protect the environment and boost the EU's own international clout.
As US President Donald Trump translates his “America First” strategy into import tariffs, and the European Union prepares to adopt countermeasures moving the global economy toward a trade standoff, the real challenge facing the two economies – indeed, the entire world – is being ignored. That challenge is to shape the global economy, including trade, so that it finally respects the planet’s natural boundaries.
Trump’s trade agenda is putting progressives into a paradoxical position. For many years, they have been denouncing the current trade system as both unjust and ecologically destructive. But in the face of Trump’s nationalist protectionism, with its echoes of the fatal mistakes of the 1930s, some feel obliged to defend the current system.
Neoliberal defenders of the status quo now see a political opportunity. Lumping progressives together with Trump as “protectionists,” they are denouncing the justified wide-ranging protests of civil society against mega-regional deals like the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, and the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States.
In order for progressive politics to succeed, its proponents need to go beyond defending the existing trade system against Trump. They need to go on the offensive, which means pressing for reforms intended to create a just, equitable, and rules-based international trade order. Otherwise, Trump-style economic nationalism will continue to resonate with a large share of the population, in the US and elsewhere.
For starters, with the EU debating countermeasures to US tariffs of 10% on aluminum and 25% on steel, it is worth looking beyond the economic significance of the dispute, to the ecological aspects of the commodities in question. For example, steel production, which uses metallurgical or “coking”coal, accounts for roughly 5% of global CO2 emissions.
This is not inevitable. Steel can be replaced by less emissions-intensive alternative materials. It can also be produced with much lower emissions. Swedish producers are researching virtually CO2-free steel production using electricity and hydrogen acquired from renewable energy sources. And the German multinational thyssenkrupp is developing a process using exhaust fumes from steel production as a feedstock for chemical products and synthetic natural gas, lowering carbon pollution.
But these alternatives will not be viable as long as the established steel industry is permitted to use the atmosphere as a free dump for CO2 emissions. Economists across the political spectrum agree that one key to limiting greenhouse-gas emissions is to make it more expensive for companies to produce them – so expensive that climate-friendly options become cheaper in comparison, and thus competitive. That is why the German Green party is calling for a floor price on CO2 emissions to be established as part of the EU’s Emissions Trading System. The state of California has already done so in its trading scheme. We want to lead the way, together with France, in Europe.
Such proposals have met with strong resistance. Many argue that a high price for emissions in Europe would give foreign producers a competitive edge in the EU market. Moreover, because production would simply move abroad, the logic goes, the environment would ultimately be no better off overall.
Despite its weaknesses, this argument has impressed European policymakers. But there is an obvious workaround: a duty could be imposed on emissions-intensive imports – like steel, cement, and aluminum – at the EU border. This would be an important step toward a just, climate-responsive trading system. The duty would be fair, because environmental rules would apply equally to European and foreign products. And as long as the same levies were imposed on locally produced goods, such “border carbon adjustment” would not violate World Trade Organization rules.
By enabling countries committed to environmental protection to push back against those that are not, this strategy would help align the global trading system more closely with ecological imperatives. Policies such as border carbon adjustment are not narrow-minded national protectionism, but a necessary reaction by countries committed to climate protection. Nor is it a new idea: every climate bill that failed in the US Congress in 2009 included such a mechanism.
Rather than allowing itself to be dragged into Trump’s destructive trade games, the EU should introduce border carbon adjustment in order to foster a climate-friendly system. French President Emmanuel Macron is already a vocal supporter. A group of researchers representing MIT, the German Institute for International and Security Affairs, and other leading institutions, has already developed a set of concrete proposals regarding how to implement such a program. By doing so, the EU would make the case for fairer and cleaner trade.
By demonstrating that a lack of commitment to climate protection comes with a price, such a response could spur change elsewhere, including the US. For example, it might encourage the Trump administration to reconsider its withdrawal from the 2015 Paris climate agreement, particularly if European actors reached out to likeminded progressives in, say, California or New York. Even if Trump remains unmoved, a CO2 levy might deter his potential imitators elsewhere.
With such a calibrated and forward-thinking response to Trump’s narrow-minded protectionism, the EU would cement its role as a trailblazer in the quest for a fairer, more sustainable trading system. In doing so, it would not only help protect the environment on which we all depend, but also boost its own international clout. That, not a trade war, is what the world needs now.
This text was first published at Project Syndicate.