The Environmental Bias of Trade Policy

Posted: 1 Jun 2020

See all articles by Joseph S. Shapiro

Joseph S. Shapiro

University of California, Berkeley; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2, 2020

Abstract

This paper documents a new fact, then analyzes its causes and consequences: in most countries, import tariffs and non-tariff barriers are substantially lower on dirty than on clean industries, where an industry’s “dirtiness” is defined as its carbon dioxide (CO2) emissions per dollar of output. This difference in trade policy creates a global implicit subsidy to CO2 emissions in internationally traded goods and so contributes to climate change. This global implicit subsidy to CO2 emissions totals several hundred billion dollars annually. The greater protection of downstream industries, which are relatively clean, substantially accounts for this pattern. The downstream pattern can be explained by theories where industries lobby for low tariffs on their inputs but final consumers are poorly organized. A quantitative general equilibrium model suggests that if countries applied similar trade policies to clean and dirty goods, global CO2 emissions would decrease and global real income would change little.

Keywords: Trade policy, climate change, trade and the environment

JEL Classification: Q50, Q56, F6, F13, F18, H23

Suggested Citation

Shapiro, Joseph S., The Environmental Bias of Trade Policy (May 2, 2020). Available at SSRN: https://ssrn.com/abstract=3591145

Joseph S. Shapiro (Contact Author)

University of California, Berkeley ( email )

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