As countries around the world prepare for the climate change summit at Copenhagen in December, the United States Congress is working on doing its part. A new bill that addresses climate change, emission standards and energy in the U.S. was passed by the House earlier this month. It now awaits a vote in the Senate and ultimately, President Obama's signature.
One of the most controversial stipulations of the bill is the plan to place tariffs on imports from countries that did not make similar changes. It was passed as part of the bill by the House, but the president has expressed reservations about the measure.
China has also expressed its own concerns. Vice Foreign Minister He Yafei has publicly stated that he believes the measure is a way to increase protectionist trade. In other words, it gives the United States an excuse to discriminate who they trade with, making their own economy more secure at the expense of others. China also has said that it will not stand for such a measure.
This environmental debate has been discussed repeatedly, by many parties. What is not as well-known is that this situation is not the first time countries have clashed over emission taxes. In 2006, when the Kyoto protocol was being signed by countries around the globe, France passed a bill creating tariffs on imports from countries that refused to participate.
As a nonparticipating country, the U.S. would be one to bare the brunt of this tax. At the time, then-Prime Minister Dominique de Villepin of France said the Kyoto talks were struggling. Countries had no incentives to join the agreement, so he urged Europe to find other ways to pressure countries into signing. An import tax was France's solution.
This strategy did not work as planned, however, because despite the France's threat, neither the U.S. nor China signed the agreement. But perhaps one reason the U.S. did not heed France's threat was because the they had a very small number of exports going to France. The money the U.S. may or may not lose as a result of these tarrifs was irrelevant to the overall economy. The loses were negligable.
So what makes things different for 2009?
One of the main reasons the U.S. decided to reject Kyoto was that it did not place any stipulations on developing countries. This time around, the U.S. is trying to increase the involvement of those countries. It has participated in numerous discussions with China to try and reach emission agreements, but to no avail. China maintains that it cannot risk slowing its economic growth by placing heavy environmental stipulations on industries. However, its leaders also don’t want all of their imports to the U.S. to be highly taxed.
The U.S. imported more than $44 million worth of Chinese goods in 2008, creating a $15 million trade deficit in China’s favor. That makes the U.S. the second biggest importer of Chinese goods. (The European Union is the first.)
That's a far different picture than 2006.
If the U.S. were to pass the bill and create tariffs on Chinese goods, China’s economic growth would slow dramatically. Their second biggest importer would suddenly be importing many times less, and Chinese goods would no longer have a market. The money China would lose can not be written aside, as could the money from the U.S. to France.
This collapse of trade and buildup of unsellable goods could perhaps slow the Chinese economy more than any environmental regulations could.
There’s one more side to this story, though. China is one of the key nations to global economic recovery. If its growth slows for any reason, the effects on the financial recovery worldwide could be disastrous. Is the U.S. willing to risk a worldwide economic meltdown in hopes of pressuring China into committing to greenhouse gas limits?