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Climate change may bring a new era of trade wars, as EU and US clash

WASHINGTON — Efforts to mitigate climate change are prompting countries around the world to adopt dramatically different policies toward industry and commerce, pitting governments against each other.

These new clashes over climate policy are straining international alliances and the global trading system, pointing to a future in which policies aimed at averting environmental catastrophe could also lead to more frequent cross-border trade wars.

In recent months, the United States and Europe have proposed or introduced subsidies, tariffs, and other policies aimed at accelerating the green energy transition. Proponents of the measures say governments must act aggressively to develop cleaner energy sources and penalize the biggest emitters of planet-warming gases if they hope to avert global climate catastrophe.

But critics say these policies often put foreign countries and companies at a disadvantage, as governments subsidize their own industries or impose new tariffs on foreign goods. The policies are a departure from a decades-long trade status quo, in which the United States and Europe have often joined forces through the World Trade Organization to try to remove trade barriers and encourage countries to treat each other’s products more fairly in order to boost global trade.

Today, new policies are pitting close allies against each other and deepening the rifts in an already fragile system of global trade governance, as countries attempt to confront the existential challenge of climate change.

“The climate crisis requires economic transformation on a scale and at a speed that humanity has never attempted in our 5,000 years of written history,” said Todd N. Tucker, director of industrial policy and commerce at the Roosevelt Institute, which champions some of the measures. “Unsurprisingly, a task of this magnitude will require a new political toolkit.”

The current global trade system brings tens of millions of shipping containers full of sofas, clothing and auto parts from foreign factories to the United States each year, often at surprisingly low prices. But the prices consumers pay for these goods do not take into account the environmental damage caused by the distant factories that make them, or by the container ships and cargo planes that transport them across the ocean.

US and EU officials say more needs to be done to discourage trade in products made with more pollution or carbon emissions. And U.S. officials believe they must reduce a dangerous reliance on China, especially for materials needed for the green energy transition, such as solar panels and electric vehicle batteries.

The Biden administration introduces generous subsidies to encourage the production of clean energy technologies in the United States, such as tax credits for consumers who buy clean cars made in the United States and companies that build new plants for solar and wind equipment. The United States and Europe are introducing taxes and tariffs aimed at encouraging ways of producing goods that are less harmful to the environment.

Biden administration officials have expressed hope that the climate transition could be a new opportunity for cooperation with allies. But so far, their moves appear to have mostly sparked controversy as the United States is already under attack for its response to recent trade rulings.

The administration has publicly flouted several World Trade Organization panel rulings that have ruled against the United States in trade disputes involving national security issues. In two separate announcements in December, the office of the US Trade Representative said it would not change its policies to comply with WTO rulings.

But the biggest source of contention has been new tax credits for clean-energy equipment and vehicles made in North America that were part of a sweeping climate and health policy bill that President Biden signed into law. Last year. European officials called the measure a “job killer” and expressed fears of losing out to the United States on new investment in batteries, green hydrogen, steel and other industries. In response, European Union officials this month began rolling out their own plan to subsidize green energy industries – a move that critics say will plunge the world into a costly ‘subsidy war’ and ineffective.

The United States and the European Union have been looking for changes that could be made to appease both sides before the US tax credit rules are settled in March. But the Biden administration appears to have only limited ability to change some provisions of the law. Members of Congress say they intentionally drafted the law to benefit American manufacturing.

European officials have suggested they could take a trade case to the World Trade Organization that could be a prelude to imposing tariffs on American products in retaliation.

Valdis Dombrovskis, the EU’s trade commissioner, said the European Union was committed to finding solutions but negotiations needed to move forward or the European Union would face “even louder calls” to respond.

“We have to follow the same rules of the game,” he said.

Anne Kruger, a former International Monetary Fund and World Bank official, said the potential pain from US subsidies to Japan, South Korea and their allies in Europe was “enormous”.

“When you discriminate in favor of corporate America and against the rest of the world, you hurt yourself and others at the same time,” said Krueger, now a senior fellow at Johns Hopkins’ School of Advanced International Studies. University.

But in a letter last week, a collection of prominent labor unions and environmental groups urged Mr Biden to move the plans forward without delay, saying outdated trade rules should not be used to undermine support for a new economy. clean energy.

“It’s time to end this circular firing squad where countries threaten and, if successful, weaken or repeal each other’s climate measures through trade and investment agreements,” he said. said Melinda St. Louis, director of Global Trade Watch for Public Citizen, one of the groups behind the letter.

Other recent climate policies have also generated controversy. In mid-December, the European Union took an important step towards a new climate-focused trade policy by reaching a preliminary agreement to impose a new carbon tariff on certain imports. The so-called carbon border adjustment mechanism would apply to products from all countries that have not taken strict measures to reduce their greenhouse gas emissions.

The move aims to ensure that European companies that have to comply with strict environmental regulations are not disadvantaged compared to their competitors in countries where more relaxed environmental rules allow companies to produce and sell goods more cheaply. While European officials say their policy conforms to global trade rules in a way that US clean energy subsidies don’t, it has still irritated countries like China and Turkey.

The Biden administration has also tried to create an international group that would impose tariffs on steel and aluminum from countries with more lax environmental policies. In December, he sent the European Union a brief initial proposal for such a trade deal.

The idea still has a long way to go to materialize. But while this would break new ground in the fight against climate change, this approach could also end up hurting allies like Canada, Mexico, Brazil and South Korea, which together have supplied more than half of foreign steel. American last year.

According to the initial proposal, these countries would theoretically have to produce steel as cleanly as the United States and Europe, or face tariffs on their products.

Proponents of new climate-focused trade measures say discriminating against foreign products and goods made with higher carbon emissions is exactly what governments need to develop clean energy industries and fight against climate change.

“You really need to rethink some of the fundamentals of the system,” said Ilana Solomon, an independent trading consultant who previously worked with the Sierra Club.

Ms Solomon and others have proposed a ‘climate peace clause’, under which governments would commit to refraining from using the World Trade Organization and other trade agreements to challenge countries’ climate policies. others for 10 years.

“The complete legitimacy of the global trading system has never been more in question,” she said.

In the United States, support appears to be growing among Republicans and Democrats for more nationalistic policies that would encourage domestic production and discourage imports of dirtier goods – but which would most likely violate World Trade Organization rules.

Most Republicans do not support the idea of ​​a national carbon price. But they have shown more willingness to raise tariffs on foreign products that are produced in ways that are harmful to the environment, which they see as a way to protect American jobs from foreign competition.

Robert E. Lighthizer, the Trump administration’s chief trade negotiator, said there was “big overlap” between Republicans and Democrats on the idea of ​​using trade tools to discourage imports of polluting products. from abroad.

“I come here to get more American employees and with higher salaries,” he said. “You shouldn’t be able to get an economic advantage over a guy working in Detroit, trying to support his family, pollution, manufacturing overseas.”

nytimes Gt

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