New research proposes climate-smart response to U.S. tariffs

Countries affected by recent U.S. tariff increases have a rare opportunity to kill two birds with one stone, according to a new comment in Nature magazine. So far, trade partners have responded to Donald Trump’s protectionism with dollar-for-dollar counter-tariffs on politically sensitive goods, resulting in a trade conflict that risks spiralling out of control. A better option would be to target U.S. goods based on their carbon footprint, drawing attention to climate priorities in a language the White House understand.

The Nature comment is based on a multi-year research project by trade and climate policy experts at the Massachusetts Institute of Technology (MIT), the German Institute for International and Security Affairs (SWP), the Institute of Management Technology, Ghaziabad (IMTG), and the Stockholm Environment Institute (SEI). Carried out under the auspices of the international research network Climate Strategies and funded by the philanthropic KR Foundation, the project addresses ways in which the international trade system can support efforts to address climate change.

One of the reports originating from this project discusses the potential for so-called “border carbon adjustments” (BCAs) to strengthen climate action. BCAs are tariffs or other carbon constraints imposed on carbon-intensive imported goods. They help prevent relocation of jobs and investment due to uneven climate action, and thereby alleviate a central hurdle for political leadership on climate change. They also incentivize laggard countries to engage in climate cooperation as a way of averting such constraints.

The Nature comment links this research on BCAs with the ongoing trade conflict prompted by U.S. tariff increases. Faced with a carbon-related tariff on its exported goods, the U.S. administration might reconsider its ongoing rollback of domestic climate policies, and possibly think twice about its intended withdrawal from the Paris climate agreement. A BCA would also provide vital impetus to international decarbonization efforts, where earlier momentum is currently giving way to a more sober assessment of the collective climate challenge that lies ahead.

The research project has been led by Harro van Asselt, a Senior Research Fellow at SEI and law professor at the University of Eastern Finland. “This is a critical time for international climate cooperation. As countries begin implementing their national climate pledges, they are becoming aware of the full costs of climate action. U.S. defection from the Paris framework is particularly destabilizing. Our proposal allows countries to lead the way, irrespective of actions by obstructionists such as the U.S.”, said van Asselt.

Susanne Droege, a Senior Fellow at SWP and co-author of the Nature comment, added: “Economic studies show that properly designed BCAs can be an effective tool to level the playing field and enable sustained climate leadership. Our research outlines a design that works.” Because of their multiple benefits, BCAs have been periodically invoked as a policy option by decision makers. Most recently, French President Emmanuel Macron called them “indispensable” for European climate efforts.

In the past, concern about upsetting delicate trade relations prevented implementation of BCAs. If anything, however, the current standoff about U.S. tariffs has already disrupted previously stable trade partnerships. As Kasturi Das, a professor of economics and sustainability at IMTG and co-author of the Nature comment, noted: “U.S. protectionism offers a unique opportunity for its trade partners to deploy BCAs. With adequate procedural safeguards, BCAs can be implemented in a way that respects free trade disciplines of the World Trade Organization (WTO).”

Unlike traditional tit-for-tat tariffs, moreover, a BCA would tie together international cooperation on trade and climate change, both of which are being undermined by U.S. foreign policy. A coalition of trade partners, such as the EU, Canada, Mexico, and China, could join forces in the elaboration and implementation of a BCA. Their coordinated response to U.S. tariff increases would simultaneously defend their trade interests and send a powerful signal about the urgency of climate cooperation. At a minimum, that will help appease domestic constituencies concerned about the impacts of uneven climate efforts. Ideally, it will also spur the U.S. to greater climate engagement.

“For over two decades, the U.S. has held international climate negotiations hostage, dictating the conditions of cooperation and then defaulting on its promises. Donald Trump’s announced withdrawal from the Paris Agreement only extends that pattern. It’s time for more progressive countries to end the US stranglehold on this important global issue, and create the political space needed for continued climate leadership,” said Michael Mehling, Deputy Director of the MIT Center for Energy and Environmental Policy Research, law professor at the University of Strathclyde, and lead author of the Nature comment.

(This press release was issued jointly by the four members of the research team.)