Carbon-tax "protectionism" to start global trade war?

[Editor’s note: the following article first appeared on the website Bullion Bulls Canada on July 5.]

With the United States being the last major nation to accept global warming as a genuine threat to our species, it is hardly surprising that its proposed “green” protectionism is drawing the ire of nations all over the world.

While doing virtually nothing to curb its own emissions, the U.S. Congress is eagerly pushing forward on legislation to punish numerous other nations who aren't “green” enough to satisfy the U.S. Among the most vigorous protesters (so far) are China, India and Canada.

The gist of the proposal is that any and every product which is exported into the U.S. would be subject to import tariffs if the country's production of those goods exceeded an arbitrary U.S. standard for carbon emissions. It would apply even if there were no equivalent U.S. goods “competing” against those imports.

For example, under the current drafting of rules, Canada's oil-sands exports to the U.S. would be subjected to large tariffs – because oil sands production is currently one of the “dirtiest” sources of oil production. Of course, in the future, an ever greater percentage of oil production must come from such sources – since we have used up all the cleaner/easier sources of oil.

In the case of the oil-sands, it is possible to produce the oil in a “cleaner” process, but it requires a much more expensive process – adding 20% to 30% on the final price of the crude. Given that recent, low crude prices were forcing oil sands producers to rein-in production, there simply aren't the large margins necessary to allow cleaner production.

This is irrelevant to the U.S., since the whole idea of this concept is to punish all the other countries in the world with large import tariffs – and use all that money to subsidize the conversion of the U.S. to more green technologies.

In the case of Canada, there are two obvious, potential consequences for such a U.S. ploy. Either Canada could simply choose to start exporting most/all of its oil production to Asia, and leave it up to the U.S. to get its oil from countries like Iran, Russia, and Venezuela, or it could simply curtail oil production.

In the first scenario, this represents a huge step backwards in U.S. “energy security” - as it becomes more reliant on nations with whom the U.S. has been increasingly antagonistic. In the second scenario, the U.S. essentially turns Canada into another “OPEC” nation – which would cut back on oil-production every time prices dipped to a certain level. That option would lead to much higher oil/gas prices in the U.S. over the long-term.

If the U.S.'s policies are unfair to Canada, they are plainly hypocritical when it comes to China and India. It was Corporate America which chose to dismantle most of the U.S. manufacturing sector, and “ship it” to Asia – to exploit the lower wages of Asian workers (while simultaneously driving down wages in the U.S.). Now the U.S. wants to slap heavy tariffs on much of these goods – which are no longer produced in the U.S.

Making this proposal even more punitive, with respect to countries like India and China is the fact that these economies are clearly still in the “developing” stage. Imagine how Americans would have felt if, during the 20th century there had been another nation who was much more advanced than the U.S. Then, based on its technological superiority, it slapped heavy tariffs on all U.S. manufactured goods – because it wasn't “advanced” enough.

Beyond the hypocrisy and unfairness, such a punitive scheme inevitably would mean much higher prices for an enormous assortment of goods in the U.S. Thus, foreign nations would pay heavily for the U.S. becoming “greener”, Americans would pay heavily for the U.S. becoming “greener”, while (as always), Corporate America would not just get a “free ride”, but would be subsidized by virtually everyone else in the world.

Thus, it's easy to see why this scheme is so popular with U.S. politicians. They U.S. government gets to serve its corporate masters, while pretending to demonstrate commitment to cleaning up its own “dirty” production (more than 50% of U.S. electricity is still generated from “dirty”, coal-powered facilities).

Ultimately, the U.S. is no longer in a position to dictate economic policy to other nations. Given that it currently “pays” for most of its imports with “IOU”s (i.e. U.S. dollars) which will rapidly lose value over time, other nations in the world are being given a huge incentive to restructure their international trade.

Instead of shipping a large chunk of global production to a country which not only can't pay for the goods, but 'steals' most of the production-profits through a crooked tariff, other nations will be strongly encouraged to ship their goods to nations which can pay for those goods – and who won't attempt to confiscate the trading profits.

There was a time when the U.S. could bully other nations economically whenever it felt like. When the first global trading agreement was concluded, the “GATT” treaty ("General Agreement on Trade and Tariffs"), the U.S. refused to endorse the deal unless it (and it alone) was given a special “grandfather clause” for 25 years which allowed the U.S. to slap punitive tariffs on a wide range of goods which no other nation on Earth was allowed to do.

The U.S. has never been a “champion” of “free trade”, but in fact has historically been shown to be one of the most “protectionist” economies on Earth. As usual, it once again wants special rules, which would only apply to itself.

The difference between today and the GATT treaty of 50 years ago is that the rest of the world no longer needs the U.S.

This article was written by a member of the Stockhouse community. To read more work by Jeff Nielson, visit Bullion Bulls Canada.