Climate Change May Bring New Era of Trade Wars, as E.U. and U.S. Spar

WASHINGTON — Efforts to mitigate climate change are prompting countries across the world to embrace dramatically different policies toward industry and trade, bringing governments into conflict.

These international disputes over climate policy are putting strain on international alliances, and the global trade system. This suggests that policies designed to stop environmental catastrophe may also cause more frequent cross-border trading wars.

The United States and Europe have both proposed or introduced new legislation in recent months. subsidies, tariffsAnd other policiesThey are designed to speed up the transition towards green energy. If they want to avoid a global climate catastrophe, the advocates of these measures argue that governments must act quickly to increase renewable energy sources and punish the largest emitters of greenhouse gases.

Critics say that these policies can put foreign companies and countries at risk as governments sub-subsidize their industries or impose new tariffs on imported products. The policies depart from a decades-long status quo in trade, in which the United States and Europe often joined forces through the World Trade Organization to try to knock down trade barriers and encourage countries to treat one another’s products more equally to boost global commerce.

As countries attempt to deal with the existential threat, they are now pursuing new policies that pit close allies against each other and increasing fractures in a fragile system of global trade governance. challenge of climate change.

“The climate crisis requires economic transformation at a scale and speed humanity has never attempted in our 5,000 years of written history,” said Todd N. Tucker, the director of industrial policy and trade at the Roosevelt Institute, who is an advocate for some of the measures. “Unsurprisingly, a task of this magnitude will require a new policy tool kit.”

The current global trade system involves tens to millions of shipping containers that are filled every year with couches, clothing, and parts of cars from overseas factories. This often happens at astonishingly low prices. However, these goods’ prices do not account for the environmental harm caused by distant factories, container ships, and cargo planes that transport them across oceans.

European and American officials believe that more must be done to prevent trade in products that emit more carbon or polluted substances. U.S. officials feel they need to lessen their dependence on China for green energy, particularly for materials such as solar panels and batteries for electric vehicles.

To encourage America’s production of clean energy technology, the Biden administration is providing generous subsidies through tax credits. consumers who buy American-made clean carsNew plants and businesses that produce wind power equipment. The United States and Europe have introduced tariffs and taxes to encourage less environmentally damaging ways of producing goods.

Biden administration officials expressed hope that the climate transition would be a new opportunity to work with allies. However, they have only stirred controversy so far as the United States is already being attacked for recent trade rulings.

The administration has publicly flouted several decisionsPanels of the World Trade Organization that ruled against the United States in trade dispute involving national security concerns. The Office of the United States Trade Representative made two announcements in December stating that it will not change its policies to comply with W.T.O. decisions.

However, the most contentious issue has been the new tax credits that are available for clean energy equipment and vehicles manufactured in North America as part of a broad climate and health policy bill. President Biden signed into law last year. European officials have called the measure a “job killer” and expressed fearsThey will be losing out to the United States in new investments in green hydrogen, batteries, and steel, among other industries. European Union officials responded. began outlining their own plan this month to subsidize green energy industries — a move that critics fear will plunge the world into a costly and inefficient “subsidy war.”

The United States of America and the European Union have been looking for ways to reconcile both sides, before the U.S. tax credits rules are finalized in March. But the Biden administration appears to have only limited ability to change some of the law’s provisions. Members of Congress sayThey intentionally drafted it to benefit American manufacturing.

European officials suggested that they might bring a case before the World Trade Organization to try and get tariffs imposed on American products.

Valdis Dombrovskis, the European commissioner for trade, said that the European Union was committed to finding solutions but that negotiations needed to make progress or the European Union would face “even stronger calls” to respond.

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

Anne Krueger, a former official at the International Monetary Fund and World Bank, said the potential pain of American subsidies on Japan, South Korea and allies in Europe was “enormous.”

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

But it is not. a letter last weekA number of prominent labor unions as well environmental groups called on Mr. Biden’s to continue with the plans without delay. They stated that old trade rules should not be used against support for a new energy economy.

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

Some other recent climate policies have also caused controversy. The European Union made a significant step towards a climate-focused trade policy in mid-December. reached a preliminary agreementTo impose a carbon tariff on certain imports. This so-called carbon border adjustment mechanism would be applied to all products coming from countries that have failed to take stringent measures to reduce their greenhouse gas emissions.

The EU officials are aiming to ensure that European businesses that must comply with strict environmental regulations don’t lose out to those in countries that have looser environmental rules, which allows them to produce and sell more goods at a lower price. European officials were not involved in the decision-making process. argue that their policyAlthough it complies with international trade rules in a manner that U.S. subsidies for clean energy do not, it still ranksled countries such as China and Turkey.

Biden has been working to establish an international group which would impose tariffs upon steel and aluminium from countries that have laxer environmental policies. It sent the European Union an initial communication in December. proposal for such a trade arrangement.

This idea has much to do before it is realized. But even as it would break new ground in addressing climate change, the approach may also end up aggravating allies like Canada, Mexico, Brazil and South Korea, which together provided more than half of America’s foreign steel last year.

The initial proposal suggested that these countries should produce steel as cleanly and economically as the United States and Europe. Otherwise they would be subject to tariffs.

Advocates for climate-focused trade rules argue that discriminating against foreign goods and goods with greater carbon emissions is exactly what governments require to develop clean energy industries, address climate change, and create new trade measures.

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

Ms. Solomon and others have proposed a “climate peace clause,” under which governments would commit to refrain from using the World Trade Organization and other trade agreements to challenge one another’s climate policies 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 both Republicans and Democrats for more nationalist policies that would encourage domestic production and discourage imports of dirtier goods — but that would also most likely violate World Trade Organization rules.

Many Republicans are against the idea of a carbon tax. However, they are willing to raise tariffs for foreign products made in environmentally destructive ways. They see this as a way to protect American workers from foreign competition.

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

“I’m coming at it to get more American employed and with higher wages,” he said. “You shouldn’t be able to get an economic advantage over some guy working in Detroit, trying to support his family, from pollution, by manufacturing overseas.”