I have been arguing for years that the U.S. can bring about a climate change agreement. All it has to do is bring in its own carbon tax and then say to the rest of the world, “Either put your own carbon tax on or we will charge you the tax when you try to sell anything to us.” As the world’s biggest market, the US can bully other countries into action.
That is really the end of the story: they can do it and they havn’t. Now a leading American economist, William Nordhaus, wiritng in the latest edition of the American Economic Review, argues that trade sanctions are needed to make any climate deal stick.
Simon Baptist, witing for the Economist Magazine’s Intelligence unit, summarizes the argument this way; “Under the current framework, countries staying out of a deal can still get the benefits without incurring any costs. Nordhaus shows that trade sanctions of around 2% would be enough to overcome this free rider problem and ensure everyone joins up to a global deal.”
The argument against is that “linking a global climate deal with trade sanctions may be effective but poses risks to the system of free trade that has lifted billions out of poverty. Do you think it is something global leaders should be pursuing?” Baptist invites comments at @Baptist_Simon or via email on email@example.com.
I would argue that this strategy is not a threat to free trade: It makes the trading regime better by levelling up the prices for all countries. The efficiency gains from the US imposing border adjustments are likely to be huge, even if it doesn’t move the whole world toward decarbonization.