Free Markets, Free People

Krugman Endorses “Carbon Tariff”

Paul Krugman came out today for “border adjustments” (tariffs) on goods from countries who aren’t participating in economy killing CO2 emissions control taxation.

His argument:

If you only impose restrictions on greenhouse gas emissions from domestic sources, you give consumers no incentive to avoid purchasing products that cause emissions in other countries; as a result, you have an inefficient outcome even from a world point of view. So border adjustments here are entirely legitimate in terms of basic economics.

Actually they’re “entirely legitimate” if you swallow the premise Krugman is pushing here, namely that CO2 is a “pollutant” and its restriction is a “legitimate” reason for imposing taxes on both your own economy and the goods coming from another economy which doesn’t agree with the premise. And, of course, this ignores the probable reaction countries hit with this tariff might have.

Krugman then attempts to justify such a “border adjustment” by claiming such a move is probably legal under “international law”:

The WTO has looked at the issue, and suggests that carbon tariffs may be viewed the same way as border adjustments associated with value-added taxes. It has long been accepted that a VAT is essentially a sales tax — a tax on consumers — which for administrative reasons is collected from producers. Because it’s essentially a tax on consumers, it’s legal, and also economically efficient, to collect it on imported goods as well as domestic production; it’s a matter of leveling the playing field, not protectionism.

And the same would be true of carbon tariffs.

What he sort of dances around when he claims this will “level the playing field” is all products, regardless of their origin, will see dramatically increased pricing. The point of the tax is to hopefully steer consumers to domestically produced products which are produced under government approved conditions rather than those from countries like China and India which aren’t playing the game the US wants them to play. Not only will the consumer here be asked to pay for the CO2 offsets imposed on domestic industry, but they will have to pay for offsets for foreign producers as well when the VAT cost is passed on in the price of the goods.

The thinking, obviously, is that if prices are the same, US consumers will buy US goods instead of, say, Chinese goods. The problem, of course, is much of what we consume isn’t made here anymore. So the result would be the US consumer would end up paying higher prices for goods produced in China with no change in behavior by China.

Additionally, China will view this as a protectionist measure, whether the WTO thinks it is “legal” or not. China will simply claim that the US, as a rich country and large “polluter”, should be doing more than they are doing in terms of emissions control, and impose its own “WTO legal” VAT in response. Same with any other country targeted by the US for a tariff.

This is, frankly, an invitation to a trade war. Krugman can wrap his protectionist argument in whatever legality he’d like, but the fact remains most countries effected will view it as an attempt to limit trade and react accordingly. And, of course, by Krugman’s own admission, it is you who will be paying the tariff cost for China and India if this is ever passed into law.


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8 Responses to Krugman Endorses “Carbon Tariff”

  • Will this be the “Soot/Hauling” tariff?

  • Look on the bright side: at least he’s openly admitting that this is a TAX on CONSUMERS. Not “the rich”. Not “big corporations”. On CONSUMERS.

    We now return you to 24 hour coverage of the death of Michael Jackson…

  • Let’s see, big recession, do you  (1) Allow tax cuts to expire,  (2) Raise taxes on energy,  (3) raise tariffs,  (4) Borrow insane amounts,  (5) Nationalize industries?
    I suppose the answer to Krugman is, All of the above.
    I guess it takes a Nobel prize to learn all the wrong lessons from the 1930’s
    We are so screwed.

  • Isn’t this idiot supposed to be an economist?  Maybe he’s really a satirist?

    • Oh, he’s not just an economist: he’s a NOBEL PRIZE-WINNING economist. Plus, as we’ve seen in the past couple of days, he’s also a climate expert. AND an expert on international trade law. Yep, quite the renassiance man, is our Mr. Krugman.

      / sarc

  • Let’s see…Consumer confidence is way down, unemployment is way up, prices are way up, and the deficit is way up. And what is Congress and The Clown™ wasting time on? Higher taxes for everyone, for energy, for health care, for EVERYTHING.

    This seems to me a good time to trot out the same campaign motto that Clinton/Gore used in 1992 to such fabulous success:

    “Everything that should be up is down, and everything that should be down is up under this administration.”

    Yep…sounds like it is time to write off The Clown™ and His Maladministration as a complete and total failure.

    Now we have to work to elect Republicans in New Jersey and Virginia in 2009, and take back the House in 2010, to try to put a stop to the damage that the Democrats are doing to this country.

    BTW, never, EVER listen to Paul Slugman. In fact, whatever he says to do, do the opposite.

  • Has the Jimmy Carter of economists returned Enron’s $50,000 yet? Is it his towering intellect or his morality I’m supposed to respect?

  • Excellent! This re-run was missing a good Hawley-Smoot…