More on Environmental Policies and Protectionism

Marlo made three interesting arguments yesterday contending that cap-and-trade would generate protectionist outcomes. I want to add another, pervasive, yet oft-neglected reason.

Environmental regulation spurs the businesses who feel cheated to lobby for other forms of protectionism for their industries. This is a very different mechanism from Marlo’s identification of particular measures with protectionist policies. It doesn’t matter what the content of the regulation is; as long as businesses perceive it as hurting them, they will lobby for and get protectionist measures to help them in other ways. Just think what the auto industry would do if Congress tried to increase CAFE significantly or require drivers or manufacturers to buy carbon credits; they’d probably log-roll and get tarriffs against foreign manufacturers as part of the package deal. Something for you, something for me, less for the consumer.

There is good empirical support for this proposition. Western Washington University economist Steven Globerman made the argument back in 1999, hidden within a broader book arguing that trade is actually good for the environment.

Globerman noted that “lobby groups will use environmental issues to extract protection against imports.” And they will generally win. “Governments in high enforcement countries can and will invoke trade remedy laws, particularly countervailing duties, against exporters in weak enforcement 

countries.” The log-rolling takes place internationally as well. If we give into the EU’s demand to join a climate regime, we may be able to get acquiesence in our new protectionist measures.

We don’t want “significantly higher risks of trade wars tied to escalating retaliation for specific environmental practices.” As economist and MP Michael Spicer put it in his 1996 book The Challenge from the East and the Rebirth of the West, “if the stability of the world is to be assured it must be through the spread of free trade.”