The ink has barely dried on the Senate resolution against any carbon tax whatsoever before Louisiana Senator Cassidy introduced a new bill in Congress proposing the very thing. Though, he doesn’t refer to it as a carbon tax, but rather a “foreign pollution fee” (FPF).
It’s just a matter of semantics.
The main driver behind such a tax is to level the playing field. Domestic industries face higher costs of production due to more stringent climate policies. The bill aims to protect U.S. companies from cheap imports from countries whose environmental regulations are much more relaxed.
The bill also hopes to incentivize nations like China to implement more serious climate policies. Governments which have enacted such protocols condemn China for its negligence, accusing the communist country of being one of the world’s greatest polluters. In his press release Cassidy claimed that the FPF “begins to hold China accountable for their lack of environmental standards.”
These motives sound reasonable enough, but enacting such legislation isn’t without consequences.
An FPF is synonymous with a carbon tariff, which taxes goods on their carbon intensity during the production process. And tariffs, though well-intentioned, in general don’t have the best track record.
Tariffs on foreign goods did once serve a purpose. When our fledgling nation began, there was no other source of revenue to pay down our debts, save tariffs on the few goods brought to our shores. But as our nation expanded, tariffs’ effectiveness began to wane while costs for consumers began to surge. The last few decades alone have plenty of examples.
The tariffs on washing machines that commenced in 2018 drove the price of washers up 12%, cost consumers more than $1.5 billion in its first year alone, and the consumer cost per job “saved” amounted to $815,000. Even the price of dryers increased.
The 2009 tire tariffs cost U.S. consumers $926,000 per job “saved” on top of $1.1 billion.
The 2002 steel tariffs may have initially saved steel worker jobs but ended up costing 200,000 jobs in steel-consuming sectors. The tariff created shortages and skyrocketing steel prices.
Whether or not one equivocates an FPF with a tariff and the associated tariff-related repercussions, this bill still faces several other potential complications.
An FPF is likely to lead to a domestic carbon tax, which we were promised that this bill absolutely was not and the sponsors were against. But having no domestic carbon price makes the implementation of a border adjustment fee less credible. Theoretically, policymakers determine the carbon border adjustment by setting it equal to the domestic carbon price. And imposing a border tax without the other increases the likelihood of retaliation from other countries.
The World Trade Organization (WTO) could rule that America must impose carbon taxes on domestic manufacturers to ensure foreign firms receive “national treatment.”
Does that mean a domestic carbon tax is on the horizon?
Without one also contradicts the claim that the FPF “equalizes the environmental performance of our imports with our production.” The equalizing is one-directional since domestic products will not be penalized if by chance they are found to be dirtier.
There is also the matter of avoiding “arbitrary and unjustifiable discrimination between countries,” where carbon intensity is being assessed on a country basis rather than a company or industry basis. The accompanying press release and other documents explicitly single out China.
The bill is trying to strike at an angle of fairness between low carbon-emission manufacturing in the U.S. and high-emission manufacturing in countries like China. But China is likely to have serious objections to financial penalties on the carbon intensity of their products when they are imposed by a country which actually generates more than twice the per capita CO2 emissions.
All of this could lead to WTO challenges and complaints as well as retaliation. And it wouldn’t be unprecedented.
For instance, the Chinese slapped a retaliatory antidumping duty on U.S. chicken parts because of the 2009 tire tariff, costing the chicken parts industry $1 billion.
China and the U.S. actually have a history of trade wars and retaliation, with each side on the giving and receiving end of impact.
We do a lot of trade with China. They are the third largest purchaser of U.S. goods and the top supplier of goods to the U.S., accounting for 17% of total goods imports. China also controls a huge share of the world’s shipping fleet and commercial shipbuilding capabilities.
Penalizing heavy polluters means realigning with cleaner producers, ideally here in the U.S. But there’s a tiny problem: There are a number of commodities we produce very little of on account of rather stringent permitting processes. Many of those products come from, you guessed it, China.
The authors of the bill even acknowledge “the U.S. needs permitting reform.”
That would be putting the cart before the horse. In this case, way before the horse. Our elected officials are pushing a transition to renewable energy sources, most of which include critical minerals and components that are predominantly extracted and processed in China. These same individuals are purposely gutting our fossil fuel production, promoting “green” energy, restricting the extraction of critical minerals necessary for that green energy, while at the same time attempting to financially punish our biggest source of those products.
We make it extremely difficult to produce certain materials and goods here, which we could do more cleanly, yet rely on other nations that do but in a way that is not acceptable to our standards. So we tax them.
Make that make sense.
Besides other industries becoming collateral damage to potential retaliation tactics, the group who will receive the short end of the stick are consumers. China dominates the global market in plenty of other items covered under the FPF, such as steel, cement, aluminum, and glass. Potential trade wars, shortages, and price hikes are quite likely. And will not bode well for the average American, who is already suffering from the highest inflation in decades. Companies will pass all increased costs down to the customer. The FPF may not be a domestic tax, but it will still be at the expense of the domestic consumer.
The consumer is the biggest and most important group economically, and they are not considered in this legislation. They are a sacrificial lamb to Washingtonian virtue signaling.
The original GOP-sponsored resolution began by saying “a carbon tax would be detrimental to the economy of the United States.” It would be nice if our elected officials felt the same about any carbon tax.
Kristen Walker is a policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.theamericanconsumer.org or follow us on Twitter @ConsumerPal