Published:  08:21 AM, 27 January 2023

Climate change could usher in a new era of trade wars

Climate change could usher in a new era of trade wars
Efforts to mitigate climate change are prompting countries across the world to embrace dramatically different policies towards industry and trade, bringing governments into conflict.

These new clashes over climate policy are straining international alliances and the global trading system, hinting at a future in which policies aimed at staving off environmental catastrophe could also result in more frequent cross-border trade wars, NYTimes reports.

In recent months, the United States and Europe have proposed or introduced subsidies, tariffs and other policies aimed at speeding the green energy transition. Proponents of the measures say governments must move aggressively to expand sources of cleaner energy and penalise the biggest emitters of planet-warming gases if they hope to avert a global climate disaster.

But critics say these policies often put foreign countries and companies at a disadvantage, as governments subsidise their own industries or charge new tariffs on foreign products. The policies depart from a decades-long status quo in trade, in which the US and Europe often joined forces through the World Trade Organisation to try to knock down trade barriers and encourage countries to treat one another's products more equally to boost global commerce.

Now, new policies are pitting close allies against one another and widening fractures in an already fragile system of global trade governance, as countries try to contend with the existential 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 system of global trade funnels tens of millions of shipping containers stuffed with couches, clothing and car parts from foreign factories to the United States each year, often at astonishingly low prices. But the prices that consumers pay for these goods do not take into account the environmental harm generated by the far-off factories that make them, or by the container ships and cargo planes that carry them across the ocean.

American and European officials argue that more needs to be done to discourage trade in products made with more pollution or carbon emissions. And US officials believe they must lessen a dangerous dependence on China in particular for the materials needed to power the green energy transition, such as solar panels and electric vehicle batteries.

The Biden administration is putting in place generous subsidies to encourage the production of clean energy technology in the United States, such as tax credits for consumers who buy American-made clean cars and companies building new plants for solar and wind power equipment. The United States and Europe are introducing taxes and tariffs aimed at encouraging less environmentally harmful ways of producing goods.

Biden administration officials have expressed hopes that the climate transition could be a new opportunity for cooperation with allies. But so far, their initiatives seem to have mainly stirred controversy when the United States is already under attack for its response to recent trade rulings.

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