The real value of tariffs

Last week marked the 20th anniversary of the so-called “Battle in Seattle,” which launched a global protest movement about the rules by which the global economy is run. Last week we also heard President Trump threaten to put a 100 percent tariff on French wine and camembert cheese and reinstate steel tariffs on Argentina and Brazil. Additional tariffs, we’ve been reminded, are scheduled to go into effect on December 15 against China.

The anniversary of the World Trade Organization (WTO) protests is the perfect time to reopen a debate on the value of tariffs. Those protests first raised the idea of tariffs as an important enforcement mechanism, not for zero-sum nationalism but for universal labor, human rights and environmental standards. 

We may have a president who claims he’s “a tariff man.” But not a single one of the tariffs imposed by the current administration has been designed to strengthen American workers’ rights to join a union, engage in collective bargaining or punish companies that engage in human rights violations in other countries. 

Nor have any tariffs been levied against Chinese steel imports, an egregious omission since they are responsible for more than twice the greenhouse gas emissions as similar products made by American steelworkers. America’s steel industry is among the cleanest, most energy efficient steel industries in the world. Of the 10 largest steel industries in the world, responsible for 88 percent of production, only Brazil’s electric arc furnace production produces fewer CO2 emissions than the U.S.

Tariffs should be like traffic tickets, issued to those who break the rules that the rest of us obey. In China, there is plenty of evidence that the rules of commercial business have been broken, currency has been manipulated and intellectual property stolen. All of these violations are worthy of tariffs.

But what hasn’t been addressed, and what the protests in Seattle highlighted, is the importance of a rules-based system of trade that has, at its center, the enforcement of labor, human rights and environmental standards. 

What would be the key components of such a system, and how would we go about designing and implementing it?

First, we don’t need to turn to the WTO as the only mechanism for launching such a system. Congress has a perfectly acceptable vehicle through an amendment of the U.S. Mexico Canada Trade Agreement (USMCA), or NAFTA 2.0 as I would prefer to characterize it. 

One of the most important actions Congress could take today to protect American jobs in energy intensive, trade-exposed industries (EITE’s) like steel, aluminum, pulp and paper, cement and chemicals would be to insert strong, environmental border adjustments into the USMCA. Border adjustments that price the carbon emissions produced from these products would reward American producers who universally have set the benchmark for the fewest emissions in these industries globally. Applying such standards across the U.S., Canada and Mexico would send a clear message to the rest of the global economy that we can put a price on carbon in a way that protects North American jobs while rewarding our companies for exemplary environmental performance.

Coupled with the improved 45Q tax credits that incentivize carbon capture, utilization and sequestration (CCUS) technology, carbon border adjustments in the USMCA would provide another important lever to jump-start America’s leadership in this pivotal technology for reducing industrial emissions. These emissions make up roughly 20 percent of both U.S. and global emissions. Seventy percent of industrial emissions come from the handful of EITE’s, making a border adjustment system far easier to manage than the chaotic system initiated by the current administration.

From an environmental perspective, without driving down the cost of CCUS deployment, the U.S. has little chance to meet its Paris commitments. Nor, as a recent EFI study showed, can states like California reasonably meet their 2030 targets. 

On the subject of labor rights, much has already been written about the insufficient nature of the current USMCA draft. While it attempts to address a fraction of the wage disparities in the motor vehicle industry between Mexico on the one hand and the U.S. and Canada on the other, the effort is so limited and constrained, it reminds me of the same kind of symbolic gesture that NAFTA made with its unenforceable labor and environmental standards in the 1990s. Furthermore, my own review of Trade Adjustment Assistance-certified plants and petitions over the last decade showed that the overwhelming number of manufacturing jobs lost to Mexico had nothing to do with the motor vehicles industry. The USMCA doesn’t even acknowledge that.

Finally, it is important to note that Congress might well consider simply amending the existing NAFTA treaty instead of passing an amended USMCA. A legal review of NAFTA during the Obama administration concluded that significant amendments to NAFTA, such as a carbon price or border adjustments, would not require the two-thirds majority for new treaties but instead could be passed under existing House and Senate rules, a much lower bar.

The 20th anniversary of the weeklong protests in Seattle is the right time to remember that a tariff-based trading system must be designed to strengthen labor and human rights and environmental standards in America first.

David Foster is the retired director of United Steelworkers District 11 and the founding executive director of the BlueGreen Alliance. He was an official in the Department of Energy during the Obama administration. He currently serves as a distinguished associate to the Energy Futures Initiative and a visiting scholar at the Massachusetts Institute of Technology.