When I read that Obama was warning against carbon tariffs, I had a couple of thoughts:
- The only way to equalize cost pressures faced by American manufacturers is to make sure that competing foreign products face them at the border.
- Of course, that same fairness rationale works against other ardent market-based sprints to the bottom - other environmental concerns, labor standards, etc.
- Smoot-Hawley. Raising tariffs in a recession is canonically bad.
- Tariffs blunt comparative advantage and thus the economies of globalization.
Only, no, these carbon tariffs aren't due to take effect until 2020. If the economy is still dead by then, only Michelle Obama will be eligible for the Presidency, and I'm sure Congress can remain true to form and delay them if need be.
Today, Krugman weighs in:
[I]n this case the non-economic objective is to reduce greenhouse gas emissions, never mind their source. 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.So, I've thought about this again, and I now see that the first two points outweigh the last two.