This week, Ed Gresser, Vice President and Director for Trade and Global Markets at the Progressive Policy Institute (PPI) submitted comments to the Office of the U.S. Trade Representative (USTR) on ways trade policy can advance racial and gender equity, as well as support historically underserved communities.
Gresser outlines how the U.S. tariff system is an unusually regressive part of the tax system, highlighting the fact that tariff rates are much higher on cheaper, mass-market consumer goods such as clothes, shoes, silverware, and home linens than on expensive luxuries, and so impose higher costs on low-income families.
“There is strong evidence that the tariff system has some detrimental effects in several areas, and in some ways, it presents an unfortunate contrast with other American taxes. Specifically, it taxes cheap and simple consumer goods much more heavily than analogous luxuries, and taxes many women’s clothing products at higher rates than analogous men’s clothes. This makes the tariff system an unusually regressive part of the American tax system, and likely the only one with an explicit gender bias,” Gresser writes.
Gresser notes the “Pink Tax” in clothing tariffs, pointing out that the tariff system taxes women’s clothing at higher rates than men’s. He and PPI Summer Policy Fellow, Elaine Wei provide a detailed review of gendered clothing tariff rates, comparing men’s and women’s coats, suits and ensembles, shirts and blouses, and underwear. Lastly, he writes that communities most often impacted by tariff disparities rarely know they are affected, and are thus less likely to respond to government requests for public comment or even to direct outreach. Gresser urges policymakers as a first step to develop more detailed and contextual publications on the way these systems function and how they affect different communities across the country.
“Many of the peak tariff lines apply to products not made in the United States, and could be revised without harm to U.S. growth or existing employment though at some modest cost in revenue,” Gresser continues.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
Submitted to the Office of the U.S. Trade Representative in Response to June 11, 2023, Request for Public Comment on Ways Trade Policy Can Advance Racial and Gender Equity and Support Historically Underserved Communities
Thank you for this chance to offer suggestions on ways trade policy might better meet the needs of America’s underserved families and communities. I am Vice President of the Progressive Policy Institute (PPI), a 501(c)(3) nonprofit think tank established in 1989, which publishes on a wide range of public policy topics. My research focuses principally on U.S. international economic policy, with a particular focus on trade issues. I previously served for nine years at the Office of the U.S. Trade Representative, including as agency speechwriter (1998-2001) and as Assistant U.S. Trade Representative for Policy and Economics (2015-2021). In the latter capacity I oversaw USTR’s economic research and use of trade data, administration of the Generalized System of Preferences, and policy coordination work including concurrent service as Chair of the Trade Policy Staff Committee.
I would like to focus on two questions USTR poses in its June 12 Federal Register notice:
“Are there trade policies, provisions, or actions which are detrimental to advancing racial and gender equity, equality, and economic empowerment?”
and
“What best practices should USTR consider to ensure that advancing equity, equality, and economic empowerment is standardized in community and stakeholder engagement regarding the development and implementation of U.S. trade and investment policy?”
As a point of departure, I applaud Ambassador Tai’s sustained interest in understanding any detrimental effects trade policy may have on underserved Americans, and finding ways policy might more effectively meet their needs. There is strong evidence that the tariff system has some detrimental effects in several areas, and in some ways, it presents an unfortunate contrast with other American taxes. Specifically, it taxes cheap and simple consumer goods much more heavily than analogous luxuries, and taxes many women’s clothing products at higher rates than analogous men’s clothes. This makes the tariff system an unusually regressive part of the American tax system, and likely the only one with an explicit gender bias. Many of the peak tariff lines apply to products not made in the United States, and could be revised without harm to U.S. growth or existing employment though at some modest cost in revenue.
The second question, on ways USTR might draw more advice from lower-income and underserved communities is more challenging. Trade agreements are often intensely debated and sometimes termed “non-transparent.” The permanent systems an agreement modifies, though, are typically far less frequently debated and seem to be largely opaque not only to the public but to many experts. This means communities affected badly by these systems rarely know they are affected, are thus relatively unlikely to respond to solicitations for advice, and may have difficulty even responding to direct outreach. U.S. officials hoping to encourage their participation in policy development might as a first step develop more detailed, regular, and contextual publications on the way these systems function and how they affect different groups within American society. This would help build understanding at least within the government, Congress, and academic communities, perhaps elicit ideas and ways to improve them, and likely encourage more informed discussion with underserved communities.
A more detailed discussion of these topics follows: first, on the regressivity of consumer goods tariffs and their consequent impact by income level and race/ethnicity; second, the gendered nature of the clothing tariff schedules, and the unintended but explicit bias this has created; and third, the challenge of drawing advice on policy from “underserved” communities.
How did vanilla get a reputation like this? A look at the facts argues pretty strongly that vanilla isn’t boring, plain, or conventional at all; rather it is exotic and expensive, hard to find and even harder to grow, and maybe a bit scandalous. You be the judge:
Origins and chemistry: Like chocolate, vanilla is native to Mexico and was originally cultivated around Vera Cruz. Popular among the Aztec nobility as a flavoring for high-end drinks and sweets, it comes from the treated “pod” of an orchid pollinated by local bees and hummingbirds. The main active ingredient is a phenol-based chemical compound informally termed “vanillin.”
“Globalization” and modern production: Vanilla cultivation outside Mexico is challenging because no one so far has discovered another natural pollinator. Nonetheless, the 19th-century French empire found an alternative way to do it: the hand-pollination technique invented in 1841 by an enslaved 12-year-old farmhand named Edmond Albius on Reunion (then a French Indian Ocean possession, now an overseas department), and introduced to Madagascar after the colonial conquest in the 1890s. Dutch colonials later introduced the same technique to Indonesia (or more specifically, the southern Sunda island group). Together Madagascar and Indonesia now produce about half of the world’s roughly 7,600 tons of natural vanilla each year. Mexico adds about 500 tons; other outposts in Papua New Guinea, Tahiti, and Uganda account for most of the rest. To put this in context, each year the world’s farmers produce 25,000 tons of sugar, and 500 tons of the cocoa-bean precursor to chocolate, for every ton of natural vanilla.
Cost: Scarcity and difficulty of production make vanilla, in most years, the world’s second-most-expensive agricultural product. (As measured by price per kilo.) Saffron at $500/kilo is easily the priciest; vanilla beans usually come at about $50 per kilo depending on annual marketing and harvest. Cardamom sometimes puts up a fight for second, though.
Trade: Americans bought about a quarter of the world’s 2022 vanilla crop, or 1,989 tons in total. Most — 1,448 tons — came from Madagascar, followed by 207 tons of Indonesian vanilla (Flores, Sumba, west Timor) and 172 tons from Uganda making up most of the rest. Other suppliers included 39 tons from Papua New Guinea, 36 tons from India, 24 tons from the Comoros Islands, and 0.5 tons from Tahiti. The harvested, dried, and washed pods arrive in cans, often groups of six weighing 48 kilos, mostly by air cargo. Total import value was $345 million — about two minutes worth of America’s year-long $3.27 trillion in total goods imports — and vanilla, like most spices, has no U.S. tariff.
Sexual reputation: Vanilla is sometimes said, maybe most frequently by vanilla marketers, to have a natural aphrodisiac effect. Though obviously a convenient sales pitch, this may have a factual base at least in the case of some rodents. A 2012 paper (Maskeri et al.) from the Pharmacognosy Journal: “Vanillin in the dose of 200 mg/kg demonstrated aphrodisiac properties in male wistar rats.”
Real vs. artificial: The 7,600-ton total output is far too little to meet the world’s flavoring and aromatic needs. Most vanilla used in sweets and cooking, therefore, is not the natural hand-pollinated stuff but artificial “vanillin.” This is the same active molecule, but extracted by chemistry-industry professionals in five factories — three in China, one in France, one in the United States — and not from delicate orchids but “wood pulp.” a substance with a more convincing claim to plainness, ordinariness, and conventionality than vanilla itself.
FURTHER READING
Merriam-Webster’s “vanilla” site — see uninspiring adjective definitions, also scroll down for the startling etymology.
Origins and production:
The origin: NPR reports on Mexico’s troubled vanilla industry.
The inventor: Child laborer, enslaved farm-worker, and agricultural revolutionary Edmond Albius invented hand-pollination of vanilla orchids and so founded the modern global vanilla industry.
… and Reunion, now an overseas French Department, pitches the product 180 years later.
The top producer: Le Monde on an oversupply crisis this summer in Madagascar.
… and direct to Madagascar’s GEM (Groupement des Exporteurs de Vanille de Madagascar).
And the University of Florida explains attempts to grow it here.
Cost:
A list of the world’s most expensive (per-kilo) ag products places vanilla second after saffron.
A modern-day marketer enthusiastically details vanilla’s supposed aphrodisiac effects.
… and a scientific paper provides some backup, at least for “male wistar rats.”
And another thing:
“Chocolate” is originally an Aztec word, recalling the cocoa bean’s original Native American cultivators. (The cocoa tree’s modern scientific name, Theobroma cacoa, means food of the gods” and is one of the original Linneus’ species-names.) Chocolate’s first documented use, confirmed by archeologists in the early 2000s, was about 2,600 years ago in Guatemala. Nineteenth-century colonial entrepreneurs, mainly Brits in contrast to the French and Dutch vanilla-propagators, introduced cocoa trees to West Africa. This region remains the main cocoa-bean producer, particularly centered in Ghana and Cote d’Ivoire, and accounts for about 70% of modern cocoa-bean production. Other production spreads around the Caribbean littoral, Indonesia, and Papua New Guinea. The Ghana Cocoa Board.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
*Census for goods trade, BEA for digitally deliverable services. Definitions of “manufactured goods,” “energy,” and “agriculture” overlap; figures above include NAICS for manufacturing, USDA for agriculture, and HTS-27 for energy. BEA’s “ICT” and “potentially ICT-enabled” services include computer and telecommunication services, intellectual property revenue, finance, and insurance, “cultural and recreational” services such as entertainment and media, business & professional services such as architecture, accounting, advertising, research & development, etc.
WHAT THEY MEAN:
A late-June comment from the National Security Council’s “International Economics” Deputy: Asked at a Carnegie Endowment event what “compelling practical value proposition” the U.S. has to offer developing countries on trade, the NSC officer tells them they should be thinking about something else. Our transcription:
“[W]e’re at a place where average U.S. tariffs are at historic lows, still 2.4% … in a lot of ways we don’t see tariffs as being at the core of trade policy, and we don’t see trade policy as being at the core of international economic policy. What needs to be at the core of international economic policy? Well, an emerging set of challenges that haven’t been addressed — things like supply chain fragility and resilience, things like climate and clean energy, things like anti-corruption, things like global tax. Those are the kind of pressing economic issues internationally right now.”
Japanese Prime Minister Kishida, speaking across the street at Johns Hopkins/SAIS a few months earlier during his January visit, sees a quite different “core.” His counterpoint:
“[T]he core of what creates an economic order in the region [i.e., Asia-Pacific] is a framework with market access for goods and services. In the Asia-Pacific region, we indeed have such a framework, the Trans-Pacific Partnership. The TPP was originally initiated by the United States, and then was eventually launched without U.S. participation. Now, the United Kingdom, China, Taiwan, and others have expressed their intention to join this agreement. Against the backdrop, let me state that the United States’ return is of paramount importance.”
A couple of cautions before over-interpreting anything: While context suggests that the NSC Deputy is making a general statement about the non-“coreness” of trade policy, he is responding to a question specifically about economic relationships with developing countries and perhaps meant something less sweeping. Likewise, it isn’t exactly clear who his “we” includes (the NSC staff as a group?), as policy statements by administration Cabinet departments, by neighboring EOP “components” with economic or trade authority such as the Council of Economic Advisers and the U.S. Trade Representative Office, and by independent agencies like the Ex-Im Bank, et al, don’t typically reach such a Lao Tzu-like plane of inertness. But these cautions noted, two observations:
1. Foreigners looking at the U.S.: As we noted last month, NSC’s “2.4%” average tariff rate isn’t factually correct and (more important) wouldn’t be very relevant if it were. In general, tariffs as taxation of imported goods are one component of a larger “market access” concept — that is, the policy-induced cost and ease or difficulty of selling something to a foreign customer — which also includes quota limits, import licenses, some types of regulatory approvals and services policies, customs efficiency, and so on. Foreigners often have good reason to view this set of issues as important, and American policymakers can’t easily disentangle them from ‘core’ issues such as supply-chain fragility and resilience. As a mini-case study, the ‘average’ U.S. tariff rate on imports from New Zealand was 2022 was a modest 1.0%, but Kiwis are more concerned about restrictive dairy quotas and illogical inspection rules. These, together with tariffs of 17.5% (under quota) and “13.6% + $1.035/kg” (above quota), make it nearly impossible for American grocery stores to buy New Zealand infant formula. This in turn the main reason the U.S. “supply chain” for formula is fragile, non-“resilient,” and prone to shortages and hardships for moms when one of the dozen or so U.S. formula plants runs into trouble.
With respect to tariffs as such, few countries see a “2.4%” average. U.S. tariff rates vary by product (as do those of other countries), from mostly zero or near zero for energy and natural resources, to low to medium for industrial inputs, and high for lots of consumer goods. Thus by country, rates run in a continuum from near-zero for resource exporters (say, Saudi Arabia, Greenland, Kazakhstan) and countries exempted from tariffs through free trade agreements or “preference” programs, to an 8%-15% range for low-income Asian countries specialized in clothing (Cambodia, Pakistan, Bangladesh, Sri Lanka). So foreigners often have reason to view “market access” generally, and sometimes tariffs specifically, as important or even “core.”
2. Americans looking outward: The same applies in the other direction. NSC’s interest in anti-corruption and global tax issues isn’t trivial; neither, however, are more local questions about American job quality, growth sources, and inflation-fighting. For example, the United States has its own large but troubled export sector, measured at $3 trillion last year. Among much else this sector provides 20% of American farm income; creates markets for $1.6 trillion in U.S.-produced airplanes, cars, semiconductor chips, MRI machines, and other manufactured goods abroad; sends $720 billion in digitally deliverable services abroad via wire and satellite beam; makes up a ninth of Oregon’s GDP and a fifth of Texas’; supports 21,000 women-owned exporting businesses with over a million employees; and, in macro terms, presents ways to help the U.S. sustain growth as government fiscal stimulus fades and Federal Reserve interest rates cool off U.S. demand.
The export sector has lots of headaches though, and it could use policy help. To draw a few from various government sources:
Gloomy statistical trends: The Census Bureau’s tally of exporting U.S. firms has dropped by about 12%, from a peak of 305,000 late in the Obama administration to 278,000 as of 2022. Meanwhile, the U.S. share of world exports has dropped by WTO count from 9.1% to 8.3% in goods, and 15.2% to 12.8% in services.
Policy problems not rare: The 2023 edition of the U.S. Trade Representative Office’s 467-page “National Trade Estimate Report on Foreign Trade Barriers” recounts objectionable policies whose revision might help a bit, ranging from mandatory Tunisian “import license” rules for automobiles, through Nigerian bans of American chicken and beef, to an Indian “simple average” tariff rate of 18.3%, seven pages of European Union ag policies, Chinese subsidies, and lots more.
Foreign tariff and “market access” arrangements: Few foreign governments share the view that trade is not a core part of international economic policy. As they continue reducing barriers to one another’s products via the “Regional Comprehensive Economic Partnership,” the CPTPP Prime Minister Kishida cites, European and Chinese agreements with South American countries, etc., the policy landscape is tilting against American businesses and their workers.
Against this background, P.M. Kishida looks tactful and correct as he gives his own view of what might be at the “core” of international economic policy. The NSC’s approach, whether in terms of international economic order or more local concerns about jobs, inflation, and growth, looks very much in need of its own rethink.
FURTHER READING
NSC’s Deputy at the Carnegie Endowment: The eight-minute exchange on the U.S.’ “practical value proposition” for developing countries, the non-core status of trade policy, etc., begins with a question at about 09:00, with the quoted passage at 16:00.
Six months earlier and across Massachusetts Avenue at SAIS, Prime Minister Kishida’s view of U.S.-Japan relations, Asia-Pacific security, market access, and economic order.
Case study:
Kadee Russ (UC-Davis) and Phillip Dean (Deakin University, in Australia), look at infant formula tariffs, quotas, trade, and shortages.
Elsewhere in the administration, some different emphases:
The U.S. International Trade Commission has U.S. import totals, tariff revenue, and average rates, from 1891’s 25.5%, through 2008’s 1.2%, to 2021’s 3.0%.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
Throughout his administration, President Biden has prioritized improving domestic supply chains and preventing supply chain disruptions. But China remains one of the United States’ biggest threats, as the country is both a strategic competitor and the U.S.’s largest trading partner outside of North America. President Biden’s industrial policy has been one of selective decoupling, rather than a complete decoupling of economic ties. This policy, however, does lead to vulnerabilities in both economic and national security, and managing these vulnerabilities is one of the Biden Administration’s biggest challenges when addressing supply chains.
Today, the Progressive Policy Institute’s (PPI) Innovation Frontier Project (IFP) released a new report, “U.S. Supply Chains and Biden’s China Challenge,” which offers a new approach based on a novel metric to respond to the vulnerabilities in the U.S.’s trade relationship with China. Report author Keith Belton introduces a new supply chain measure called revealed comparative dependence (RCD), which can be used to identify goods and industries where the U.S. is excessively dependent on Chinese imports.
“To fully address and strengthen the United States’ supply chains, we must first understand where the biggest gaps are, which is what the revealed comparative dependence (RCD) metric can help measure. The U.S.’s biggest vulnerabilities come when our domestic manufacturing capabilities are lacking and when our foreign dependence is significant, as well as concentrated in one region or country,” said Keith Belton, Senior Director of Policy Analysis with the American Chemistry Council. “Strategically investing in high vulnerability goods will better reduce the U.S.’ dependence on China and strengthen domestic supply chains.”
The report finds that the highest vulnerabilities in the U.S. over the last decade have been driven by a loss in domestic manufacturing, rather than dependence on China.
The report makes the following policy recommendations:
The Department of Commerce should annually identify and publicize high vulnerability goods by calculating the RCD, which will serve to educate and influence the private sector in the management of global supply chains.
The comprehensive analysis of traded goods should inform federal implementation of the Inflation Reduction Act, The Infrastructure Investment and Jobs Act, and the CHIPS and Science Act, which direct together $1 trillion to strengthen U.S. supply chains. The Administration should give greater weight to applications for federal subsidies that reduce high vulnerabilities.
President Biden should scale back the Trump 301 tariffs on the vast majority of Chinese goods, which often impose a burden on U.S. manufacturing. The scope of the tariffs should be narrowed to finished goods or high vulnerability goods.
Finally, President Biden should make it easier for the U.S. to attract and retain foreign workers that possess tacit know-how that is lacking domestically.
Based in Washington, D.C., and housed in the Progressive Policy Institute, the Innovation Frontier Project explores the role of public policy in science, technology and innovation.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on Twitter.
This paper introduces a new supply chain measure called revealed comparative dependence (RCD), based on publicly available national and global trade data. The paper shows how high RCD can be used to identify product classes where the United States is excessively dependent on Chinese imports.
The paper suggests that RCD can be used to inform the Biden Administration’s industrial policy. The Department of Commerce can use RCD to publish a list of high-vulnerability goods. Policymakers can pay special attention to goods on the list to reduce dependence on China, while considering rolling back tariffs on goods not on the list.
INTRODUCTION
The Biden Administration wants to improve the resilience of U.S. supply chains — the ability to recover quickly from a supply disruption anywhere in the world. A key element is preventing a supply chain crisis “from hitting in the first place.”
But China is the elephant in the room. It is both a strategic competitor and the United States’ largest trading partner outside of North America. The concern is that China might weaponize its industrial might for geopolitical gain — something it may be doing now (Keeley 2018) and for which the United States is admittedly ill-prepared. The economic damage to the United States from a war with China5 would be considerable, as Babbage (2023) described:
U.S. supplies of many products could soon run low, paralyzing a vast range of businesses. It could take months to restore trade, and emergency rationing of some items would be needed. Inflation and unemployment would surge, especially in the period in which the economy is repurposed for the war effort . . . Stock exchanges in the United States and other countries might temporarily halt trading because of the enormous economic uncertainties.
To avoid such a scenario, some China hawks call for a complete decoupling of economic ties, but President Biden doesn’t want to eliminate the substantial economic benefits arising from international trade. His industrial policy is one of selective decoupling, focusing on foundational technologies, critical/essential goods, and goods made from forced labor.
Selective decoupling, however, implies acceptance of vulnerabilities in economic and national security. Managing these vulnerabilities is arguably Biden’s biggest challenge in enhancing the resilience of U.S. supply chains.
In this paper, we offer an approach, based on a novel metric, to characterize and respond to these vulnerabilities. We apply this approach to a subset of traded goods, advanced technology products — a focal point of industrial policy in both China and the United States. We derive lessons for policymakers and offer some policy recommendations consistent with Biden’s industrial policy. We make no presumption as to the merits of Biden’s policy; we take it as given, and our aim is to improve its effectiveness.
FACT: The U.S. GSP system has now been lapsed for over 2 1/2 years.
THE NUMBERS: Packaged tuna imported from the Solomon Islands –
2021 – 2023 None
2018 – 2020 440 tons per year
WHAT THEY MEAN:
A passage from State Department a briefing by two “senior official”-types, in the runup to Secretary Blinken’s trip a month back:
“…in competition with China … managing the competition responsibly … America’s ability to outcompete China … major strides … an approach that is competitive without veering into confrontation … as the competition continues … intense competition requires intense diplomacy … working with competitors when our interests call for it … competing vigorously and talking with the PRC on a range of issues … manage the competition, and work together when our interests align from a position of confidence…”
Point probably made … “competing in noun, verb, and adjectival forms. With that in mind, a depressing story featuring (a) a small Pacific island country currently an object of this “competition,” (b) 500 missing tons of canned tuna, and (c) the also missing U.S. Generalized System of Trade Preferences (“GSP”), a duty-free program for low- and middle-income countries which, launched in 1974, has been “lapsed” in the midst of Congressional arguments over eligibility rules since New Year’s Day 2021:
The country: Home to 708,000 people and one of the GSP’s 119 “beneficiary countries,” the Solomon Islands are geographically a string of six big islands and 986 smaller ones extending southwest from Papua New Guinea toward Vanuatu and Fiji. The Solomons’ economy mostly runs on three things: (a) tourism; (b) exports of rosewood, akua, and other local timber; and (c) fisheries for export and local use. The first pillar, tourism, went down under the COVID shock and has yet to recover. Since then, and with the caution that GDP data is jumpy for small island countries, the Solomons’ post-COVID economic figures look dire. The International Monetary Fund reports that after shrinking by -3.5% in 2020, the Solomons’ economy contracted again by -0.6% in 2021 and by -4.1% in 2022, though a small +2.5% rebound looks likely this year.
“Competition” (1): Meanwhile, the Solomons have won an uneasy place as a center of attention in the “competition” the two U.S. senior-official briefers were talking up in June. This has featured in sequence an early 2022 “security agreement” with China carrying murky hints of intelligence and naval strategy; controversy over it within both S.I. politics and the 16-country Pacific Forum (the principal regional association for Pacific Islands states); then the rapid opening of a new U.S. embassy in Honiara last February, all accompanied by strings of press releases from the U.S. and China announcing new aid programs, important visits, etc.
“Competition” (2): With respect to the second and third growth drivers noted above, China buys most of the Solomons’ wood exports, valued at up to $200 million a year — half of the Solomons’ annual export earnings and an eighth of their $1.6 billion GDP. Until 2020, Americans were offsetting this, more in wage-paying employment than in dollars, through purchases of 400-500 tons of packaged tuna a year, from the cannery at Noro in New Georgia. Again noting that small-country economic stats can be blurry, an Australian press analysis asserts that the cannery contributes fully 18% of the Solomons’ national GDP. ILO figures, meanwhile, suggest that its 2,000 employees account for about one in thirty of the country’s 65,000 wage-earning, formal-sector workers.* Canned tuna is normally a very high-tariff product in the U.S., taxed at rates ranging from 12.5% to 35%, but through 2020 GSP was waiving these tariffs for least-developed countries like the Solomons and gave them a regular set of American buyers
The missing tuna: Not for the last three years, though. GSP benefits are not permanent, but have been periodically “reauthorized” by Congress for periods of ten years, three years, 1.5 years, and so forth. When the program lapsed at the end of 2020, canned tuna ceased moving from Noro to Hawaii and California. Since then, as Congress has argued over how many new eligibility rules to add, no more tuna has come in. Americans are actually buying more than before – about 210,000 tons per year before 2020, now about 240,000 tons — but buyers of the Solomons’ modest shipments appear to have shifted to larger Southeast Asian and Latin American sources.
Final thought: The “competition” in the briefers’ comments above is a metaphor drawn mainly from sports or games. “Competitors” who put only part of their teams on the field are typically at a disadvantage, and often don’t finish first.
* According to the International Labour Organization, the Solomon Islands have a “labor force” of 370,000, of whom 18%, or about 65,000, have wage-paying jobs. The other 305,000 are “own account” workers in agriculture, odd jobs, and temporary work. In American terms, 18% of GDP would translate to “the combined economies of California, Oregon, and Washington”, and 3% of wage-paying employment would be comparable to “all the workers in Georgia” or “all the workers in Michigan.”
FURTHER READING
GSP:
Reps. Jake Auchincloss (D-Mass.) and Neal Dunn (R-Fla.) with 64 others urge rapid GSP renewal.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
FACT: The number of poor countries has fallen by more than half since 2000.
THE NUMBERS:
2022 26
2012 36
2002 54
1992 55
*World Bank definition and estimate, based on per capita gross national income.
WHAT THEY MEAN:
Since the mid-1980s, the World Bank has been informally grouping economies into four tiers of wealth. They begin at “low-income” and ascend through “lower-middle income” and “upper-middle-income” to “high income”, divided by annually adjusted levels of Gross National Income per capita. The list comes out each year, with the thresholds slightly adjusted to take account of inflation and a few arcane macro-issues. It is meant less to measure inequality among countries (though it does offer some comparisons) than to give a stable definition of what it means for an economy to be poor, rich, or somewhere in the middle. Over time, it also allows you to see change — this year, with a vivid four-color visualization — as some countries rise, others descend, and the world as a whole changes. First the numbers, then the colors and the trend they show:
Numbers: In the 2023 list, a “low-income” economy has a GNI per capita of $1,135 or less per year. The Bank finds 26 such countries, from Burundi (the poorest country in the world at $240 per person per year, with Afghanistan and Somalia a bit above) to Ethiopia at $1,020. A “high-income” economy’s GNI per capita, meanwhile, is anything above $13,845. This group’s brackets are two small-island tourist favorites: Seychelles in the Indian Ocean at $14,340 and Bermuda at $125,240. (The U.S. is seventh at $76,370; more below.) In between are (a) lower-middle-income countries from $1,136 to $4,445 per person per year, in practical terms from Tanzania, Tajikistan, Nepal, and Myanmar just above the low-income line to Mongolia, Jordan, and Ukraine at $4,200+; and (b) upper-middle-income countries from Indonesia and the West Bank and Gaza a bit above $4,500 to China, Bulgaria, and pre-invasion Russia, each a few hundred dollars below “high-income” status.
The list changes a bit each year, sometimes to add some new economies but mostly to report shifts in classification. The 2023 list, for example, the Palestinian territories and El Salvador in upper-middle income territory for the first time, and restores Indonesia (which first entered this group in 2019, but temporarily fell back out during the Covid pandemic). Guinea and Zambia likewise cross from low-income to lower-middle income, and Guyana and American Samoa from upper-middle to high-income. More systemic changes show up over decades rather than years: taken in 10-year jumps, the last 30 years reveal a steady upward drift across the entire list:
1992: This early edition of the list, contemporary with the birth of the World Wide Web, the creation of the WTO, etc. included 204 economies. Of this total, 55 were low-income, 71 lower-middle income, 39 upper-middle income, and 39 high income. Using a simpler breakdown, the list was weighted toward the bottom, with 126 low- and lower-middle income states and 78 upper-middle and high-income economies. Thus about 62% of economies fell below the line separating the low and lower-middle income tier from the upper-middle and high-income region, while 38% placed above it.
2002: 209 economies, of which 64 were low-income, 54 lower-middle, 34 upper-middle, and 57 high income.
2012: 215 economies (larger in part because of a couple of declarations of independence, but mainly due to more complete coverage of small islands), of which 36 were low-income, 48 lower-middle, 55 upper-middle, and 76 high income.
2022: This most recent edition, out in early July, covers 217 economies, of which only 26 are low-income, 54 lower-middle, an identical 54 upper-middle, and 83 are high income. So 137 of them, or about 63%, are now above the “median” line and 37% below, reversing the 1992 proportions.
Colors: Accompanying this year’s release, a time-series map colors high-income countries dark forest green, upper-middles a lighter emerald shade, lower-middles a kind of lilac purple, and low-incomes dark purple or violet. The 1992 map has no green anywhere between Germany and South Korea; all the most populous countries in the heart of Asia — Pakistan, India, Bangladesh, Indonesia, Vietnam, and China — combine in a forbidding block of low-income violet, relieved only by lilac Thailand, emerald Malaysia, and tiny dark green dots for Brunei, Singapore, and Hong Kong. Africa meanwhile has some light green at the top and bottom, but apart from a bit more light green for oil-exporting Gabon and light purples for Namibia and Angola, it’s gloomy violet all the way from the Sahara to the Kalahari. In the Western Hemisphere, a light purple shading extends through nearly all of Latin America; and Western Europe’s, dark green ends at the eastern borders of Germany, Austria, and Italy, with a bit of light green for Hungary and everything else lower-middle income lilac.
As the time-lapse proceeds, Asia’s violet block fades to lilac for China and Southeast Asia by the 2000s, and then (with exceptions for Afghanistan and North Korea) goes green in the north and lilac in South Asia. Africa’s violet retreats from the continent’s maritime rim, and now concentrated in inland states and the Horn, is almost completely ringed by lilac. The light purples in Latin America mostly vanish (though Venezuela falls off the green map, and the Bank isn’t venturing a guess this year), and dark green high-income tones turn up in Panama, Chile, Uruguay, and five Caribbean island states. And the forest-green edge of western Europe flows east and south as EU and NATO membership grows, sequentially incorporating Poland, the Baltic states, the Czech Republic and Hungary, Croatia, and most recently Romania.
In practical human-being terms, as this has proceeded the number of people living in deep poverty has dropped from 1.995 billion of 5.3 billion people then – that is, 38% or nearly two-fifths of humanity — to 655 million of 8 billion, or about 8%, as of the last estimate covering the year 2018. Sometimes, things do get better.
* Technically by “Gross National Income Per Capita, Atlas Method.”
FURTHER READING
The WB’s visualization, with links to this year’s country income groups and explanations of the various calculations they involve.
The U.S. and the top end The U.S.’ 2022 ranking is seventh among the 216 economies by per capita income, just above Denmark and Qatar at $76,370 per person. The top six are Bermuda at $125,240, Norway at $95,610, Luxembourg at $91,200, Switzerland at $89,450, Ireland at $81,070, and the Isle of Man at $79,300. An alternative calculation, by purchasing-power parities, lifts Norway into first, followed by Qatar and Singapore, then Bermuda, Luxembourg, Ireland, the United Arab Emirates, and Switzerland with the U.S. ranked ninth.
The big economies — Among the world’s 16 largest economies (as measured by total GDP), the list reports nine in the high-income group, six at “upper-middle-income,” and one “lower-middle-income” economy, and no low-income economies. A list with these 16 and their “rankings,” along with Bermuda and Burundi in italics as the top and bottom bounds:
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
FACT: The U.S. collects more tariff money on Pakistani goods than on British goods.
THE NUMBERS:
Imports from U.K., 2022: $63.8 billion
Imports from Pakistan, 2022: $6.0 billion
Tariffs on Pakistani goods, 2022: $607 million
Tariffs on U.K. goods, 2022: $578 million
WHAT THEY MEAN:
National Security Advisor Jake Sullivan in April asserted (mistakenly) that the U.S.’ “trade-weighted average tariff rate is 2.4 percent.” His source for this number is unclear; the actual figure, via the U.S. International Trade Commission (see below for detail on authoritative estimates) for 2021 was 3.0%, and pending their official word the 2022 rate looks like 2.8%.
A single number like this, though, is useful but blurry. The blurriness reflects the fact that the actual 11,414 official tariff rates vary greatly. The 5,864 ad valorem tariffs alone start at 0.1% and go as high as 48.0%, the 1,078 specific duties and compound tariffs add complexity, and both are then complicated by thousands of special waivers and surcharges. Therefore as a buyer, the rates you pay depend both on what you’re buying and from whom you got it, and as a country, it’s unusual to get a rate very close to the ‘average.
To oversimplify, the permanent “MFN” tariff system raised about $45 billion last year. It taxes low-priced clothes, shoes, and other consumer goods most heavily, natural resource products and high-tech goods most lightly, and heavy-industry and food in between. Therefore it hits lower-income families hardest. The Trump era’s administratively created “232” tariffs on metals and “301” tariffs on about half of imports from China brought in about the same amount of money (mainly from Chinese goods), but mainly cover industrial inputs such as metals, auto parts, and electronics, and so fall most heavily on industrial-sector buyers like auto plants, construction firms, and repair shops. Meanwhile, the U.S.’ 20 FTAs and three currently operating developing-country “preference” programs waive most tariffs for buyers of things from Canada, Mexico, Australia, South Korea, 16 other FTA partners, and also for countries in sub-Saharan Africa and the Caribbean littoral. Putting all these things together, in practice the 2.8% average becomes a range rising from 0% (for Cuba) to 15.0% (for Bangladesh), with natural-resource exporters and most African countries near the bottom, high-income countries a bit below the world average, diversified middle-income states very close to the average, and low-income Asian countries along with China at the top.
Here’s a look as of 2022, with a few entries from earlier years to illustrate the impacts of the 232 and 301 tariffs:
Three explanatory notes for this pattern:
High tariffs on low-income Asia:The high rates at the top reflect the specialization of many lower-income Asian countries — Bangladesh, Sri Lanka, and Pakistan in particular, Cambodia now a bit less so — in exports of clothing and home textiles. This explains why buyers of Pakistan’s modest $6 billion worth of shirts, towels, and similar goods pay fourteen times more than buyers of Norway’s slightly larger $6.7 billion in salmon, oil, and pharmaceuticals, and in fact more than buyers of $63 billion in British medicines, art auction proceeds, and aircraft parts. Ethiopia also shows up here, having lost its AGOA tariff waiver in January 2022 but still exporting somewhat smaller quantities of clothes.
Low-to-medium rate on others:The lowest rates show up for countries that are (a) natural resource exporters (oil for Kuwait and Saudi Arabia, fish for Fiji and Greenland); and (b) FTA partners and special program beneficiaries, with Canada, Jordan, El Salvador, South Korea, and Colombia representing the first group; and Kenya, South Africa, Ghana, Haiti, and Jamaica the second. Larger upper-middle-income and high-income countries — Germany, Poland, Brazil, Argentina, Thailand, Japan — have diversified export mixes, typically with a lot of zero-tariff products, a lot of mid-tariff products, and some high-tariff goods, and usually wind up in a range from 1% to 3%. India is also now in this range, though still a lower-middle-income country. There was only one actual zero-tariff country in the world — meaning, some imports but no tariff revenue collected at all. This weirdly turns out to be Cuba, where trade remains mostly banned, a few licensed U.S. buyers have been buying Cuban artwork, and tariffs on paintings, sculpture, antiques, etc. are all permanently set at zero.
301 & 232 effects: The U.S. worldwide tariff average — that is, the statistic Sullivan was looking for — doubled from 1.4% in 2017 to 2.8% in 2022. The effect of the Trump administration’s “232” steel and aluminum tariffs was small, affecting only about 1.5% of imports and changing average rates for suppliers like the EU, Japan, and Brazil only modestly. The higher global average mainly results from the “301” tariffs on Chinese goods: following these, though China lost some “import market share,” total imports of Chinese goods remained at $500 billion, tariff revenue rose about four-fold, and the average tariff paid by buyers of Chinese goods accordingly rose from 2.7% to 11.0%. This 11.0% is quite high in comparison to the world average — but, pretty remarkably, is still below the normal rates imposed on buyers of Bangladeshi and Sri Lankan goods.
Case study 1: PPI’s Valentine’s Day blast against the unfair, gender-biased U.S. underwear tariff system.
Case study 2: And reports on the contrast between high tariff rates on cheap stainless-steel spoons, and low ones on sterling silver.
“Average tariff rate”:
The NSC’s neighbors at the Office of Management and Budget report $99.9 billion in “customs duties and fees” in FY2022. This makes the tariff system the fourth-largest federal tax, about equal to the combined revenue totals from the $32.5 billion inheritance taxes, the $46.6 billion gas tax, and the $10.2 billion alcohol and $11.3 billion tobacco excise taxes. Subtracting the two main fees from this total (CBP’s Merchandise Processing Fee and Harbor Maintenance Fee revenue), the result is an average of about 2.8%. The U.S. International Trade Commission annually reports “duties” without the “fees”, but hasn’t yet released its final 2022 figure. For 2021 it got $84.5 billion in tariffs, $2.824 trillion in imports, and a 3.0% overall rate. Their preliminary figure for 2022 is a bit lower, with $90.1 billion in tariffs on $3.277 billion in imports, or 2.75%.
A long view – The U.S. International Trade Commission tracks U.S. tariff rates from the McKinley Tariff of 1890 to 2021.
The tariff system itself:
From the first chapter (01 for live animals) to the last, (97, for artwork), the tariff system’s 11,414 different eight-digit “lines” are meant to give every physical thing a number and a tax rate. The first line, “0101.21.00” stands for “purebred breeding horses” and is set at zero. The last, “9706.90.00,” is for antiques between 100 and 249 years old and is also zero. Overall, the 11,414 lines include (a) 4,315 set at zero (say, for natural gas, smartphones, paper, toys, and medicines); 5,864 with above-zero “ad valorem” (i.e., percentage) tariffs ranging from 0.1% to a peak of 48% for cheap sneakers; and 1,078 “specific duties” (flat fees) and “compound” tariffs (percentages plus flat fees), where tariff change each year with prices. For example, pinking shears used by tailors and dry cleaners are set at 8% plus 8 cents for each. Adding to the confusion are thousands of exemptions and surcharges coded via letters or set down in alternative chapters 98 and 99.
From the ITC, a two-page summary of the 11,414 U.S. tariff lines — how many zero? how many duty-free under FTAs and preferences? how many “specific duties” and compounds? — etc.
And the actual U.S. tariff system, by chapter or the full 4,352-page book in PDF.
International comparisons:
The World Bank’s interactive table of average tariff rates worldwide and by country uses the same “weighted” approach. It has a worldwide average of 2.6% as of 2017, and rates by country for the most recent available year. The world’s highest rate is Bermuda’s 24.1%, followed by Belize at 18.7%, Gambia 17.8%, and Djibouti 7.6%. The lowest are the zeroes for Hong Kong and Macao. Use this with care; its 1.5% figure for the U.S., though correct for 2017, is dated “2020” and isn’t right.
The WTO’s World Tariff Profiles 2022 has more detail, with simple averages, trade-weighted averages, “tariff peak” counts, ag vs. non-ag., and more for 151 countries.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
In contrast, the U.S., European Union and their G7 allies are taking historic actions to reduce greenhouse emissions. America’s effort includes hundreds of billions of dollars in subsidies for domestic private-sector investments in clean energy, intended to reduce emissions by 50% or more by 2030 and reach “net-zero” emissions before mid-century.
As emissions and global temperatures increase, hugely expensive and deadly climate impacts are multiplying, from last year’s floods in Pakistan to this year’s Canadian wildfires and many others in every region of the world. These are clear warnings of a future of far more devastating climate disasters unless global emissions begin falling very soon.
FACT: American colonies’ “official” tea imports in 1772: 370 tons
THE NUMBERS: Vessel calls at Boston Harbor –
2020: 779*
1772: 845
* Cargo vessels; adding fishing vessels and cruise ships, the annual total is likely around 1,500.
WHAT THEY MEAN:
A post-Fourth coda:
The Declaration’s opening paragraphs speak to aspirations — “Life, Liberty, and the pursuit of Happiness” — and the responsibilities of government. The actual declaration of independence, “these United Colonies are, and of Right ought to be Free and Independent States”, comes at the close. In between is a list of 27 grievances, of which the sixteenth is a trade policy complaint — “cutting off our Trade with all parts of the world” — and the seventeenth is a general problem of taxation appearing in the form of tariffs. (“Imposing Taxes on us without our Consent”.) Apart from the patriotic images the list elicits – chests of tea falling into the harbor, red-coated soldiers patrolling colonial Boston, the Continental Congress meeting in Philadelphia — the grievances both refer to very specific events of 1773 and 1774, and raise larger questions about how trade policy and commerce interact with governance, personal rights and liberties, and war.
Background: Just before the revolution, the American colonies had a population of about 2.15 million spread out along the Atlantic seaboard, with the largest concentrations in Massachusetts, New York, Pennsylvania, and Virginia. They appear to have made up about 20% of the population and 30% of the “GDP” of the British empire, and had very busy maritime economies. Modern attempts to estimate a trade-to-GDP ratio for the early United States in the 1790s show imports at something like 17% of GDP and exports a bit less — figures very close to those of the 2020s — and these ratios were probably higher before the Revolution. Actual figures collected at the time illustrate: The Port of Boston served a Massachusetts population of about 280,000 and reported 845 ship arrivals in 1772, the year before the Tea Party.* Of this total, 93 came into port from Britain and Ireland, 20 from continental Europe, 216 from the Caribbean, and 427 from other North American ports. Adding New York, Philadelphia, Hampton, and Charleston to the Boston figures gives a total of 3,076 arrivals, including 393 from Britain and Ireland, 230 from Europe, 31 from Africa, and 985 from the Caribbean.
In financial and product terms, outbound vessels carried about £3.4 million a year in colonial exports, of which about half (by value) went to Britain and Ireland, a quarter to continental Europe, and a quarter to the Caribbean. These were mostly resource products and agricultural goods. The top 1772 export, accounting for a bit more than a quarter of the total, was £907,000 worth of tobacco from slave-worked plantations in the mid-Atlantic. Next came £397,000 of New England fish, £504,000 of flour and bread, £341,000 of South Carolina rice, and on down through indigo, wheat, furs, whale oil, horses, and a few manufactured goods including wooden barrels, pig iron, and ship masts. British “Navigation Acts” dating to the 17th century regulated several of these products quite strictly (for example, on grounds of naval need the colonies weren’t allowed to ship timber anywhere but Britain) but don’t seem to always been very energetically enforced in other areas. The Declaration’s two trade grievances, relating to events of 1773 and 1774, are as follows:
(1) “Imposing taxes without our Consent”: Parliamentary laws in the 1760s imposing a series of taxes — first document-stamping, then imported molasses, paper, glass, sugar, and tea — opened up the taxation-without-representation argument. The Tea Party event (December 16, 1773) was the last phase in this dispute, and adds vivid global-economy color to its more abstract intellectual and constitutional core. To recap: about three dozen “Sons of Liberty” raided three Nantucket-owned ships chartered by the British East India Company, which then administered Britain’s relatively new Asian empire (concentrated in present-day Bangladesh and the Calcutta hinterlands along with southern India and Bombay but quickly getting bigger) and handled China trade. The actual tea thrown into the harbor, collected in 342 wooden chests weighing about 125 kilos each, had all been purchased in Guangzhou in 1771. It included 75 chests of green tea, 240 of low-priced bohea, 15 of upper-class congou, and 10 of elite Fujian souchong. Together it weighed 46 tons, or about an eighth of the year’s British 370 tons of tea sales to the colonies.
The grievance prompting this event was a 3 pence-per-pound tea tax, kept in effect since 1768 though the other objectionable taxes had been withdrawn in 1770. In passing the May 1773 “Tea Act,” Parliament’s main ‘policy’ goal was to bail out the East India Company, which had nearly bankrupted itself during the conquest of Bengal. The Company had originally purchased the tea intending to auction it off in London, but found itself stuck with more than it could sell during an economic downturn. (Having sat in warehouses for two years, it might have gotten a bit moldy.) In more ideological terms Parliament wanted to (a) enforce Navigation Act regulations barring colonists from buying tea from other sources, amid probably exaggerated claims that as much as 85% of colonial tea came tax-free from the Netherlands via colonial “smugglers”, and (b) insist once again on the very grating point about Parliamentary rights to tax the colonies without their approval. Bostonians weren’t alone in their annoyance: Philadelphians boycotted a similar East India Company tea ship in the same month (the captain left without a fight), and New Yorkers had planned to do the same, but their tea ship got blown off course in a storm and wound up in Antigua. The last tea ship, sent to Charleston, off-loaded the tea but couldn’t sell it.
(2) “Cutting off our Trade with all parts of the world”: Parliament learned of the Tea Party in late January of 1774 — the trans-Atlantic voyage took about a month — and responded in March with five new laws collectively called the “Coercive Acts.” The first of these, the “Boston Port Act,” banned shipping from Boston with the exception of ships delivering food and fuel. The loss of 800 or more ship visits and nearly a million pounds worth of exports, and the presumed intention to wreck the Massachusetts economy as retaliation for the Tea Party, likely discredited whatever pro-U.K. sentiment remained, even apart from the four other laws. (Two of them involving “quartering” soldiers at local expense, the other two reducing local government and judicial rights. These points are noted in grievances #11, 14, 21, and 22.)
Massachusetts Bay diplomats in turn requested a sympathy boycott of trade with Britain from the other 12 colonies. The Continental Congress, meeting in September, agreed with an exception for rice exports. By 1775 imports had dropped from £2.59 million to £0.2 million, and most of this seems to represent flows of weapons to the British garrison in Boston. The export boycott program worked less quickly, but effectively enough that almost all trade had ceased by the time the Continental Congress reconvened in June of 1776.
PPI wishes you a happy, if slightly belated, Fourth.
* By way of context, this 845 vessel-call total compares very favorably to the Department of Transportation’s report of 779 cargo vessel arrivals in Boston Harbor in 2020. Cruises, non-existent in the 1770s, add another 115 or so, and two or three fishery vessels arrive daily, so a combined total is likely around 1,500.
The Massachusetts Historical Society’s Tea Party recap.
Colonial data on demographics, maritime economy, import/export, the 18th-century slave trade, and other topics from the Census Almanac of Statistical Abstracts.
… and the Department of Transportation’s Boston Harbor cargo snapshot.
From the World Green Tea Association in Japan, a concise piece on the British East India Company and the tea trade.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
FACT: The African American exporting community shrank by 34% in 2020.
THE NUMBERS: African American-owned exporting businesses* –
2021: Data not yet available
2020: 1,001
2019: 1,514
2017-20 avg. 1,380
*Census/BEA
WHAT THEY MEAN:
The Census’ annual counts of U.S. exporting businesses peak at 305,200 in 2014. Then they drift downward, to 289,400 in 2019; then comes a sheer drop to 271,705 in COVID-stricken 2020. The most recent report, for 2021, shows a modest rebound to 278,400 in 2021 as trade flows recovered. (The update for 2022 comes in January.) All the loss has come in the small-business sector. Census’ count of “large company” exporters — those with 500 or more employees — has actually risen a bit, from 6,968 in 2014 to 7,121 in 2021. The tally of very small exporters (those with fewer than 100 employees each) has meanwhile dropped by almost 10%, from 281,300 in 2014 to 255,300 in 2021. For some reason, which is not clear in the data, this drop appears to have been steepest among African-American businesses.
This insight comes from a decade-old Census/BEA statistical collaboration to provide a very detailed look at the nature of smaller exporters. For 2012, and then the years 2017-2020, the two agencies identified the ownership of about two-thirds of U.S. exporters by race and ethnicity, gender, public vs. private ownership, and veteran status. From there they proceed to find the countries where exporters find their customers; levels of employment and pay (including with comparison to non-exporters); and at least for 2017-2020 changes over time. The 2020 report, taken in the context of the 2017/2018/2019 editions shows the following about African American exporting firms:
(1) Total count, employment, and pay: Census and BEA found 1,001 African American-owned exporting businesses in 2020. As a group, they employed 49,045 workers, with a combined payroll of $1.96 billion — that is, an average of 49 people per business, at payrolls of $39,900 per worker. Their non-exporting peers, meanwhile, averaged 9 workers at payrolls of $33,191 per worker.
(2) Markets: The 1,001 firms earned about a tenth of their income from exports. (In precise terms, $1.1 billion out of $12 billion in total receipts). The European Union was their largest customer at $467 million, and bought from 358 of the companies. Canada was next at $115 million. The African American businesses were significantly more focused on African markets than other exporters: 13.8% of them, or 138 of the 1,001 in actual numbers, had African customers in 2020, as opposed to 8.4% of exporters with owners of other races and ethnicities. By country, over the most recent four years, Nigeria was their largest African market, followed by Ghana.
(3) Trends: Exporting communities of almost all ethnicities shrank in 2020, but the COVID shock seems to have hit African American exporting firms much harder than others. The 1,001 African American exporters in 2020 represents a drop of 27% from the average across 2017-2019, and 34% from the 1,514 in 2019. The count of African American exporters to Africa specifically fell especially steeply, dropping by half from 278 in 2019 to the 138 of 2020. Meanwhile, the counts of African-American exporters to China fell from 117 to 87, to Mexico from 121 to 108, and to India from 53 to 28. By comparison, BEA’s tallies of white-owned and Hispanic exporters were down about 7% from the 2017-2020 averages, and that of Asian-owned exporters by 3%. Native American exporters were an interesting exception, growing a bit in 2020 to 511 firms from an average of 452 across 2017-2019.
The reports do not indicate why, in the context of a general decline in trade during the COVID pandemic, the African American exporter group would have contracted more sharply than others. Nor do they say (since the most recent edition covers 2020*) whether their rebound in 2021 might have been stronger. Combined with Census’ total-exporter counts, though, they do seem to indicate that (a) U.S. small-business exporters have been struggling in general for nearly a decade, (b) the most recent drop hit African American exporters hardest, and (c) while government policies are never the only answer to a problem, the agencies charged with supporting SME exporters ought to be thinking about recovery options for this particular group, and probably more generally about whether their current approaches are enough.
* Census will update its total-exporters in April 2024 (with a preliminary edition in January) with 2022 figures. This will presumably help show whether the modestly higher count of 2021 was the beginning of a nearly decade-long negative trend, or just a small bounce after an unusually bad 2020. The very detailed Census/BEA studies with race/ethnicity/gender/market data for 2021 (assuming the two agencies keep doing them) would likely come out in May, with information on whether African American export businesses rebounded from the COVID shock at par with, or faster than, or slower than, their peers.
FURTHER READING:
Census/BEA’s collaborative series on the nature of exporting businesses, with data on exporters by ownership, overseas markets, export dependence levels, employment, and payroll (2020 version; go to the main page for 2017, 2018, and 2019).
… and the annual report on exporters and importers by large/medium/small size, known as “Profile of Importing and Exporting Companies,” has totals, state-by-state figures, SMEs vs. large firms for 25 countries as well as the world, etc.
A recent report from PPI in collaboration with Prosperity Now looks at the barriers facing entrepreneurs of color, and the smaller, less profitable businesses that emerge as a result.
Government Resources:
The Minority Business Development Administration (2015) looks at diversity and success in American export firms.
And the Geneva-based International Trade Center’s SME competitiveness report.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
FACT: World carbon emissions are at 37.8 billion tons annually.
THE NUMBERS: World surface temperature average* –
2022 14.8 C
20th-century average 13.9 C
1880 13.7 C
* National Oceanic and Atmospheric Administration, www.climate.gov
WHAT THEY MEAN:
In PPI’s newest policy paper, PPI’s Paul Bledsoe and Ed Gresser look at global industrial carbon emissions, commiserate over transatlantic climate policy arguments (European carbon fees vs. American subsidies and local-production tax breaks) that though (a) steadily more fractious are (b) steadily less relevant to the main question of how to reduce global carbon emissions, and suggest a way forward. This is an “Alliance for Clean Trade” in which the U.S. and EU (or the G7, or the OECD members generally) agree on standards for emissions levels by industry, and fees for locally produced and imported goods whose production entails emissions above this standard. The hope would be to cool the arguments, speed up emissions reductions, and create more effective incentives for big middle-income countries to participate.
Background, and then a quick summary:
Humans now put just under 38 billion tons of carbon into the air per year. This compares to 0.2 billion tons in 1850 as Victorian steam technology took off; 6 billion tons in 1950; and 25 billion tons in 2000. The rise in emissions, especially in the last 50 years, has unbalanced a natural cycle in which volcanoes, forest fires, etc. put about 100 billion tons into the air annually, while carbon sinks such as oceans, forests, and phytoplankton pull it back. As a result, the “average surface temperature” worldwide is up by 1.1 degrees Celsius so far. Beleaguered climate scientists hope to stabilize this rise at 1.5 C, which entails bringing the current +38 billion tons to ‘net zero by 2050, and warn that failure to do so risks impacts ranging from the elimination of the 4-million-year-old Arctic sea ice and steadily escalating flood and fire impacts, to drier agricultural lands, alterations in ocean currents, and “feedback” effects from tundra melt that can accelerate the whole thing.
“Net zero” obviously requires reducing emissions by tens of billions of tons annually (and to the extent of possibly amplifying natural “sinks” and creating artificial ones that remove more carbon from the air). A look at current emissions by country provides a starting point for thinking about figures on this scale. Per “Our World in Data”, country totals in 2021 (counting the European Union as a single economy) looked like this:
World 37.1 billion tons
China 11.5 billion tons
U.S. 5.0 billion tons
European Union 2.8 billion tons
India 2.7 billion tons
Russia 1.8 billion tons
Japan 1.1 billion tons
Iran 0.7 billion tons
Saudi Arabia 0.7 billion tons
Indonesia 0.6 billion tons
Korea 0.6 billion tons
Canada 0.6 billion tons
Brazil 0.5 billion tons
South Africa 0.4 billion tons
Turkey 0.4 billion tons
Mexico 0.4 billion tons
All other 7.3 billion tons
Looking ahead, European and American emissions (along with Japanese, Canadian, Australian, etc. emissions) are falling. The U.S. for example peaked at 6 billion tons in 2005, and with a push from last year’s Inflation Reduction Act are likely to drop to 3 billion by 2030. Nonetheless, the divergence between the EU’s carbon price programs, and the more recent U.S. subsidies and tax credits, are sparking steadily angrier trans-Atlantic debates, with retaliations and countervailing duty cases possibly ahead. Meanwhile, China’s 12 billion tons are about a third of the world’s total and rising. Emissions from the four other “BRICS” (Brazil, India, Russia, and South Africa) added 5.4 billion tons more, and are also rising. If these countries — or more abstractly, big middle-income countries and oil exporters — do not start cutting emissions very soon, the world in general will not only fail to hit net-zero on the scientists’ hoped-for schedule but may not cut emissions at all.
So the steps “developed” economies are taking are important but insufficient, and they should try to settle their quarrels over diverging national reduction strategies, improve them to the extent possible, and find ways to induce large middle-income countries to join. This is the point of the paper’s “Alliance for Clean Trade” idea and its hopefully catchy ACT acronym. The goal would be to reduce worldwide emissions from industrial sources, which in total produce about a quarter of world emissions. The basic points:
(1) ACT participants would set a common “standard” for carbon emissions released in the course of producing selected relevant goods (beginning with the six products chosen to launch the EU’s carbon border adjustment program — steel, aluminum, cement, fertilizer, hydrogen, and electricity) and collect identical fees for emissions above the standard. This would apply to both locally produced and imported products, and so be consistent with the WTO “national treatment” principle.
(2) The ACT would supersede the European Union’s CBAM, while the U.S. would authorize full participation in tax credits for minerals and automobiles (as Canada and Mexico now receive) produced in ACT-compliant countries, and consider eligibility for participants in additional clean energy subsidies.
(3) Original participants would at minimum be the U.S. and EU, or in more ambitious versions the G7 countries or the 37 OECD members. Once launched, the group would consider creating “on-ramps” for countries at different stages of development.
FURTHER READING:
Gresser/Bledsoe’s report on climate change, trade, and a different approach.
Background and data:
NOAA’s summary of worldwide surface temperature change since 1880.
The International Energy Agency reports on carbon emissions in 2022.
Our World in Data tracks emissions by country, industry sector, etc.
And the Energy Information Administration’s International Energy Outlook 2021 looks ahead with projections by region and major country through 2050 (now a bit dated; EIA will publish a new version in September).
And some science:
NASA explains the natural “fast” (air to plants) and “slow” (rocks to air) carbon cycles, and the impact of human-caused emissions. Dates to 2011, so the human emissions totals are badly dated, but the basic science remains useful.
ABOUT ED
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
FACT: 13.4 billion COVID vaccinations and boosters have been delivered since December 2020.
THE NUMBERS: World under-five mortality rate, per 1,000 births* –
2021
38
2010
52
2000
76
1990
93
1980
132
* World Health Organization for 1990-2021; World Bank World Development Indicators for 1980.
WHAT THEY MEAN:
Trade Fact series editor Ed Gresser, testifying at the House Judiciary Committee last week on COVID-19, the WTO’s intellectual property rights (“TRIPS”) agreement, and the WTO members’ decision to authorize a temporary waiver of some patent rules last summer, was asked whether the COVID pandemic had definitively “ended.” Having been down with a (very mild) COVID bout the previous week, his answer was (i) a rueful but clear “no.” But (ii) with mass vaccinations — 82% of Americans, 70% of the world — the danger COVID posed to life and health has been greatly diminished. So (iii) the Biden administration’s decision to declare the “public health emergency” phase of the pandemic over was the right call.
To get to this point, in three years the world’s science, industry, pharmacies, clinics, and hospitals have moved from:
(a) Not quite a standing start (though close to it): as of early 2020, scientists had some knowledge of coronaviruses generally, and could make use of mRNA and nanotech technologies developed in the 1970s and 1980s and first used in development of an Ebola virus, but had no knowledge of the actual COVID-19 virus before its isolation in December 2019; to
(b) A safe, effective, and transportable vaccine by December 2020; and then
(c) Manufacturing, logistical, and primary-care delivery systems at a scale needed for a patient population comprised of “the whole human race” by mid-2021; and finally
(e) Delivery of 13.4 billion actual vaccinations and booster shots — almost two for everyone in the world — as of mid-2023.
Thus a landmark achievement in a very short time for policy, science, manufacturing, logistics, and public health providers worldwide. Pulling back a bit, the speed in this case was exceptional. But as a large-scale achievement of policy, production, delivery, and public health it wasn’t entirely unique. In fact, it is one with many precedents, and is part of a larger story of remarkable successes in vaccination generally. Polio is a particularly striking case, with complete eradication of the disease now achingly close. Here’s a count of polio cases worldwide over the last 25 years:
1988
350,000 cases
2010
650 cases
2020
6 cases
Measles presents a second example: an easily transmissible disease mostly affecting children, for which large-scale vaccinations began with a U.S. launch in March of 1963, and deaths have dropped by 95% over the last generation, from 2.6 million deaths a year to 600,000 in 2000, 210,000 in 2010, and 128,000 in 2021. Likewise deaths of neo-natal tetanus, after campaigns to vaccinate pregnant women and guarantee antiseptic standards in poor-country maternity clinics, have dropped from 787,000 in 1988 to 309,000 in 2000 and 25,000 in 2018 (the last year for which data is available).
Overall, the invention of new treatments and medicines, worldwide vaccination campaigns, and improving primary-care delivery have helped cut world under-five mortality rates from 132 per 1,000 children in 1980, to 78 per thousand in 2000, and 32 per thousand in 2020, or in overall terms by 70%.
Against this background, the success of the vaccination program for COVID-19 is, again, a remarkable success of focused policy in emergencies, scientific research and development, manufacturing and logistics technologies, and delivery systems. Its speed has been particularly impressive (and the Trade Fact series editor is appropriately grateful). But it’s especially heartening to see that this is not something entirely unique, but more like a representative case in the larger vaccine story.
* More precisely, the Judiciary Committee’s Subcommittee on the Courts, Intellectual Property, and the Internet.
FURTHER READING:
COVID-19:
Gresser on WTO intellectual property rules as supporters of research, exceptions in emergency situations, and the Biden administration’s reasonable choices.
… and from the House Judiciary’s Subcommittee on Courts, Intellectual Property and the Internet, the hearing video and testimonies.
Chad Bown of the Peterson Institute for International Economics maps the international science, manufacturing, and logistical “supply chains” which created COVID-19 vaccines.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank Progressive Economy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
The United States and the European Union have recently implemented ambitious domestic greenhouse gas reduction programs. But reducing global emissions will not be possible unless China and other middle-income emitting countries cut their emissions. And the different approaches the EU and U.S. have taken create a risk of policy and trade conflicts that divert both from the larger goal of limiting world emissions.
Report authors Paul Bledsoe, Strategic Advisor at PPI and a former Clinton White House climate official, and Ed Gresser, Vice President and Director for Trade and Global Markets and former Assistant U.S. Trade Representative for Trade Policy and Economics, lay out a policy framework where the U.S., EU, and other G7 countries set emissions standards for high-carbon industries, and impose a fee applying to both local production and imported goods with high emissions rates. This trade agreement would help countries meet their emissions goals, avoid imposing trade penalties on each other, and give China and other large emitting, middle-income countries incentives to follow suit.
“The Alliance for Clean Trade (ACT) proposes that the U.S. and our G7 allies ban together to create powerful trade incentives for China and other nations to cut their emissions, so global emissions can fall and we can prevent the worst of climate change impacts,” said Paul Bledsoe. “Without new economic incentives to reduce emissions, our world will see dangerous climate impacts and rising household costs that will soon swamp our ability to adapt and protect public safety at home and around the world. Our framework helps provide a pragmatic, yet ambitious way forward, while also complying with World Trade Organization rules.”
“The world has just had a shining example of U.S.-Europe-Asian collaboration to develop new technologies and products needed to meet a worldwide threat in the case of the COVID-19 vaccines. We need a similar collaborative effort to meet the challenge of climate change, and to induce the large middle-income economies that are the source of new net emissions to become more efficient,” said Ed Gresser. “This paper is an effort to outline such a program, through trade incentives based on common charges for over-production of carbon in the highest-emissions industrial sectors.”
The framework seeks to address three major problems with current policies and other proposals:
The framework creates powerful economic incentives for China and other large emitting, middle-income countries to cut emissions since they now export to the U.S., EU and other allied countries without penalty for higher CO2 emissions.
The framework also harmonizes increasingly disparate climate policies among US, EU and G7 allies for trade purposes, using low emissions intensity by sector as the key metric.
The framework complies with World Trade Organization principles of national treatment and non-discrimination, avoiding the risk that proposals currently being considered in the U.S. Congress might violate U.S. trade obligations, but without requiring widespread U.S. carbon pricing.
The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C., with offices in Brussels, Berlin and the United Kingdom. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org.
A low-emissions trade deal to help the United States, the European Union, and their allies harmonize approaches to the clean energy transition and incentivize China and other nations to reduce emissions.
EXECUTIVE SUMMARY
After many years of discord and false starts, the United States, the European Union, and most other major developed economies are implementing ambitious domestic greenhouse gas emissions reduction programs. U.S. and EU emissions, respectively the world’s secondlargest and third-largest flows of carbon dioxide into the atmosphere, are likely to continue to fall sharply as a result.
But their efforts won’t be enough. To avert a disastrous rise in global temperatures, the larger, necessary goal is to reduce global emissions. For this, however, China — whose emissions are now greater annually than the U.S., EU, and all other developed countries combined — must reduce its emissions, and so must other major middle-income emitting countries. So far, that isn’t happening.
Here’s a program that can help: An Alliance for Clean Trade (ACT) that minimizes climate and trade policy conflict among low-emissions economies including the U.S. and EU, accelerates the reduction of emissions in some of their major industrial sectors, and creates strong economic incentives for others, including eventually China, to reduce their own emissions.
The core idea is for the U.S. and EU, joined by other G7 countries and eventually OECD nations, to set emissions standards for high-carbon industries, and impose a fee applying to both local production and imported goods with emissions rates above an agreed emissions intensity standard. This would help them meet their emissions goals, avoid counterproductive rivalries and imposition of trade penalties on one another, and give China and large emitting, middle-income countries incentives to do the same.
