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Trade and Competitiveness

The nexus of trade, competitiveness, and climate change is at the heart of much debate surrounding the U.S.-China relationship. How will climate policy affect U.S. trade and competitiveness with China, and – on the flip side – how are trade policies in China affecting energy and emissions?

ChinaFAQs: Will Climate Legislation in the United States Result in the Transfer of Carbon-Intensive Jobs to China?
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Key Points

  • For most U.S. industries, carbon costs would not be a significant enough portion of manufacturing costs to cause dislocation and cost-containment mechanisms in legislative proposals could reasonably protect industries that might suffer as a result of climate policy.
  • For the most energy-intensive industries in the United States – steel, cement, paper, glass, and chemicals – Chinese imports are a small fraction of total imports, and a smaller fraction of overall demand.
  • Unilateral trade measures are unlikely to guard effectively against loss of competitiveness and could raise costs for “downstream” U.S. industries; trade measures are also unlikely to spur climate policy strengthening in other countries such as China.
ChinaFAQs: Competitiveness and Climate
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Key Points

  • Without coordinated action among countries there is great potential to ‘game the system’ and to not fully cover ‘carbon leakage’ to key export markets.
  • There is little evidence unilateral trade measures alone will prompt comparable action in China, effectively safeguard U.S. manufacturers from job loss, or significantly prevent “carbon leakage.”
  • However, there are several short- and long-term policy options for “leveling the playing field” and safeguarding the competitiveness of carbon-intensive manufacturers in the U.S. – while at the same time creating incentives for emissions reductions at home and abroad.
WRI: U.S. Energy Intensity by Industry
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American manufacturers fear that the imbalances created by aggressive climate policy in the United States could contribute significantly to the “offshore-ing” of jobs and relocation of industry to countries with lower standards and production costs.

For most U.S. industries, these fears are overstated and limited to industries where energy and fossil fuels are a large portion of their cost structures and where those industries participate in global markets. In industries such as transportation equipment and electronics manufacturing, energy accounts for less than one percent of total production costs. In fact, industries are more likely to be impacted by fluctuations in currency exchange rates or national differences in tax and transportation costs. Carbon regulation compliance costs are likely to be insignificant to global competitiveness of these industries.

Rob Bradley

Rob Bradley’s training was originally as a physicist, with a BSc in Physical Sciences from University College London and an MSc in Environmental Sciences from the University of East Anglia. Since then he spent 10 years consulting for private, public and NGO sector clients on issues such as international climate policy, innovative financing for renewable energy, solar energy marketing, market assessments for wind energy, economic impact of environmental policy and geopolitical aspects of energy agreements.