My point is that a lot of heavy manufacturing has already left the UK, The US, and other countries and relocated in Asia. This has nothing to do with unemployment - our economies reconfigured and now we’re more of a service economy than a manufacturing economy.
Why does this happen? Because of incentives. Make it cheaper to make goods in China, and manufacturing will go there. A tax on carbon in the United States will most certainly make it more expensive to make things in the U.S. That means businesses on the margin will relocate.
If your goal is to convert more US manufacturing workers into service workers, and move manufacturing away and out from under the control of Americans, and into a region that don’t give a damn about the environment, then this plan is for you.
The WTOhas ruled that is legal to impose carbon taxes on imports without violating trade rules so that is probably what will happen eventually once some kind of carbon emissions regime is actually in place. I don’t see it as a form of protectionism. It’s like imposing VAT on imports at the same level as domestic goods. So the argument about a carbon emissions policy creating an unfair advantage for Chinese imports isn’t persuasive.
You think that really matters? The U.S. will tax Chinese imports, and the Chinese will just go, “Oh well, the WTO doesn’t have a problem with it, so we’re good.” I don’t think so.
But even if they didn’t retaliate, putting tariffs on Chinese goods will still hurt the U.S. economy.
Do the Chinese object to paying VAT when their goods enter another country? There are certain border taxes which are an accepted part of the trading system and the WTO ruling indicates that some kind of carbon tax will be similarly treated.
And it’s not true that a carbon tax on imports hurts the US economy. If there is a market failure related to carbon emissions it wouldn’t make sense taxing domestic production but not imports. Indeed failing to tax imports at an equivalent rate would create a distortion and market failure.
So it won’t affect jobs. Why didn’t you mention this? Seems like something relevant to an honest debate. Of course it takes teeth out of your attempts at scare tactics, and boogymen.
You spout nonsense about the Chinese crushing the dollar.
So your argument is “don’t protect the environment because otherwise companies will go to where they don’t protect the environment”?
They go to China that get nailed with the same tax. They try to sell to Europe and they get nailed with the same tax.
Never in your wildest dreams would companies comply with environmental protection, even if taxes and tariffs make it cheaper to do so. Are companies really this pigheaded? You’re making them sound like villains on the old Captain Planet show.
Do you know the difference between manufacturing jobs (and of course the CO2 output of such manufacturing) and service jobs? You don’t seem to be getting what Sam is saying, and you are going off into snark land which is REALLY making you look silly. Instead of getting snarky, you seriously need to go back, re-read what he is ACTUALLY saying, and then ask him to clarify if you don’t get it.
Perhaps you should re-read what Sam actually said, then do some research on Smoot-Hawley. It might prevent you from inserting foot in mouth in the future. Or, perhaps not.
That reality stuff…it’s a bitch, no?
Then they retaliate with protectionist measures of their own. Everyone’s economy suffers, and at a time when economies are right on the verge of collapse or at least struggling, and we have Smoot-Hawley v2.0…Great Depression II, the sequel.
A VAT is applied to all goods, from all countries. In this case, the tax is targeted at countries with certain behaviors. A VAT is applied to all goods, foreign and domestic. This certainly isn’t the case here. For example, if a U.S. factory is much more energy efficient than a Chinese factory, the Chinese factory is being punished for its lack of efficiency. The tax is not evenly applied.
In addition, because of the myriad exceptions in the bill, some companies will esentially be subsidized (i.e. they aren’t subject to cap and trade, but their competitor’s goods will still be taxed at the border). This will probably run afoul of the WTO.
In any event, VAT taxes are accepted because they apply to everyone, so they don’t distort the balance of trade. This is not true of a carbon tax.
On a side note, a carbon tax is going to have huge dislocative effects on the economy, because of the nature of electricity generation is not uniform across the country. If your factory is in Nevada and you get your power from Hoover dam, I assume your goods won’t be taxed. If your factory is in California and all your power comes from coal and natural gas, you’re now at a big competitive disadvantage which didn’t exist yesterday.
This is one reason why the bill wound up giving away the carbon credits instead of selling them at auction. It’s the only way they could get buy-in from all the states. And the reason they could get buy-in was because this has turned into a huge corporate subsidy for companies in operation at the time cap and trade passes. New companies that come along after that will be at a huge disadvantage, because they’ll have to buy ALL their carbon credits, and do so in a shrinking market where the futures price of the credits is increasing rapidly. This is going to kill innovation and job creation and cause the economy to stagnate.
In fact, this subsidy to existing business is so great that there are no doubt companies on the margin that aren’t really profitable, and they’ll simply shut down operations and make their profit from selling their carbon credits.
The government is creating a new form of derivatives market in an artificial product of which the government controls the supply. The opportunities for gaming the system are immense. And imagine the bizarre pressures that will be applied to any decision to change the cap on carbon. Let’s say the economy starts growing rapidly, which causes the price of carbon to spike like the price of oil did at the peak of the bubble. The government decides that it has to increase the cap to keep the economy moving, but doing so will cost the people who own the current credits (including traders who are simply buying and seling) to lose huge sums of money.
Perversely, we could wind up in a situation where there are organizations who hold carbon credits and are otherwise no longer competitive, who will be lobbying the government to lower the cap, so they can liquidate at higher profit. Other companies may have fewer credits but increasing energy needs, and they’ll be lobbying to have the cap raised. We’ve now got a politicized derivatives market where the optimum decisions are not made based on overall economic efficiency, but on who has the ear of the powerful members of the government.
This of course is why governments like cap and trade. They gain substantial power and influence, and become manipulators of the economy. They’ll be like OPEC, in a position of power to open and close the spigot which determines the destiny of companies. Money, power, influence. From a politician’s standpoint, what’s not to like?
Your link leads to a Senate minority page, which in turn cites: Climate Change | US EPA
That report states:
(text is on page 193 of 193 in the link provided) Not surprisingly, the Senate minority page displays the graph without the accompanying text.
There seems to be a disconnect between what you are saying and what your source’s source is saying. I don’t believe this is intentional on your part, but I think it would be a good idea to trace your source’s sources. Senate members are not above lying by omission.
You’re completely right here, Shodan. It is the Prisoner’s Dilemma.
Just to rephrase it: a town of 191 households is worried about a cholera epidemic. One of the households examines the idea of not putting its feces in the river and concludes that it doesn’t make any sense since a cholera epidemic would still happen. A better solution would be for all the town’s households to stop putting feces in the river.
I’d consider just about any solution, but I’m not sure there is a libertarian-oriented solution… has anyone articulated one?
I have no objection to posting actual costs and discussing them, but I am short on time and will have to discuss that later.
I didn’t mention it because it wasn’t relevant to the discussion of energy output. It’s not my fault that you can’t follow the debate.
Yes, in the real world China would never consider manipulating the currency to its own advantage. Why, that would be crazy! (Hint: They are already doing this. They hold their currency artificially low, and there have been numerous complaints filed about this)
What a shock - companies respond to incentives! A company like, oh say Nike, would NEVER move a factory to a location where costs are lower. Again, that’s crazy talk.
Uh huh. In the meantime, companies in Europe and the U.S. are cutting deals to get special exemptions. And companies in France, which get their power from nuclear, aren’t being taxed at all. And since China is still developing, and its factories aren’t as efficient, its products will be taxed comparatively more than anyone else’s.
I’m sure the Chinese will have absolutely no problem with this.
Does it get warm when you burn so many straw men at once? I never said that companies will never comply with environmental regulations. They will comply if it makes business sense to do so. If the tax is small enough that it’s more expensive to relocate than to pay the tax, they’ll pay it. What they WON’T do is operate indefinitely with a big structural disadvantage.
I hope you noticed that I keep mentioning companies ‘on the margin’. This is an important concept. A company on the margin is one that is very close to making a decision to relocate today, and the additional tax disadvantage pushes them over the edge. Products that have very low energy requirements and big advantages to being manufactured in the U.S. will stay where they are and simply pass the tax on to consumers. But other companies will leave.
The effect will be greatest on the decision of where to locate a new factory.
This is not speculative. It’s as certain as rain. It happens every day. Why do you think GM started building factories in Canada decades ago? Because it was cheaper. Labor costs were lower. Any government action that has the effect of raising costs of manufacturing in the United States will drive some manufacturing out of the country. This is basic economics. I happen to be Canadian, and I work for an American company which opened a Canadian development shop because our cost is about 30% lower than the equivalent cost in the U.S.
During the tech boom, when U.S. IT salaries spiked, a massive outflow of IT production occurred into countries like Canada and India. Remember? I remember Americans screaming in horror about all the outsourcing going on. Well, you’re about to increase your outsourcing of manufactured goods.
Funny, I thought it was Democrats who were always enraged about the loss of manufacturing jobs. I guess you don’t care about them any more.
Right. And so what happens if you can’t get the whole community to agree? Do you say, “Well, I’ll go way out of my way to not put MY feces in the river. That will maybe convince the rest to do the same.”?
That gives you ‘moral authority’ to convince the rest to follow suit, I suppose. And that’s the argument for ‘starting somewhere’ with local cap and trade. But what really happened? You’ve given all the other parties less incentive to follow suit. Now the risks of cholera may have declined a little bit. In the meantime, these other people now have a larger advantage over you. Let’s say you’re all competitors, making the same product that you sell to another town. You can’t make as much as you did before, because you’re spending some of your time hauling poop. So all the other people’s sales pick up. You’ve given them an added advantage, which they will retain so long as they don’t follow suit and do what you’re doing.
So now the risk of cholera is lower, and the advantage of dumping their waste in the river is even greater. Your ‘moral authority’ doesn’t mean squat. You’ve just made it harder to solve your community cholera problem by acting independently.
Ten years later the situation is worse AFAIK, regarding labor costs, it seems to me that even American manufacturers are finding that this can not continue and I still have to see evidence that the cost of this cap and trade will be as bad as other reasons why American labor is more expensive.
The whole idea of a carbon tax is that you want to tax production which is carbon intensive. If you accept this logic for domestic production it makes sense apply it to imports as well. There is no discrimination according to national origin so there is no protectionism involved. In principle the Chinese factory can be carbon-taxed at the same levels as the effective carbon tax on US firms. I expect the WTO will spend a lot of time in the next few years figuring out what the appropriate level of border taxes would be.
That's kind of the whole point isn't it? You want to provide incentives to push factories to use cleaner sources of energy and in the long run perhaps move to areas with cleaner energy. But that is not mis-allocation. It is the status quo which is mis-allocating resources because the externality isn't being correctly priced .
As for the rest of your points, I agree that the practicalities will be complicated. We don’t know what kind of carbon trading bill will pass and calculating the equivalent carbon taxes for imports will also be difficult. Undoubtedly some approximations will have to be made. However the idea that having a carbon emissions regime in the US automatically means a big advantage to Chinese imports isn’t true.
That would be a good example if you had no other powers besides the moral authority. AFAIK adding tariffs to competitors that do not follow suit will be possible, tariffs will depend on the actions of the competitors. They have to be considered an option as this is more than just a prisoner’s dilemma. It is more like a tragedy of the commons.
So you’re okay with adding another burden to business during this recession, so long as it’s not as bad as the health care burden? If that’s not your point, what is? What does this have to do with this particular debate?
In any event, you could be wrong. I’ve seen estimates for the cost of cap and trade that are enormously high. The reason is because the cap keeps getting lower, with the assumption that at some point businesses will simply be forced to accept alternate energy sources. But no one really knows how to do that.
I can’t remember - are you one of the ‘peak oil’ alarmists? I know Brainglutton and a few others are. Some people believe that once oil peaks and begins to diminish in supply every year, prices will rapidly spike because everyone will realize it’s a finite resource and price it accordingly.
Well, cap and trade is the legislation of ‘peak oil’. By putting a cap on carbon and lowering it every year, you are doing exactly the same thing that ‘peak oil’ would do. Carbon immediately becomes a scarce resource that gets more scarce each year.
We have no idea what the real economic effects of this will be. The cost estimates the administration put out were simply the proposed costs of the carbon auction (now scrapped), and an equivalent figure for the annual value of the carbon credits removed from the market. But we honestly don’t know how elastic demand for carbon-based fuels will be over a period of years and decades, and we don’t ultimately know what the price of carbon will be ten years from now under this artificial regulatory regime. It could be twenty percent higher, or a hundred times higher. No one knows, because the market is not predictable in that way.
I was responding to your asinine “Funny, I thought it was Democrats who were always enraged about the loss of manufacturing jobs. I guess you don’t care about them any more.”
Looking for ways to reduce the cost of the US labor is part of the health care efforts of the Democrats.
Yes, I could, but I still have to see good evidence from you that that is the case.
I understand the logic of wanting to tax everyone. I understand how it makes the market more efficient in theory. But it makes it more efficient by removing a huge subsidy, so your new, more efficient market that internalizes the price of carbon will still wind up being more expensive.
I hope you don’t really believe that, because that’s an incredibly naive view to take. Cap and Trade is an ongoing, intensely political process. There’s already protectionism involved, between various companies who have managed to extract concessions on their behalf and against their competitors. Or, have a look at the Kyoto treaty. It’s full of payoffs and special exemptions and carbon credits and all kinds of dodgy mechanisms added to it in order to get countries to sign up.
Yeah, good luck with that. In the global supply chain, any complex product contains parts from many different countries.
And what’s the deadweight cost of all this? How much extra paperwork are manufacturers going to have to keep? How many accountants will be required to sort through all the tariffs involved?
And what does this do to the efficiency of prices? How do products get compared for quality when the price fluctuates based on the carbon input of various parts that go into it? How do businesses plan years ahead when a major component of production has a price that varies on the political whims of the leaders of hundreds of countries?
Add too much uncertainty, too much deadweight cost, and you’ll erase any theoretical efficiencies you gain from internalizing your externalities.
Yes, I get that. I also get that this will be an intractable problem when applied globally. How do you think the Chinese will like the fact that they happen to have an infrastructure that gets their products taxed, and France does not? How will California like having their manufactured goods cost more than those made in Nevada, because Nevada just happened to be near a site where a major dam could be built?
Yes, ultimately a more efficient market would, over time, cause factories to move to places where they are most cost-effective, including the newly-internalized costs. But that causes dislocation, and will therefore be fought tooth-and-nail by every vested interest in the world.
It means a big advantage if the U.S. goes ahead with it without Chinese support. If the U.S. levies tariffs against Chinese products without Chinese help, how would they know what the carbon composition of those products were?
Oh, one last thing - if the warming due to CO2 turns out to be less than 2.5 degrees, then according to the IPCC it would be a net economic benefit to the world. In which case, emitting CO2 is a positive externality, and the market is already efficient and now your carbon taxes are screwing things up.
