Air Trade

The developments in globalization and international trade that have come about over the last half-century have been profound. The world we live in today is vastly different than what it was just 50 years ago. Today, goods of all types travel faster and more efficiently between nations than ever before. Other advantages to globalization include the increase in the amount of goods that are available, lower cost to consumers, and specialization among nations. While these advancements have radically changed our world both on a domestic and international level, they have not come without tradeoffs. It is no coincidence that an increase in environmental awareness and concern has arisen alongside globalization. The rise in the amount of fossil fuels that are being burned as a result of manufacturing and other mediums of globalization has led to drastic increases in the amount of carbon dioxide that is being emitted into our atmosphere. Many developed countries, including the United States, have implemented policies to reduce the harmful effects that come from externalities such as carbon emissions. In contrast, many developing or undeveloped countries have no such policies in place, greatly increasing the environmental harm that comes from their emissions. A growing concern among many environmental and political leaders is that there is no international standard for stabilizing carbon dioxide emissions.

In a February 2013 Economist article, proposals for carbon-based tariffs were evaluated based on their feasibility and likelihood of success. The article emphasizes the fact that as carbon is valued differently by different nations, those who value carbon higher “…will be at a competitive disadvantage because the cost of emitting carbon will be embodied in the overall price of goods, raising them relative to goods produced in countries with no or low carbon prices.” Because developing countries such as China and India are not implementing environmental protections to the level that many developed countries have, a majority of production has been moved to these countries partly to avoid costs associated with environmental impact. In an effort to counterbalance these movements, several proposals are highlighted in this article that would impose a carbon-based tariff on goods regardless of their country of origin. One such proposal is a tariff on imported goods based on the carbon emission level of the goods country of origin. Messrs Mattoo and Arvind Subramanian, both economists, estimate that with this type of policy, there would be a 21% tariff on goods produced in India and a 26% tariff on goods originating in China. Another concern with this model relates to the reality that goods are no longer manufactured solely in one nation, but components are assembled all over the world and then shipped to a final assembly location. Needless to say, a proposal like this would not only be difficult to enforce, but radically change the international economy. A more realistic model involves taxing imported goods based on the importing countries carbon emission level. This would tax goods at a uniform rate and would be easier to manage and enforce.

 These proposals and others like them emphasize important points. We live in a changing world and it will soon be impossible to ignore the environmental consequences that have come as a result of our massive increase in manufacturing and carbon emissions. Creating a tax that balances the necessity for managing carbon emissions with the consequences of the tariffs implementation is critical to maintaining a strong international economic market.