By Dennis T. Avery
web posted June 8, 2009
The global warming trade war has started—quietly, but just as surely as we knew it would. The Obama Administration is now subsidizing U.S. milk and cheese exports in a way that will punish New Zealand—which depends on its efficient grass-fed dairy exports for close to one-third of its total income. The reason? U.S. corn ethanol mandates have pushed American feed grain prices so high that the Administration felt it had to “give something” to U.S. dairy farmers.
Unfortunately, the dairy export subsidies will make little difference to American dairymen, but they could have harsh impacts on New Zealand’s farm-dominated economy. Thus far, New Zealand has escaped the higher grain prices because they feed their cows mainly grass and turnips.
Our excuse on dairy export subsidies is that the EU did it first. But the real dairy problem is that both the EU and the U.S. have jacked up their own dairy production costs by diverting corn and rapeseed from feeding livestock to making biofuels. The ethanol and biodiesel games have doubled world feed grain prices and caused food riots in Mexico and Egypt.
The dairy export payments should be a huge red flag to the world. When push came to shove, the U.S. and the EU immediately fell into the old trap of punishing trade from innocent countries. That’s actually how we launched the Great Depression—with the infamous Smoot-Hawley tariffs of 1930.
People have actually been predicting the “green trade wars” for years because developing countries have no obligations under the Kyoto Protocol. All the affluent countries are thus terrified that their carbon-emitting industries will flee to less-developed countries. Energy Secretary Stephen Chu told a Congressional committee in March that America might well consider a “carbon tariff” on imports from China, India, and other developing countries if they “undercut” U.S. manufacturers. .
Gary Huffbauer of the Peterson Institute for International Economics recently told National Public Radio, “Countries say, well, if we’re going to take measures [to combat global warming] we have to do something at the border to prevent the same product being produced abroad and just imported by our country. So those thoughts trigger potential for trade wars. So lawmakers here have added a provision to the greenhouse gas legislation that echoes the EU approach. It gives energy intensive companies like steelmakers, chemical plants, and paper mills the right to demand tariffs on imports if after five years they can prove unfair carbon competition”
Environmentalists say the worries about China and India picking up high-carbon jobs are exaggerated—that most of America’s energy-intensive imports come from Canada or the EU. But they’re saying that today, before the carbon taxes have been imposed. With carbon taxes in place, the developing countries will look more attractive, Canada and the EU less so.
Without low-cost imports from China and Colombia, meanwhile, the cost of shopping at Wal-Mart will escalate—even as U.S. exports are increasingly barred from both Kyoto member and non-member countries. Our investments in productive assets will be wasted, even as the U.S. jobs totals decline.
A carbon tariff would conflict with a U.S. pledge not to violate international trade rules, but Obama’s promise to cut greenhouse emission might easily override the vague “no trade war” commitment.
Dennis T. Avery is an environmental economist, and a senior fellow for the Hudson Institute in Washington, DC. He was formerly a senior analyst for the Department of State. He is co-author, with S. Fred Singer, of Unstoppable Global Warming Every 1500 Hundred Years, Readers may write him at PO Box 202, Churchville, VA 24421 or email to firstname.lastname@example.org.