As the U.S. government advances its goals at home using a range of domestic economic tools, trade policy provides an avenue to expand decarbonization efforts globally. John Podesta, President Biden’s climate envoy, spoke at Columbia University earlier this year and acknowledged the fundamental nexus between trade and the environment, calling for the creation of a task force to look at how trade policies can contribute to solving urgent climate challenges. “The stakes couldn’t be higher,” Podesta said. “But I believe if we make the right choices, we can create and maintain millions of good-paying jobs in the clean energy economy of the future. We can mobilize billions in private investment in countries around the world. We can accelerate technological innovation and position nations to overcome the challenges of today and tomorrow. And we can do it while protecting our planet for ourselves and our children.”

Since 2020, the World Trade Organization (WTO) has also taken a more expansive view on the range of topics where trade could help address climate and environmental challenges. On July 4th, WTO Deputy Director General Paugam stated, ”…(W)e are at a crossroads in the multilateral system, with an opportunity to shape a global win-win approach for trade and the environment. We can combine green transition, green industrialization and trade cooperation. This is what “reglobalization” is about. And the time to act is now.”

The U.S.’s most ambitious environmental trade commitments are in the U.S.-Mexico Canada Agreement (USMCA), which allows countries to continue with domestic climate initiatives while encouraging cooperation on environmental goals and calling for a level playing field in these efforts. The work is ongoing, but separate and siloed from the other aspects of USMCA. Moving forward, there is an opportunity to incorporate climate as a core consideration in all aspects of future agreements, adding an additional priority to the existing goals of reducing barriers to U.S. exports, protecting U.S. interests competing abroad, and enhancing the rule of law.

Imagine if U.S. trade negotiators asked “Will this help (or hurt) climate change” for each issue in their negotiation and then used all aspects of trade, supply chain or economic security agreements to create positive (or negative) incentives to accelerate climatemitigation efforts. Topics such as subsidy rules, market access (tariffs), and non-tariff barriers could be recast to tackle climate concerns in new and more aggressive – and possibly more effective – ways. New mechanisms like carbon border taxes and other “domestic” policies with international implications could also be used to accelerate efforts to both reduce carbon and ensure a level playing field for countries with stringent rules. But such a focus may need to be balanced with other politically important priorities, such as development, economic growth, and employment.

Penelope Naas is the Lead, Allied Competitiveness Initiative, German Marshal Fund, and an Advisor to the Trade Experettes

Trade+&+Climate+Paper+

To read the full paper as published by the American Leadership Initiative, click here.

To read the full paper, click here.

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On 13 September 2023 European Commission President von der Leyen announced an antisubsidy investigation into EVs imported from China. She asserted that the price of Chinese EVs “is kept artificially low by huge state subsidies”

Under WTO rules for anti-subsidy investigations asserting subsidies exist is not enough. Those subsidies must alter market outcomes in the EU in ways that harm local rivals. In turn, this begs the question as to which public policies have influenced Chinese incentives to export EVs to the EU in recent years? An investigation reveals that multiple policy initiatives bear down on Chinese exporters, complicating the task of isolating the effects of Chinese producer subsidies. Three pieces of evidence are germane.

First, for sure Beijing has announced plans—even “strategic plans”—for the EV sector. But plans don’t always translate into tangible state action—so showing a plan exists doesn’t prove subsidies harmed EU industry. Likewise, repeating opaque consultancy “findings” of the total amount of subsidies ($57bn in one case) for Chinese EVs isn’t good enough. Those subsidies could be purchaser incentives, not grants to expand capacity or to lower production costs. Different subsidies do different amounts of harm to foreign rivals and some may not harm foreign rivals at all.

What is undeniable is that publicly-listed Chinese EV producers have reported in their financial reports receiving state-provided financial grants. Until recent years around twenty such reports were filed every year. In addition, in its 2022 10-K filing Tesla reported receiving land use rights from Shanghai’s local government and $76 million in state grants during 2022. EC officials wishing to impose import duties will, at a minimum, have to show how the form of these subsidies affected incentives to export to the EU.

Second, a major complicating factor is that, since at least 2015, China has been reducing purchaser incentives for EVs. By reducing the incremental profits earned from selling EVs in the Chinese market, the incentive to export has increased, relatively speaking. Apparently, this logic has not escaped European firms operating in China, the gist of which was captured in a recent report in the Financial Times: “China should do more to stimulate domestic consumption, European businesses have declared.” This reinforces the point that the form of subsidy matters and implies that foreign rivals aren’t adverse to higher Chinese subsidies when it suits their purposes.

Third, policy developments outside of China likely influenced the incentive to export EVs to Europe. Specifically, the first tranche of 25% import tariffs imposed by the Trump Administration on imports from China included electric and hybrid vehicles. Those duties came into effect in mid-2018 and, Chinese EV exports to the USA promptly fell. Part of the surge in Chinese EV exports to EU documented in Zeitgeist #13 was driven by US trade policy, not Chinese subsidies. Properly accounting for this is just one of the challenges facing EC investigating officials

Even after imposing a 25% import duty, Chinese exports to the USA rose more than 40-fold from 2019 to 2023. This should challenge any assumption that imposing sizeable EU import tariffs will choke off Chinese EV shipments. Any reprieve for US EV producers was, at best, temporary.

Inconvenient as it may be for some, simplistic narratives about ever more generous Chinese subsidies boosting EV exports should be disregarded. Plus, the tariff weapon may have much less punch than its advocates realise.

Simon J. Evenett is Professor of International Trade & Economic Development at the University of St. Gallen, Switzerland. He is also Founder of the St. Gallen Endowment for Prosperity Through Trade, the institutional home of two leading independent commercial policy monitoring initiatives, the Global Trade Alert and the Digital Policy Alert.

Fernando Martín is an Associate Director at the Global Trade Alert leading the Analytics team.

To read the full briefing as published by Global Trade Alert, click here.

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Over the past two decades, the United States has pursued a similar—albeit less generous—approach. For example, the “qualified plug-in electric drive motor vehicle credit,” which resulted from legislation first established by the Energy Improvement and Extension Act of 2008, offers up to $7,500 in financial relief for going electric. Although the recently passed Inflation Reduction Act of 2022 has changed the qualification criteria for the credit (and changed the name of the program), the premise remains the same: if you go electric, Uncle Sam will support you.

It’s a nice idea. Electric cars are less polluting than gasoline autos. Less pollution means cleaner air, and cleaner air makes for a healthier planet. So why not use public funds to back EVs?

In a new study, the Breakthrough Institute’s Ashley Nunes, along with two co-authors, scrutinizes the economic efficiency of such subsidies. Emissions reductions are important, of course, but what matters even more (particularly as the national debt sits in the trillions of dollars), is how much these vehicles are driven and how often EV batteries must be replaced. Both factors influence how much emissions are reduced for each dollar of government spending. Nunes’s work finds that:

• Offering blanket EV subsidies can be an economically inefficient means of reducing emissions.
• Replacing an EV’s battery detracts from the vehicle’s emissions advantage.
• Cleaning up the national electric grid only does so much to make EVs less polluting on a per dollar basis.

None of these findings imply that EV subsidies are a universally bad idea. In fact, subsidies can maximize emissions reductions per dollar spent under specific conditions. Namely, when subsidies are targeted at high utilization vehicles (e.g., taxis and single-vehicle households), the expenditures are far more likely to reduce both emissions and produce net financial benefits. Offering subsidies for those who drive high utilization vehicles has particular significance for communities of color who are disproportionally represented in the taxi and mobility-on-demand industry.

As Congress debates whether EV subsidies should endure and, if so, for how long, Nunes’s study highlights the need to ensure these programs are targeted in ways that do the most good. His findings suggest that will mean moving away from universal subsidies for anyone interested in buying an EV and limiting subsidies to those who use EVs enough to realize the vehicle’s emissions advantage. Moreover, given that those who drive high utilization vehicles also have lower average incomes, offering EV subsidies as refunds, rather than nonrefundable tax credits, likely promotes greater EV adoption among the households that would maximize EVs’ emissions benefits.

To read the full summary, please click here.

To read the full original report, please click here.

Ashley Nunes is the Director of Federal Policy, Climate and Energy, at the Breakthrough Institute. His work examines the economics of clean technology adoption, with a focus on socioeconomic impact assessment. Previously a research scientist at the Massachusetts Institute of Technology, Ashley holds academic appointments in the Department of Economics, at Harvard College, and in the Labor and Worklife Program, at Harvard Law School.

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As we now know, WTO members, supported as always by the Secretariat, made MC12 a resounding success. After nearly six days of negotiations – culminating in a marathon 48 hours of non-stop talks – ministers and delegates adopted a package of multilateral deals that will deliver for people, businesses, and the planet. The scale and scope of the so-called “Geneva Package” of agreements has not been seen at the WTO since the mid-1990s.

I came to the WTO because I was firmly convinced that trade was part of the solution to the global commons problems, from pandemic disease to climate change, that represent some of the biggest threats to our future prosperity. Speaking to members on my first day in office in March of last year, I recalled the fundamental goals of the WTO, as set out in the preamble to our founding Marrakesh Agreement: using trade as a means to improve living standards, create better jobs and promote sustainable development. These goals are fundamentally about people. But one more reason I came here was that I felt the WTO had the potential to do much more to improve the lives of people around the world.

MC12 is proof that the WTO can deliver results. Members have shown they are capable of reaching multilateral compromises and finding solutions to contemporary challenges – provided they have the political will to do so.

The results achieved at MC12 will enhance the role trade has been playing in helping people cope with the multiple problems we currently confront – economic, environmental, and of course, the COVID-19 pandemic and the more recent food security crisis.

The deal on fisheries subsidies – concluded after nearly 21 years of negotiations – is only the second new agreement WTO members have reached since 1995, and the very first WTO agreement to put environmental sustainability at its core. By banning subsidies that contribute to illegal, unreported and unregulated fishing, as well as fishing in the high seas and in overfished stocks, the pact represents a major step forward in protecting ocean health and biodiversity. Importantly, it also means that WTO members have delivered on the mandate given to them in Sustainable Development Goal 14.6.

To read the full report from the WTO, please click here.

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Worse, governments face a conundrum. They are mindful that foreign subsidies can erode the market access won in previously negotiated multilateral and regional trade agreements. Yet, evidently, governments want to retain subsidies to tackle pressing national and global concerns, such as the COVID-19 pandemic response, decarbonisation, and the clean energy transition. What one government regards as a good subsidy and a legitimate exercise of national sovereignty can be viewed more negatively by trading partners.

Recriminations have been exacerbated by a lack of comparable and reliable information on subsidy schemes and awards. In this Hinrich Foundation sponsored report, authors Simon J. Evenett and Johannes Fritz of the University of St. Gallen assembled an inventory of 18,137 corporate subsidies awarded by China, the EU, and the US since November 2008 to assess the scale of national and cross-border commerce affected by these trading powers’ subventions.

Given that trillions of US dollars of trade are involved, and the growing discord between governments over subsidy matters, the time is ripe for deliberation about the nexus between subsidies, market access, and the potential for enhanced international cooperation. The paper concludes by describing six specific goals of this needed policy dialogue on the trade-related aspects of corporate subsidies.

To read the full report from the Hinrich Foundation, please click here.

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