Tariffs Targeting Carbon Emissions Would Be a Costly Blow to Free Trade

When President Donald Trump issued executive orders in 2018 that called for new tariffs on imported steel and aluminum, the official justification for the policy was, somehow, national security.

Of course, no one really believed that. Jim Mattis, Trump's defense secretary at the time the tariffs were imposed, said the Pentagon didn't need tariffs on imported metal to protect the country. "I scratch my head a little bit about the rationality of a presidential action" based on national security that even the Pentagon disputes, wrote a federal judge who reviewed the tariffs as part of a lawsuit brought by steel importers. Even Trump himself made no secret of the fact that the tariffs were purely good, old-fashioned economic protectionism cosplaying as a national security concern. "If you don't have steel, you don't have a country," he memorably—and nonsensically, since there are many countries that don't make their own supplies of steel—tweeted in 2018.

The Trump administration had to do the whole "national security" song and dance because it provided access to a convenient loophole to impose tariffs without the consent of Congress—thanks to Section 232 of the Trade Expansion Act of 1962, which delegates presidential authority over tariffs for issues relating to national security.

At the time, some observers pointed out that Trump's tactic of declaring economic issues to be national security issues vastly expanded the powers granted to the president under Section 232. Some even suggested that it opened the door for a future president to declare climate change a national security issue and assume massive new powers over trade.

Sure enough, that's what it looks like the Biden administration is now set to do.

Last month, the White House reportedly sent a proposal to the European Union that would see the U.S. and Europe (and presumably other countries like Canada and the United Kingdom) form a consortium that would agree to impose high tariffs on steel and aluminum produced outside the consortium. The goal, according to The New York Times, would be two-fold: "to bolster domestic industries in a way that also mitigated climate change."

The environmental angle is that countries with higher environmental standards for the production of steel and aluminum would make it more expensive for their domestic businesses to import metal made in places like China, where the environmental standards are less strict. The economic angle, of course, is that steel- and aluminum-consuming industries in America and Europe would end up having to pay artificially inflated prices—while steel and aluminum manufacturers would benefit from the added levels of protectionism.

And the legal angle is that all this can happen without President Joe Biden having to ask Congress because—you guessed it!—Section 232 of the Trade Expansion Act of 1962.

The law's definition of national security "pretty clearly encompasses a climate investigation," Duke University law professor Tim Meyer told Inside U.S. Trade, a trade publication, last month. At least one member of Congress, Rep. Bill Pascrell (D–N.J.) has called on the Commerce Department to launch an investigation into how Section 232 could be used to curb carbon emissions.

Those investigations would be the first step toward imposing carbon tariffs, but not all Section 232 investigations are used as the basis for tariffs. During the Trump administration, for example, there was an investigation that attempted to prove foreign car imports could be deemed a national security issue as well—a patently ridiculous assertion—that never materialized into new import taxes on vehicles.

The World Trade Organization (WTO) ruled last year that tariffs based on these nonsensical national security claims are a violation of the group's rules, but the Biden administration is fighting to keep Trump's tariffs in place. It does not appear that the WTO has "the will or the ability to save the global economy from climate protectionism," writes Dan Mitchell, a libertarian economist.

Advocates for free trade say the looming carbon tariffs are a threat to American consumers and businesses—and draw a clear line from Trump's abuses of Section 232 to Biden's abilities to do the same.

"Section 232 will haunt us like a protectionist Frankenstein unless Congress acts to rein in executive abuse of the law," then-Sen. Pat Toomey (R–Pa.) warned in December during his final remarks on the Senate floor. In an interview with Reason last month, Toomey said Biden was taking Trump's "abuse and the misuse of the Section 232 provision to a new extreme" by proposing the carbon tariffs.

"It's effectively a border adjustment with respect to steel and aluminum, based on carbon emissions," Toomey said of Biden's reported plan for carbon tariffs. "This is wildly incompatible with what Section 232 actually says. It is a grotesque overreach by the Biden administration, and this is exactly what I've been warning my colleagues of for quite some time now."

Regardless of whether the tariffs are implemented for domestic political reasons or in pursuit of an amorphous plan to address climate change, the economic costs are indisputable. The Peterson Institute for International Economics, a trade-focused think tank, estimated that every job saved by Trump's tariffs on steel cost consumers roughly $900,000 in higher costs created by the tariffs.

It's fair to expect a similar result from any new tariffs aimed at cutting carbon emissions—because the laws of economics don't care about the intentions of policy makers.

"Americans are the ones who are going to pay those taxes. If you're a consumer or a business, you're going to end up paying those costs—without any input from Congress," says Bryan Riley, director of the Free Trade Initiative at the National Taxpayers Union, a free market think tank.

Riley says new tariffs aimed at carbon emissions are also likely to give bureaucrats huge new powers over the costs of imports since someone will have to decide how much to tax steel from France vs. steel from Canada vs. steel from China or elsewhere in the world.

"It's going to create a huge new regulatory bureaucracy that lets the government pick winners and losers," says Riley. "That's my No. 1 concern."