The Tensions edition

The second installment of the Domino Effect - a round-up of news on the growing tensions between climate and trade and, on occasion, the opportunities

Oct 16, 2024

Welcome to the second edition of the Domino Effect - a round-up of news on the growing tensions between climate and trade and, on occasion, the opportunities. Though not on this occasion - today we’ll be talking about CBAM, its impacts and imitators, how climate protectionism has entered the US election, and the ongoing ‘domino effect’ around the world from trade-related climate measures.

*** Event Alert *** Domino Effect will be hosting an online webinar for the media on October 28th . Our expert panelists will be looking forward to COP29, examining the potential for trade-related concerns to get in the way of climate agreements at COP and beyond. Contact me on sargon.nissan@gsccnetwork.org for further details and a registration link.

Back to the round-up…

Tariff Tensions in the US - tariffs’ polling popularity tells the story, a tale that’s “neither permanent nor normal”

VP nominee JD Vance explains the case for tariffs, CBAM & protectionism with support from most Americans

Trump and Vance “Double Down” on protectionism
Carbon pricing through trade reached the US Vice Presidential Debate. Republican nominee JD Vance, accepting climate change for the sake of argument (“let’s just say that’s true”), defended tariffs against dirtier producers, advocating to “reshore as much manufacturing as possible” and “double down and invest in American workers”. Speaking to Bloomberg, Donald Trump sympathised that “It must be hard for you to spend 25 years talking about tariffs being negative and then have somebody explain to you that you're totally wrong”
63% of Americans for CBAM and trade-related climate measures
A study by Harvard experts found out why Trump and JD find climate change a useful argument for trade policy: most US citizens (63.1% in a March survey) favour a CBAM or similar, backing trade protection even more strongly when it has climate objectives.
59% against increasing trade
In April a Pew Research survey found that 59% of Americans believed that their country loses more than it gains from increased trade; including nearly three quarters of Republicans who felt that the US was too open for business
£300 cost per person from UK CBAM
Not all populists agree with the public. Former UK PM Liz Truss’ new favourite think tank argues that “UK adoption of the CBAM could lead to GDP per capita losses of between roughly £150 and £300”. US right-of-centre equivalents worry about excessive presidential powers over trade and scramble to align free and open trade with the new trade scepticism. They may have found a way if the below Republican senators’ new bill gets an airing:
100% tariffs are Not Permanent, Not Normal
US Republican senators Marco Rubio, Tom Cotton and Mark Hawley have proposed a new category for China’s economic relationship with the US, the Neither Permanent Nor Normal Trade Relations Act with scope for 100% tariffs on China where its exports to the US are deemed to impact national security priorities
Bipartisanship … on China’s “Predatory pricing”
In case you think this is only from one side of the aisle, Jose Fernandez, US under secretary for economic growth, energy and the environment at the Department of State said that China was producing much more lithium "than the world needs today, by far" and engaged in “predatory pricing”.

Tensions amongst the EU’s members, their partners, the WTO’s members…
The EU confirmed it will enact tariffs against Chinese EV, but inharmonious; the WTO’s predictions of increasing litigation over-cautious, while No delay for EU’s China EV Tariffs Despite prominent EU ministers voicing their hostility to going through with the Commission's proposed tariffs on Chinese EVs, the Commission got its way but far from a consensus (10 for, 12 abstained, 5 against including Germany)

Tariff collateral damage?
China initiated “dispute consultations” at the WTO against Türkiye on its EU-aligned EV measures but so far has only made threats to do the same against the EU, targeting brandy and other iconic, national goods
47%; or why the vote wasn’t unanimous
A Rhodium Group report suggests that some European countries might not mind China circumventing tariffs via direct investment (e.g Hungary that received 47% of all Chinese EV-related 2023 FDI ).
CBAM extended… or a moratorium?
The African Petroleum Producers Organization warned of the EU CBAM’s potential $25 billion cost to African states and advocated a moratorium, while their states contemplate an energy bank to replace dwindling investment in fossil fuels. Meanwhile the EC is looking to study expansion of CBAM to downstream products to “crack down on carbon leakage”
Deforestation Delay: $46 billion and 1 more year
The European Commission delayed its Deforestation Regulation on the import of goods linked to deforestation by one year for large companies to 30 December 2025 (and 30 June ‘26 for small firms). It followed Brazil’s denunciation of the legislation as “punitive” to its $46.1billion annual industry. Environmentally-minded MEPs chided the Amazon country for its own failures. The Commission will hope it’s not a precedent for CBAM.

Universal tensions. Everyone's annoyed at someone, but enough to threaten COP29?
The UN General Assembly and the Secretary General’s summit for the future acknowledged tensions around trade, but not much more

Solutions? Apply “Universal carbon pricing” via CBAMs that do not punish developing countries The Bridgetown Initiative 3.0 was released, ostensibly focused on ensuring climate finance obligations are met, the Barbados-led effort called out the tension between trade and climate goals, demanding a “multilateral trading regime that supports a green and just transition, including by ensuring that carbon border adjustment mechanisms do not unfairly punish developing countries”, also calling to “revive a constructive dialogue on the establishment of a universal carbon pricing mechanism”.
Or, “ refrain from … unilateral economic measures”
The Secretary General’s Summit for the Future did yield some proposals though its Article 5 on trade mainly told countries not to make things worse, join and reform the WTO, but above all avoid the ‘unilateral measures’ that almost tripped up COP28 negotiations last year due to developing countries’ anger at CBAM
Better yet, don’t mention trade at all
Footage from UN Dialogue meetings on implementing national climate transition plans revealed the ongoing gulf between developing nations and richer states. When challenged by developing country representatives on EU trade rules, like CBAM, inhibiting their climate ambition, the EU’s representative dismissed the complaints with “I’m not going to enter that discussion here”. Developing country representatives were not amused.
“Stifling” CBAM threatens energy transition
India’s Finance Minister reminded the world of the “stifling” impact of the EU’s CBAM and set out the risks as India sees it of depriving developing countries of the funds to transition away from fossil fuel based economies

More Domino Effects - pushing CBAM farther and faster, and including a brandy Backlash

Predatory pricing leading to South-South tensions
An Economist special report on steel set out yet more protection & Indian tariffs on China, while its simultaneously eyeing up increased market share of PVs manufacturing at China’s expense. India is not just focused on major economic rivals, threatening an anti-dumping investigation into Vietnam
But North-to-South tariffs are still a thing
The US is now considering ‘Anti-Dumping’ solar panel tariffs on developing countries “Cambodia, Malaysia, Thailand, and the Socialist Republic of Vietnam (Vietnam). Commerce is conducting concurrent antidumping duty investigations of solar cells from Cambodia, Malaysia, Thailand and Vietnam. “ At a conference examining the impact of transition on South Africa, Deputy Minister of Forestry, Fisheries, and the Environment, Narend Singh minister expressed concern for the domestic steel industry and set out how the Europeans’ efforts on CBAM meant green transition would be harder in South Africa
Ad hoc emissions and inconsistent standards are yet another challenge CBAM creates
WTO Deputy Director General pointed out the elephant in the room about proliferating, inconsistent and expensive standards from various trade-related climate measures
UK CBAM should move faster to mimic the EU - Steel & Energy sectors
Concern from the UK steel and energy industry already reeling from closure of the iconic Port Talbot mill led to an energy industry letter to the UK government demanding that align asap the UK & EU carbon pricing mechanisms to address ‘crucial outstanding issues in the EU-UK energy relationship like inefficient market coupling or CBAM”. It would be better to integrate from the outset according to SEE utility’s head of policy and advocacy, Alistar McGirr
… or risk the UK renewable sector being “undermined”
The Experts at LSE’s Grantham Institute found that if UK does not link its emission trading system to the EU’s urgently the implementation of the EU CBAM would “undermine British renewable energy”

Trade Recovering & Fragmenting - WTO’s October update suggests a “gradual trade recovery underway” thanks to lower inflation and interest rates driving a recovery in world goods trade, but notes that European trade growth has been weaker than expected unlike Asian economies’ better than expected revival in export growth while the overall pattern is ever-more concentration of trade amongst “like-minded economies”
WTO initiates new leader process - current leader already keen to renew and process has been started earlier than usual
Launch event 23 October - Including products further down the value chain in the EU CBAM
Webinar 31 October The Future of U.S.-EU Trade and Investment with the Ambassador of the Delegation of the European Union to the United States, Jovita Neliupšienė, and Ambassador Susan Schwab, the former United States Trade Representative and panel including Italian energy multinationa’s head of US relations

The Domino Effect

The Tensions edition

The second installment of the Domino Effect - a round-up of news on the growing tensions between climate and trade and, on occasion, the opportunities