China in Crosshairs of US-Canada Climate Policies

By Kenneth Rapoza, CPA Industry Analyst

If the Biden Administration is going to restrict polluting industries at home, what about those who pollute overseas, and then import the goods they make to the United States?

If the US and Canada are at all serious in their latest threat to treat high polluting countries differently from environmentally sustainable ones, then China is in big trouble. As is India. But seeing how the US has a $23 billion deficit with India and a $310 billion one with China, it is the latter who will take it on the chin.

Canada’s prime minister Justin Trudeau told Bloomberg News on Wednesday that his plans to deepen “climate cooperation” with the US includes joint policies that take “into account the emissions profiles of industrial (trade) competitors around the world.”

New president Joe Biden has made climate change a centerpiece of his presidency, even more than fighting the pandemic. Equitable and inclusive economics are also at the forefront of the Biden agenda. If climate and diversity issues are important to the Biden administration, China stands counter to all that.

Trudeau said that some countries “are producing without having the same kinds of leadership on climate change that the US is bringing into place and that we already have.”

If such a comment excludes China as prime example, then tackling climate change through trade will just become another talking point for diplomatic events and UN meetings.

CPA’s stance is that if a carbon tariff is to be imposed, it is best to impose it on all imports from high carbon countries, rather that sorting this out on a per-product basis. “If they have high pollution in absolute terms or as percent of GDP, then tariff them,” says CPA CEO Michael Stumo.

China, like India, has a higher level of greenhouse gas emissions in its manufacturing mainly because of its energy matrix. It relies heavily on coal to produce steel, and to produce electricity that powers its factories. While China is ramping up in nuclear and in alternative fuels like wind and solar, coal is the prime source.

We wouldn’t put it passed China to add new coal output, only to cut it shortly after in order to show the likes of Trudeau and other Western leaders that they are making good on their progress to reduce fossil fuels.

China is concerned with local pollution issues. The city of Wuhan, made famous by the SARS 2 coronavirus, had an actual uprising over pollution prior to the pandemic shutting that city down. Wuhan is big on auto production.

China is a key supplier of automotive parts to the US, competing with Japan, Germany and Mexico.

The life cycle for greenhouse gas emissions (GHG) from vehicle production in China compared with midsized, combustion engine cars produced here at home shows that GHG emissions are around 9.6 tons per vehicle there, or 54% higher than the US level of 6.2 tons per vehicle, based on a July 2017 study commissioned by the Chinese government and published in the Clean Technologies and Environmental Policy journal.

The power-intensive nature of vehicle production and China’s higher emissions is due to power generation, meaning that whether China is making iPhones or Polestar EVs for the US market, it is doing so by pumping more CO2 into the atmosphere than if those products were made closer to home.

Biden and his “Climate Czar” John Kerry promised “aggressive action to combat climate change”. On the campaign trail, Biden even suggested he would impose a carbon tax or quotas on countries Washington deems to be unfriendly to the environment.

This could also impact Brazil, where Amazon fires have raised eyebrows in the US and Europe. But if the US is going to punish Brazil for Amazon fires, we would be curious if China gets left unscathed should such a carbon tariff be used.

For domestic manufacturing, the argument of cleaner local supply chains being better than what we call “global pollution chains” is an argument that needs to be made regularly in the Biden years.

As it is, the Biden administration started off the year canceling some oil and gas drilling on federal lands, and put a stop to the planned phase IV Keystone Pipeline into Alberta, Canada due to climate concerns.

That the US is increasing its imports from countries that are not doing the same only means we are outsourcing pollution. That makes it more attractive for US companies to move offshore if they feel they will be punished if their carbon loads are too high, while other countries are left alone.