Center Forums Assess Trade Policy Issues and Economics of Climate Change

The ACCF Center for Policy Research sponsored two blue-ribbon public policy forums in September. "Free Trade vs. Protectionism and Economic Sanctions: What Are the Issues?" was the subject of the Center's September 9 forum, and on September 24 the Center hosted a symposium on "Climate Change Policy, Economic Growth, and Environmental Quality."

Free Trade vs. Protectionism and Economic Sanctions: What Are the Issues?

With "fast track" authorization the subject of intense debate on Capitol Hill, trade policy experts met to hear the results of new research on the economic impact of free trade by Council on Foreign Relations scholars Gary C. Hufbauer and Bruce E. Stokes at a forum sponsored by the ACCF Center for Policy Research on September 9. The Hufbauer/Stokes study showed that free trade accelerates economic growth and investment, raises real wages, and enhances productivity growth. "Productivity in American plants that export is almost 40 percent higher on average for plants of all sizes, locations, and industries than in plants that produce only for the domestic U.S. market," according to Dr. Hufbauer, director of studies and Maurice R. Greenberg Chair with the Council on Foreign Relations.

The Hufbauer/Stokes study also demonstrated that the various forms of protection, such as tariffs and import quotas, impose costs on a range of actors throughout the economy. Among those most notably "taxed" are exporters and domestic consumers who pay higher prices for inputs to production or for goods and services.

On the topic of economic sanctions, Hufbauer and Stokes pointed out that the meager success rate of sanctions comes at a high cost to the U.S. economy in lost trade, export-sector jobs, and higher wages.

Following the presentation, panelist Lael Brainard, special assistant to the President for international economic policy with the National Economic Council, outlined the Administration's pro-trade agenda. Donald L. Losman, professor of economics, Industrial College of the Armed Forces, National Defense University, stressed the limited utility of economic sanctions as a foreign policy tool. Robert L. Ragan, vice president and manager, Washington office, Bechtel Group, Inc., discussed how unilateral sanctions hurt the business community.

The Honorable Jim Kolbe (R-AZ), a leading proponent of free trade in the U.S. House of Representatives, was the forum keynoter. Representative Kolbe, who chairs the Treasury, Postal Service, and General Government Subcommittee of the House Appropriations Committee, observed, "Free trade means opportunity, hope, and progress, while unilateral sanctions are costly and seldom work."

Climate Change Policy, Economic Growth, and Environmental Quality

Despite the uncertainty about the significance of global warming and the expected high costs of plans to reduce carbon emissions, the Administration has announced a framework for a potential agreement to reduce greenhouse gas emissions to 1990 levels in the near future. According to a new study of the economic impact of such a policy on the American consumer released at an ACCF Center for Policy Research-sponsored forum on September 24, stabilizing CO₂ emissions at 1990 levels by 2010 would cost the average household almost $30,000 over the 2001-2020 period.

"Consumers will be caught in the middle as incomes fall and prices of basic necessities rise due to energy price increases by 2020. The cost of food, housing, and medical care will rise significantly," noted Mary Novak, senior vice president, WEFA, Inc., and author of the study. "Lost GDP in 2010 would be more than $227 billion (in 1992 dollars), approximately equal to total federal, state, and local expenditures on elementary and secondary education," she added.

Responding to Ms. Novak's presentation, Micheal Buckner, director of research, United Mine Workers of America, expressed the fear that the Administration's proposals would threaten the economic well-being of mineworkers in particular and the average worker in general. Mark Mazur, senior policy advisor and chief economist to the Secretary, Department of Energy, offered assurances that the Administration would push for participation by developing countries and flexibility in when and where emissions reductions occur. Thomas Schelling, distinguished university professor, University of Maryland, suggested that focusing resources on health, education, and agricultural production rather than climate mitigation might offer more benefit to poorer countries over the long term.

Richard Schmalensee, professor of economics and management, Massachusetts Institute of Technology, presented new research on tradable emissions rights and joint implementation for greenhouse gas abatement. Professor Schmalensee observed that all indications are that the Administration plans to ensure that the constraint on U.S. emissions is met by using tradable emission allowances domestically. He concluded that the Administration's approach to climate change policy is strategically unsound.

Dr. Schmalensee stressed that applying the concept of tradable permits to carbon dioxide emissions at the national and global level would be very difficult. Numerous questions must be answered, including (1) How are carbon allowances to be distributed? and (2) How can emission levels be monitored? A system of tradable carbon allowances with fixed annual total emissions would be inflexible and would tend to destabilize the price level. Furthermore, while the Administration's proposal calls for developing nations to participate in controlling global emissions, it will be very difficult to get meaningful participation by these countries.

"We have time to design and adopt realistic strategies to respond to the threat of climate change; we should not be distracted by political pressures to take short-term symbolic actions in Kyoto [at December's international climate negotiations] that may well be counter-productive in the long run," Professor Schmalensee stressed.

Responding to Professor Schmalensee's remarks, David Harrison, vice president and director of environmental practice, National Economic Research Associates, emphasized that complex issues of involvement, enforcement, and allocation must be resolved before a tradable emission permit scheme is implemented. Ronald G. Prinn, TEPCO professor of atmospheric chemistry, Massachusetts Institute of Technology, noted that scientific uncertainty about climate change forecasts is increased because predictions are dependent on equally uncertain forecasts of populations, economies, and energy technologies, and scientists should continue to be included as the policymaking process evolves. Moderating the panel was Paul R. Huard, senior vice president, policy and communications, National Association of Manufacturers.

Keynoting the Center's forum were the Honorable John Dingell (D-MI), ranking Democratic member of the House Committee on Commerce, and Honorable Charles T. Hagel (R-NE), chairman of the Subcommittee on International Economic Policy, Export, and Trade Promotion of the Senate Committee on Foreign Relations, and head of the Senate Climate Change Observer Group.