The Smoot-Hawley Provision In Cap-And-Trade

It’s certainly not going to shock you to learn that the House version of the cap-and -trade global warming legislation contains a surprise. Remember it’s 1200 pages long and precious few have read it in its entirety.

The NYT notes that there is an explosive anti-trade provision that was slipped in at the last minute in order to secure the votes of Midwestern congressmen and women:

The House bill contains a provision, inserted in the middle of the night before Friday’s vote, which requires the president, starting in 2020, to impose a “border adjustment” — or tariff — on certain goods from countries that do not act to limit their global warming emissions. The president can waive the tariffs only if he receives explicit permission from Congress to do so.

The provision was added to secure the votes of Rust Belt lawmakers who were wavering on the bill because of fears of job losses in heavy industry.

In the floor debate on the bill Friday, one of its authors, Representative Sander M. Levin, Democrat of Michigan, said, “As we act, we can and must ensure that the U.S. energy-intensive industries are not placed at a competitive disadvantage by nations that have not made a similar commitment to reduce greenhouse gases.”

Now some have said that President Obama’s comments today indicate that he is opposed to the provision and they’ve even gone so far as to congratulate him on his stance (link to Marginal Revolution). Here is what he actually said:

“At a time when the economy worldwide is still deep in recession and we’ve seen a significant drop in global trade, I think we have to be very careful about sending any protectionistsignals out there,” Mr. Obama said.

He added, “I think there may be other ways of doing it than with a tariff approach.”

Now that doesn’t sound terribly firm to me but maybe my bias is showing. Note he seems to discard the tariff approach but leaves open the possibility of accomplishing the goal of the language in some less obvious manner. The true test of his beliefs will come during the negotiations in the Senate and, of course, if this bill hits his desk with the tariff provision in it whether his desire for climate change legislation trumps his opposition to trade restrictions.

There are a lot of smoldering embers of protectionism blowing about the world. From the Buy American part of the fiscal stimulus bill to the Buy Chinese stipulations that have come out of China and various and sundry bits of trade chicanery throughout the industrialized nations support for free trade seems increasing tenuous. It won’t take much for those embers to start a 1930’s type wildfire.

I would have much preferred to see a line in the sand from the President. If the bill does make it to his desk I think it’s naive to believe that this provision or something similar will not be a part of it. At that point in time, it will be too late.

I suspect it’s going to be quite instructive to see what else is buried in those 1200 pages.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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