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Trade vs. Climate

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Solar-Vow-

Any international treaty is going to consist of tradeoffs and choosing priorities. This is what foreign policy is made of. For the Obama administration, when its free trade agenda comes into conflict with its climate agenda, which wins? At least in this case with India, it seems that free trade comes out on top.

Over the last few years, India’s government has rolled out increasingly aggressive goals for ramping up the country’s use of solar energy — an objective that the Obama administration might be expected to support. “For President Obama and me, clean and renewable energy is a personal and national priority,” Indian Prime Minister Narendra Modi said during Obama’s visit to Delhi in January. Problem is, India originally proposed to meet its goals by relying heavily on its own domestically manufactured solar panels, which threatened the U.S. solar industry’s business in India. So, last year, the Obama administration filed a dispute with the World Trade Organization, and last month, the WTO ruled in favor of the U.S. — India’s requirement that a set percentage of its solar panels be made in India violated international trade law and would have to go.

This has outraged environmental groups in both countries, and has become a key point of discussion in a larger conversation about how climate change should affect international trade policies. Activists question why the U.S. government would bother to meddle with India’s renewable energy plans when faced with the sweeping threat of climate change.

Twice while the case was being decided, American environmental groups urged U.S. Trade Representative Michael Froman to let the issue drop. “While it is critical to support and build a U.S. solar industry, the development of our solar industry should not come at the expense of India’s ability to develop its solar industry,” 15 U.S. environmental groups wrote in a letter.

This is awful unfortunate. But it’s not surprising. The Obama administration, as we’ve seen in the Trans-Pacific Partnership, has placed its trade agenda above basically everything else, often alienating its own allies. The U.S. should actually be responding to this by mandating a percentage of its own solar panels are made in our own country so that we can build a green economy rather than outsourcing it all to China. A green economy is one where working class people who will never receive a college education can have a good job and live a middle-class lifestyle while building a more sustainable future. That doesn’t mean that all of our solar panels need to be built here. But some should. And we shouldn’t be going after nations like India that are thinking this way themselves. Using the WTO to attack clean energy policies is exactly the opposite of what the Obama administration should be doing. Alas, as we see through the TPP, the administration is more than happy to do corporations’ bidding on this issue, even when it undermines other parts of the president’s legacy. Disappointing position from Obama’s economic team.

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  • dilan

    I’m with the Obama Administration here. The agreements don’t prohibit India from ramping up solar industry; they prohibit India from favoring domestic manufacturers.

    And the fact is, as a general matter, India is helped quite a lot by free trade, because it has cheaper labor costs than the US. We aren’t allowed to favor domestic customer service call centers and put a tax on calls to Indian call centers either.

    Erik’s last paragraph is basically an argument for the whole world being poorer, and third world workers remaining forever poorer than US workers. Yes, the US could impose a requirement that its solar panels be manufactured here– and that would put people in China and other developing countries who are currently manufacturing the panels out of work, or force their wages down as their only buyers will be poorer local consumers rather than rich Americans.

    Further, we would be forced to pay American style wages, which would push up costs and result in higher prices for American consumers and a lower standard of living. This is all basic, David Ricardo economics. Erik can’t repeal the law of comparative advantage, no matter how much he would like to. (Any more than conservatives can wish the problem of global warming away.)

    • Bill Murray

      but the law of comparative advantage, if there is even really such a thing, is much more complex than the simple Ricardian parable that is generally put forth.

      Pretty much every country that developed did so behind the mask of protectionism until the point that their homegrown industries could compete with external industries. If, as the current Washington consensus trade policies do, countries industries are opened to competition before they are ready, that country is doomed to a long bought of economic colonialism as they get a little bit better short run deal, but get caught in an non-developmental trap long term.

      So neo-classical trade theory is a cover for the new economic colonialism and that is not very good for the long term prospects of the undeveloped country.

      • yet_another_lawyer

        Even if true, that doesn’t make it trade vs. climate. That makes it “developing country jobs” vs. “climate.” Both are laudable goals, but I’m forced to vote for climate, because it’s the one that’s an existential threat to humanity. I would feel differently if India was requiring that a certain amount of consumer electronics or garments or whatever were manufactured domestically, but the climate is too important to let local concerns trump global ones. We need as many and as high a quality solar panel ASAP and if that means they all come from China so be it.

        • xq

          It’s important to have a strong domestic clean energy industry to exert pressure on the state to enact policies that favor clean energy and to counter the political power of dirty energy.

          • yet_another_lawyer

            I have some sympathy for that point, but if we were actually at the point where solar was cheap and scaleable that it could undercut fossil fuels, then it would be in the interest of *every industry aside from dirty energy* to make the switch. Plus, I’m reluctant to impede the development of solar through protectionism based on prognostications of how the politics will play out. Even with perfect, eco-conscious politics we would currently be on a path to extinction. If we’ve invented the technology to save ourselves but find it difficult to deploy to political considerations, then that is miles ahead of having a mildly better political climate but not having the tech. Call me an alarmist, but I’m pretty much of the opinion that every priority has to be inferior to getting to the point where it’s theoretically possible to not kill ourselves. Should we get there, I’m all ears on the best way to actually make it happen.

            • joe from Lowell

              Impede development of solar technology through protectionism?

              Where did that come from? Where is that going on?

              • yet_another_lawyer

                Sorry, I was typing on my phone before an evening engagement and therefore skipped a step. Not sure if you’ll come back to the thread, but: Solar panels are just a starting point. We need the technology after that one, and the one after that one. If, on every step of the way, each country wants to domestically produce each iteration of futuretech, then it’s a double-problem: We burn more fossil fuels as each country makes their own solar panels, and the lack of efficiency means there’s fewer resources into developing the next technology. It could turn out, as other comments argue, that it turns out that domestic protectionism just happens to be the best way to solve the climate crisis. I’m skeptical, but if you find that persuasive, then there’s no conflict. However, if you find comparative advantage persuasive (and as a theory it’s just about as hard as anything the soft sciences have to offer), then most likely you have to choose whether domestic jobs or global creation and deployment of nextgen clean tech is more important. This isn’t even close, in my opinion.

                • joe from Lowell

                  What isn’t close in my opinion is whether domestic politics, or a lack of economic efficiency, is currently a bigger impediment to the deployment of solar.

                  It seems quite obvious to me that political will is the larger obstacle.

            • AndersH

              I’m pretty sure the political economy in a country where there is no domestic clean energy industry will not be in favour of getting rid of dirty energy until quite late, if nothing else because the needed infrastructure change will be expensive in the short run.

          • Brett

            But you don’t necessarily need a solar panel manufacturing industry to get that. The business associations and lobbying groups for solar power suppliers and solar power installing companies could fill the role as well.

            That’s something to keep in mind if you’re thinking of a policy to favor manufacturing panels in the US – panels are by no means the whole of the value-added business, and you might create a solar panel industry at the expense of the rest of the business chain.

            • xq

              I agree that’s possible in theory, but in the specific case of solar power is there enough profit and jobs in supply and installation to create comparable political power? What percent of the US industry is in installation? How specialized a skill is it?

      • Brett

        Pretty much every country that developed did so behind the mask of protectionism until the point that their homegrown industries could compete with external industries.

        The problem is that you can always find an excuse to keep on protecting the homegrown industries – they never “grow up”, so to speak. Protectionism then just becomes a game of power in international relations, with more powerful countries twisting the arms of poorer ones who can’t afford to wall off their markets and still develop because they’re too small/too poor/need the capital/etc.

        Besides, the protectionism that actually put countries into the first world was the kind that required them to either compete in competitive markets at home or successfully sell goods abroad – or both. Protectionism by itself mostly flopped in the poor countries after one or two good decades in the mid-20th century (and it’s questionable whether the protectionism was why they boomed).

        • Theobald Schmidt

          Besides, the protectionism that actually put countries into the first world was the kind that required them to either compete in competitive markets at home or successfully sell goods abroad – or both.

          This seems to be the difference between Argentina and South Korea — the South Koreans were able to achieve industrial takeoff through government intervention by forcing their companies to successfully compete in overseas markets.

          Of course, now that that space is largely taken by China…

          • Brett

            There’s a really good book by reporter Joe Studwell called How Asia Works that goes into detail about how it worked – and why it turned out different from Import Substitution Industrialization efforts in Southeast Asia (particularly Malaysia). The South Korean government outright twisted the arms of some of its rich folks to get into the export business. For example:

            One early exchange that sent a crystal clear message occurred after the chief of Lucky-Goldstar (now known as LG), Koo In Hwoi, was released. One of Park’s colonels responsible for industrial policy told him to organise a foreign loan (which the government would guarantee) and technology transfer for a cable factory. When Koo tried to wriggle out of the task, pleading that he knew nothing about the cable business, the colonel told him that whereas he had been thinking of making Koo sort the whole thing out in a week, as a special dispensation he would let him do it in two weeks. Ten days later, Koo was sufficiently chastised to produce a technology transfer deal with a West German firm and the requisite financing arrangements. One of Korea’s richest businessmen had gotten the message.

            Of course, the flip side of that was that they could be pretty ruthless in culling the resulting corporations if they failed to make the grade. Nearly all of the original set of chaebol went bankrupt or merged into other companies.

            Also, it’s easier to do that if you’re playing catch-up and can soak up capital and technology from other countries, at least at first. I imagine doing this is much harder once you’re actually at the technological and economic “frontier” among nations.

      • dilan

        It’s worth noting that OP advocates protectionism for AMERICAN companies as well as Indian. So he really is basically arguing that we should ignore comparative advantage entirely and have every country make its own stuff.

        • Not that you are worth responding to on this issue since you have drunk the kool-aid, but I am saying that nations have an interest in their citizens having employment, which is not the same thing as closing the border to trade.

          • dilan

            Nations may very well have that interest, but that doesn’t mean that the result of such policies isn’t more poverty in the developing world.

            And more importantly, the means you advocate doesn’t actually increase employment and DOES impede trade. Protectionism is a zero sum game– you take away a job in China to keep it here. (Indeed, it may be a negative sum game, if our labor costs are so high that companies automate rather than keeping the human workers.)

            Expanded trade, in contrast, is a positive sum game, because both countries benefit in aggregate from the trade, due to the law of comparative advantage.

            And what you propose in the OP is, in fact, blocking free trade. Instead of one country selling solar panels to another country, each country makes its own solar panels.

            I realize every protectionist always says “I’m not against all trade”, but the reality is that if you are against any trade that could cost any nation a manufacturing job, saying “I’m not against all trade” is basically a meaningless statement.

            • I feel like you and people like you have a policy of domestic employment that can be summed up in telling workers “enjoy your bread lines here, knowing that workers overseas will now no longer be starving.” That’s not exactly a functional policy.

            • Ahuitzotl

              Expanded trade, in contrast, is a positive sum game, because both countries benefit in aggregate from the trade, due to the law of comparative advantage.

              that would in theory be true if the other countries involved weren’t mired hipdeep in inferred protectionism, subsidisation & other trade-suppressing efforts. In the world as is …. it provably *doesnt* work.

          • apogean

            You sure have an awful lot of reasons to never engage productively with people who seriously disagree with you. I doubt it’s because you’re self-evidently right about everything; it would be a remarkable coincidence.

            • No, it’s that I am not interested in debate and don’t care what people think about me.

    • There are no laws of economics. There are human choices and humans can choose differently.

      Also, talking to you about these things is like talking to a fundamentalist Christian. I’m just going to slowly back away and get back to the real world.

      • Theobald Schmidt

        …he says, blithely dismissing an entire productive field of human inquiry because he doesn’t understand it.

        • Go back to serving the capitalist class and pretend that you are doing something useful.

          • Theobald Schmidt

            Who’s the fundamentalist again?

        • Linnaeus

          …he says, blithely dismissing an entire productive field of human inquiry because he doesn’t understand it.

          To say that there are no laws of economics is not the same thing as dismissing the entire field.

          • rea

            It depends on what you mean by “laws.” It depends on what you mean by “economics”.

            • Brett

              Well, we know that self-interest and incentives seem to exist with or without structured rules, although they can obviously be enhanced or weakened by them. Does that count? Because if that weren’t the case, then there would be no black markets.

              Plus, barring magic, scarcity seems to be a hard and concrete economic rule in all economic systems – “with scarce resources in the face of open-ended human wants come choices and trade-offs.”

          • Theobald Schmidt

            1.) Given that Loomis has also said that economics isn’t a real academic discipline, no, he is very much dismissing the entire field.

            2.) Economics is pretty clear that it represents a specific set of production relations, that are valid under certain conditions at certain instances in time.

            This is as true of things we describe as physical laws — the classical example, gravity, is only true in reference frames that move much slower than the speed of light.

            There are absolutely economic “laws,” certainly in the sense of “extremely useful approximations that have wide applicability” — which is, really, what the term “law” means here.

            • Back in your cage capitalist running dog.

      • sibusisodan

        There are no laws of economics. There are human choices and humans can choose differently.

        I – along with others – am having trouble interpreting this statement in a way that doesn’t make it either trivial or incorrect.

        Would you be interested in fleshing it out?

        More precisely: what set of plausible human choices allows us to escape or ameliorate the set of consequences captured by the clumsy phrase ‘the law of comparative advantage’?

        • Just_Dropping_By

          Well, we could imagine a country imposing tariffs, quotas, and other regulatory barriers that make all imported products cost as much or more than any similar domestic products. That does technically eliminate “comparative advantage” as far as domestic producers and consumers are concerned as a practical matter.

          • sibusisodan

            That’s not quite what I meant. It is of course possible to eliminate comparative advantage in certain cases. That doesn’t get you to the point where you eliminate the consequences of such policies which dilan sketches above.

            I’d like to figure out to do that, because there are a lot of livelihoods at stake. Plus, Erik’s good and thought provoking when he chooses to do that! His post-Rana Plaza suggestions were precisely the kind of thing which would help flesh that out.

      • apogean

        There are no laws of economics. There are human choices and humans can choose differently.

        The depth of ignorance about the philosophy of social science revealed in this quote is shocking for a professor of history.

        Not to mention the radical ontological skepticism about social structure. What’s the point of studying history, Loomis? It’s just a collection of things that happened and choices people made.

        • What’s the point of studying history, Loomis? It’s just a collection of things that happened and choices people made.

          Correct. Or largely correct.

          The reason to study history is to understand the choices humans made in the past to help us make better choices in the present and to understand how we created the society we have today, for better or for worse.

          But there are certainly no laws of history.

          And yes, I, as are many historians, am largely quite skeptical about the claims social scientists make about human behavior.

          • Ronan

            Really? I would think that historians do work from (to a large degree) ‘laws of human history’, or at least models of historical processes and human behaviour, they just might not make them explicit.
            The arguments you make about capital mobility (rightly or wrongly) are very close to a ‘law’ (the more mobile capital, the worse the conditions for labour)
            I dont say that to pile on, but just that that’s my impression.

            • I would think that historians do work from (to a large degree) ‘laws of human history’, or at least models of historical processes and human behaviour, they just might not make them explicit.

              No, I don’t think this is really true at all. Be curious as to what other historians think.

              I would not be comfortable saying there are any laws of human history.

              • Theobald Schmidt

                “The thought processes of humans in the past are comprehensible by humans today.”

            • Ronan

              I would add that I dont agree with Dilan, whose argument is just vulgar econmics 101, and little more than rhetoric. I am probably more sympathetic than the norm here to ‘globalisation’ and relatively unrestricted trade, but that doesnt mean I (theoretically) have to support every trade deal or imagine there is something called ‘free trade’ that works as magically as a first year undergraduate seminar might imply (with caveats)

              • Ronan

                ..actually, re reading Dilan, I think this might be a little unfair.

                • You are too nice. It’s completely accurate.

      • Gareth

        Are there laws of psychology?

        • Lee Rudolph

          Probably far fewer than many people appear to believe there are.

      • UserGoogol

        I’d say comparative advantage is really a principle of mathematical optimization rather than economics per se. (A lot of economic laws are.) If X produces outputs as some function of its inputs and Y produces outputs as some other function of its inputs, then the total amount of all outputs produced can be increased by X producing more of the things it’s comparatively efficient at while Y produces more of the things it’s comparatively efficient at. Whether this justifies actual trade in the actual economy (where, after all, production functions are rather difficult to pin down) is a different question.

  • Brett

    A green economy is one where working class people who will never receive a college education can have a good job and live a middle-class lifestyle while building a more sustainable future.

    I don’t know about older folks, but couldn’t we just send all the relatively younger ones to college? It’s not like the educational goalposts haven’t moved before – it used to be that Not Everyone Graduated High School.

    Besides, I don’t think the future is in trying to resurrect the manufacturing economy of the mid-21st century – that’s gone. It’s in trying to improve conditions in the equivalent jobs of the 21st century, namely the Services Sector.

    • There are lots of people who are not cut out for college. And that’s OK. But we need to have jobs to fit their skill sets.

      • Gareth

        If you’re absolutely certain someone will never go to college, I don’t want them building my solar panel.

        • John Revolta

          OFFS.

          • Warren Terra

            One rather wonders what Gareth assumes to be the education level of the people who assembled his smartphone/laptop/tablet. Also, those who built his house and installed its fixtures.

            • Gareth

              Education level, terrible. Intelligence level, and potential to be educated to college level, who knows? Could be quite high.

        • Ahuitzotl

          You can have *all* the panels built by historians and economists (in between fist-fights)

    • Linnaeus

      Besides, I don’t think the future is in trying to resurrect the manufacturing economy of the mid-21st century – that’s gone. It’s in trying to improve conditions in the equivalent jobs of the 21st century, namely the Services Sector.

      This has been one of Richard Florida’s mantras for a while, but he’s been awfully vague on just how we improve conditions in service jobs. And it’s not like service jobs are necessarily immune to the same pressures that manufacturing jobs are – the tools we might use to improve service job conditions will be the same ones cited as reasons to ship them out or eliminate them.

      • Brett

        Keep in mind that when I say, “improve conditions in the Services Sector”, I don’t just mean more education. I mean more favorable labor rules for unions, attacks on unnecessary licensing regimes, and so forth.

    • twbb

      The value of a college degree was driven largely (not entirely, but largely) by its scarcity. Well-paying jobs don’t spontaneously increase when you start minting more degrees.

  • Warren Terra

    I guess I’m not entirely clear here. It seems likely that abandoning the domestic sourcing requirement would mean buying cheaper, better solar equipment, arguably an environmental and social benefit – but supporting less Indian industry (a social cost) and possibly reducing the impetus to buy the solar equipment at all. The biggest environmental problem with the Obama administration’s stance is this last, that without the boost to domestic industry to justify it, the money won’t get spent on solar at all. But doesn’t that make the environment a bit of a red herring in all this? And isn’t there some other form of accounting or approach to subsidy that would resolve this problem?

    • marduk

      Agreed, I don’t think this is a case of free trade vs environmentalism at all. If anything, developing a hothouse flower Indian solar industry would likely reduce Indian adoption rates. If Obama is of the opinion that a competitive worldwide green energy industry is the fastest way to achieve sustainable energy production then he’s favoring both free trade AND the environment by opposing Indian protectionism. That position might be wrong but it makes plenty of sense and it’s decidedly NOT Obama’s Free Trade Agenda conflicting with his Climate Agenda. His stance is harmonious with both goals.

      Seems like this is just a bog-standard free trade vs protectionism argument with an environmental red herring tacked on.

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