The foreign trade provisions in the upcoming climate change bill will determine whether that bill kills American jobs or saves them. The Peterson Institute just recommended killing American jobs as part of the bill in order to avoid a trade war.
That recommendation came in the Peterson Institute's new book, Global Warming and the World Trading System, Hufbauer, Charnovitz and Kim pointed out that a cap-and-trade bill for reducing carbon emissions would drive up the cost of American products, making them less competitive in U.S. and world markets. As a result, a cap and trade bill would have to include border provisions, such as export subsidies and import duties, to prevent the leakage of jobs out of the United States.
So far, so good. But then the authors of the Peterson Institute book advocated that the border provisions be suspended for a predetermined "peace" period, following passage, in order to avoid a trade war. During the suspension, the United States would negotiate from a position of weakness, even while American jobs would be hemorrhaging and American market share would be falling to foreign producers. After the "peace" period passes, we would implement some puny export subsidies and import limitations. The Europeans, Chinese, and Japanese would pass counter tariffs designed to go after politically-sensitive American exports. Eventually, the United States would withdraw the subsidies and duties, while continuing to hemorrhage jobs in our self-destructive attempt to save the planet.
Instead of bending over backwards to avoid the trade war, as the Peterson Institute recommends, Congress should prepare to win it. Congress should turn the puny subsidies and import restrictions that they plan into Warren Buffett's muscular Import Certificate (IC) plan to balance trade. Here is how Buffett summarized his plan:
We would achieve this [trade] balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties – either exporters abroad or importers here – wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.
The Peterson Institute fears the trade war, but with Warren Buffett's ICs in our arsenal, the United States would win it. Usually ICs are not country specific. Exports to any country allow imports from any country. But should a country, say China, respond to the IC program by restricting its imports from the United States, the U.S. Treasury should have the option of specifying that imports to China must use ICs generated by exports to China. Then, China would be hurting its exports to the United States whenever it limited its imports from the United States. Country-specific ICs let the trade deficit country win any trade war.
The Peterson Institute is concerned about working within WTO rules. But the United States would be much better off withdrawing from the WTO altogether. The WTO was founded upon the false premise that the world could achieve free trade through a set of international rules designed to reduce trade barriers. Governments eventually found ways around those rules, the most obvious being currency manipulations. The great recession that began in October 2008 was caused by the global imbalances that the WTO rules permitted.
If the world had only listened to the greatest economist of the 20th Century, John Maynard Keynes, it would have set up a sustainable alternative to the WTO that would have produced balanced trade, benefiting all parties. Unlike free trade, balanced trade can be established simply by each trade deficit country balancing its own trade through ICs.
The upcoming climate change bill will be a watershed for the Obama administration and the Democratic congress. It will determine whether they solve our economic problems or make them worse. If they follow the Peterson Institute's advice, then American products will become less competitive in U.S. and world markets, destroying American jobs and sending the United States into an even deeper recession. If they adopt Warren Buffett's Import Certificates plan as part of their climate change bill, then they create American jobs and jumpstart America's long-term growth. Their choice will determine America's economic future and whether the Democratic Party continues to win elections.
I would rather see no climate change bill at all than a bill that destroys American jobs. The man-made global warming theory has not yet been proven. An alternative theory has been gaining credence in scientific circles ever since global temperatures and sunspots peaked together in 1998. This alternative theory holds that changes in cosmic ray flux cause temperature changes with the most convincing evidence coming from
who found that the earth cycles through predictable ice ages and greenhouse ages as the solar system cycles through the spiral arms of the galaxy. Apparently, cosmic rays cause ionization that forms low level clouds which reflect the sun's heat back into space, resulting in lower temperatures. Sunspots fit into this theory because they block out cosmic rays, leading to temporary periods of rapid warming.
The pressing question is not whether the Democratic Party saves or destroys the planet. Due to the solar system's position in the galaxy, the earth will continue to warm, gradually, for the next tens of millions of years whether or not the Democratic Party passes a climate change bill. The pressing question is really whether the Democratic Party saves or destroys the American economy. The climate change bill may answer that question.