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Ted Halstead

To Shrink the Trade Deficit With China, Tax Carbon

The most effective border-adjustment policy would create jobs and fight climate change.
Emissions are worse in China.

Emissions are worse in China.

Photographer: Kevin Frayer/Getty Images

When President Donald Trump assumes that any policy to curb greenhouse-gas emissions must be bad for economic growth, job creation and U.S. competitiveness, he has things backwards. This miscalculation extends to U.S. trade policy, the central focus of Trump’s meeting this week with Chinese President Xi Jinping. Trump says he wants to shrink America's trade deficit with China, but the best way to do that would be to focus on the subsidies that China provides its companies through lax environmental standards.

China is several times less energy-efficient than the U.S., emitting far more greenhouse gases per unit of economic output. Whether the industry is steel, cement, clothing or electronics, this amounts to an implicit subsidy for dirty production in China, at the expense of U.S.-based manufacturers. The way to level the playing field is to penalize China's carbon intensity.