Low-Energy Fridays: Yes, tariffs can affect climate change
Recent editions of Low-Energy Fridays have discussed tariffs and energy from a couple different perspectives. We’re continuing that theme this week, but from an angle that might not be immediately obvious: tariffs and climate change. The connection between tariffs and climate change might not be intuitive, but if you’re like me, pretty much everything reminds you of the climate, so that shouldn’t be a problem.
The most obvious way tariffs impact climate change has to do with the differences in carbon intensity between countries. Carbon intensity is a metric of how much greenhouse gas emissions are involved in a given amount of economic activity. In order to make stuff or do stuff, energy is necessary. And since most energy still comes from fossil fuels, basically all economic activity has some carbon footprint. But the amount of emissions required to produce something isn’t the same for all industries or in all countries. A country that is more energy efficient (or where more energy comes from carbon-free sources), will emit fewer greenhouse gases to produce the same amount of output as a less-efficient country or one that relies more heavily on fossil fuels.
When America imposes tariffs on imports from a particular country, this makes American consumers more likely to buy an American-made version of the product rather than the now more expensive foreign one. Depending on the carbon intensity of the two countries’ economies, this could result in either higher or lower greenhouse gas emissions than before. If the imports come from a country with a lower carbon intensity than the United States, buying American could raise total emissions. On the other hand, if the imports come from a country with a higher carbon intensity, switching to American-made could end up reducing emissions.
The American economy’s carbon intensity has fallen considerably in recent decades. As of 2023, the United States emitted 0.26 kilograms of carbon dioxide for every dollar of output. That’s less than the 0.31 kg per dollar for Canada and far less than the 0.44 kg per dollar for China. Put another way, if the United States were to substitute around $6,000 dollars’ worth of Chinese imports for American-made goods, it would be equivalent to reducing U.S. carbon emissions by one ton.
Not every country has a higher carbon intensity than the United States, though. Many European countries, such as Germany (0.17 kg of CO2 per dollar) and France (0.11 kg CO2 per dollar), have significantly lower carbon intensities. Substituting imports from those countries for American goods could thus increase carbon emissions rather than lowering them.
However, it’s not always so straightforward. For example, if the United States put tariffs on imports from Canada, it could lead to an increase in imports from another foreign country rather than substitution with American goods. Depending on the carbon intensity of that country’s economy, emissions may either increase or decrease. Tariffs might also reduce overall consumption, as consumers who pay more for imports or substitutes have less money to spend on other stuff. A full and proper analysis would account for the indirect effects that a tariff would have on broader economic activity.
The point of all this is not just to geek out about climate economics—it’s that even seemingly unrelated policy changes can potentially have a big climate effect in today’s complex and integrated global economy. Of course, since the details of tariff policy are still in flux, it’s hard to know exactly what the overall effect on the climate will be, or even if it will be positive or negative. Nevertheless, while President Donald J. Trump is not imposing tariffs in order to reduce carbon emissions, it could end up having a bigger effect than many policies explicitly designed to do so.