I have returned to Los Angeles after a ten day trip to Beijing and Tianjin. As you might expect, I ate great food, learned no Chinese and witnessed plenty of economic growth. While there is plenty of poverty in the countryside, China’s cities are experiencing an ongoing boom. Along every dimension of consumption and production, the sheer scale of economic activity is staggering. In Tianjin, there were hundreds (perhaps thousands) of new housing towers being built all around the city. During a time of growth, can any environmental problems be mitigated? In a new NBER paper with the sexy title, “Understanding Cross-National Trends in High Tech Renewable Power Equipment Exports to the United States”, Aparna Sawhney and I examine 20 years of trade data across many different industries associated with wind power and solar power generation.
Our paper is really focused on international “green supply chains”. From the basic ideas in comparative advantage, international trade lowers the price of goods that a nation imports. While most trade theory focuses on consumption goods (i.e imports lowers the price of coffee for U.S consumers relative to the price under autarky), producers also benefit from being able to purchase intermediate inputs at lower prices. While many U.S “green tech” firms complain about “unfair” international competition, there are other U.S firms whose investments are complements of international exports. The growth in imports of renewable equipument from India and China lowers the final price that U.S consumers face for installing wind and solar renewable generation equipment. Such lower prices raises the likelihood that the renewable industry can compete with fossil fuel generated electricity even if we do not introduce carbon pricing.
While many international trade analysts have focused on the international “pollution havens” claims, in our study we argue that U.S trade with India and China can “green” the U.S (not because of outsourcing of dirty industry) but because of importing cheaper components that lower the cost of “going green”. If the U.S makes complementary investments that improve this technology then India and China can green their economies by importing this final technology. Since technology is a public good, this “teamwork” through international trade helps to decouple world pollution from economic growth. Having seen the economic growth taking place in China, such endogenous technological advance is crucial.