International Trade and the “Green Economy”

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.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

5 thoughts on “International Trade and the “Green Economy””

  1. I’m having a real problem wrapping my brain around this analysis.

    The correct way to “green” America is not buying cheaper foreign exports. It is to build the manufacturing capacity in the US. Buying foreign, simply moves more money overseas that would be much better spent on home produced manufacturing. There is no multiplier effect when purchasing foreign goods, ever. That is why shipping jobs overseas is so incredibly irrational for the economy. Subsidizing corporations for shipping any job overseas is insane.

    The cost to the American economy is far too high a price to pay for “greening” with importing foreign goods that are perfectly capable of being produced in the US.

    I don’t support protecting any “buggy whip” factories in the US. If tariffs are all that keep an industry from going under, let it die. If corporations can only afford to ship jobs overseas with subsidies, let them die, too.

    The Americans are just as innovative as anyone else. Jumping on the “green” manufacturing jobs nationally is simply common sense. It is the coming thing, no matter what politicians, propaganda machines and the “economists” the dirty power people buy.

  2. Outsourcing of durables and intermediates works about as well as outsourcing of consumption goods, and for the same reason. But I’m mostly taken by your notion that technology is a public good. Given the existence of the patent, copyright and trade-secrets systems worldwide, what exactly do you mean by that?

  3. yeah, I’m going with the idea that that paper – that whole notion – is BUNK.
    It’ll take zero time for the top product to also be made overseas. Then we’d need a tarrif. Then we’d have expensive green.
    You think just the fossil fuel savings, while gutting our way to make a living, will work?
    Kevin, you should chop this bunk up and give it a big public trashing.
    Bunk, I say …

  4. oops! the “K” in “kahn” threw me – I didn’t go back up and check – my apologies for your name wrong.

  5. Worth remembering that the only reaon thee’s now a green power technology for capitalists to invest and trade in is the decades-old and farsighted policy of Japan and Germany – and now the rest of the EU and China – to subsidise research and create market incentives through subsidy and regulation. Green power in the USA is a free rider; but better that than inaction.

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