Capping and Trading Away Our Jobs

In his weekly radio address on June 27, President Barack Obama praised the House of Representatives for just passing the American Clean Energy and Security Act of 2009, more commonly known as the cap and trade climate bill. He said:

This historic piece of legislation will not just lessen our dependence on foreign oil, but also spark a clean energy transformation in our economy that will create millions of new American jobs that pay well and cannot be outsourced. Clean energy and the jobs it creates are critical to building a new foundation for our economy.

House Speaker Nancy Pelosi says this is a jobs bill, "Jobs, jobs, jobs." Unfortunately, the jobs created in alternative energy sources will be more than offset by job losses; and the "millions" of jobs that the bill is supposed to create can indeed be outsourced.  In fact, GE is already importing wind turbines from its plants in China, Germany and Spain to supply wind farms in the United States.

America's commitment to unilateral free trade assures GE and other investors who build new factories in China, or anywhere else, that they can expect to import wind and solar machinery into the US without any duties whatsoever. The Chinese government uses currency manipulations, VAT duties and rebates, tariffs, export-subsidies, and non-tariff barriers to guarantee that China is a better place for new factories than the United States.  Meanwhile, we punish American producers with the second highest corporate income tax in the world. Is it any wonder that net investment in American manufacturing has been close to zero in recent years?

Even worse is the loss of jobs that the rising cost that cap and trade will cause to our mining, agriculture, and manufacturing sectors. Yet Obama even objects to the weak measures that the House included in the bill in an attempt to stem the predictable job outflow. In Sunday's New York Times, John Broder reported:

President Obama on Sunday praised the energy bill passed by the House late last week as an "extraordinary first step," but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution.

"At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade," Mr. Obama said, "I think we have to be very careful about sending any protectionist signals out there."

He added, "I think there may be other ways of doing it than with a tariff approach."

Obama's criticism of the bill is economically and environmentally incoherent.  Even Paul Krugman, left-leaning New York Times economist in residence, criticized the President's statement noting, "border adjustments here are entirely legitimate in terms of basic economics."

Unilateral environmental regulation has had pernicious effects on American industry for some time. If trading partners do not have similar legislation, the regulations have the effect of raising the costs of producing in the US relative to other countries. If you can make widgets in China without paying any of the costs associated with cleaning waste, then China has an advantage in widget production even though THE POLLUTION STILL GETS EMITTED! All we have done is shift pollution to someone else's back yard. Which raises ethical as well as economic issues.  

If the goal is to reduce global CO2 emissions, then the main effect of making emissions in the US costly will be to force industry to move to countries with cheaper carbon.  When it comes to carbon there is only one global backyard.  Doesn't the president understand this?

There are three possibilities.

  1. Maliciousness. Obama understands the issue but he doesn't care about US industry. He may be among the leftists who hope to weaken American capitalism so that the Communist Party of China can dominate the world's future.
  2. Fantasy World. Obama lives in a fantasy world in which, if the United States doesn't resort to protectionism, other countries will not either. But, China has already been practicing protectionism. The Chinese government has been steadily hiking its export subsidies, just raising subsidies on textiles, for example, from 15% to 16%. They have continued to maintain a dollar peg to keep their products artificially cheap and American products artificially expensive. Their 25% tariffs on foreign-made vehicles and auto parts continue to keep Detroit products out of their growing markets. They are so effective with their non-tariff barriers to foreign products that, according to the World Bank, their imports are expected to decrease this year even while their economy grows at a 7.2% clip.
  3. Incompetence. Obama and his economic advisors are incompetent. The case that he makes for unilateral free trade is economically and environmentally unjustifiable. It not only harms the US economically, but (if carbon reductions can reduce global warming) it harms the entire world.
So which is it? We believe that incompetence is the most likely explanation. After all, President Obama's approach to the Great Recession was to spend hundreds of billions of dollars in an attempt to blow up a tire without patching its trade deficit leak. He has been piling on massive governmental debt, even though America's primary economic problem is excessive debt. He has been following John Maynard Keynes' economic advice for trade surplus countries while ignoring Keynes' warning that trade deficit countries risk "persistent depression."

When Speaker Pelosi said this was a jobs bill, she neglected to point out that the "jobs, jobs, jobs" will probably be located in China.

The authors maintain a blog at, and co-authored the 2008 book Trading Away Our Future: How to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too Late, published by Ideal Taxes Association.
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