(With apologies to Edwin Starr.)
Today's FT has an editorial expressing fear that border taxes in relation to carbon content, if implemented by jurisdictions like the U.S. and E.U., would start a trade war. The FT thinks it's dangerous and dumb to risk trade war. The FT, probably rightly, predicts a lot of litigation. During the litigation, it would be interesting to see whether Article 23 DSU could suppress retaliation and escalation. After litigation concludes, it would be interesting to see whether illegal measures are withdrawn.
But my main question is whether throwing down the border tax gauntlet would be such a bad idea. If the U.S. and E.U. are able to avoid a protectionist level of border taxes, and come up with something that is objectively defensible, perhaps unilateral action could disturb the equilibrium of inaction. Unilateral action might promote multilateralism, as occurred in the establishment of the TRIPS and the DSU in response to the U.S. Special 301 and Section 301 laws. Now, especially with respect to TRIPS, we might find the distributive consequences unattractive, and the distributive consequences of coercing China and India through border taxes might be equally unappealing. But I am more sanguine than the FT that a true trade war might be avoided even if the U.S. and E.U. move to border taxes, and I wonder what else that is politically feasible could cause China and India to contribute to a solution. It looks as though without a contribution from India and China, it will be difficult to get much of a contribution from the U.S., and the dominoes fall from there.
Interestingly, the FT concludes by suggesting that as long as border taxes are only a threat they might be OK. However, the distinction between a trade war and a real war is that a real war usually results in more deaths than peace, while a trade war might actually result in fewer deaths than peace. Indeed, as Edwin Starr might ask today, "Trade war, what is it bad for?" Say it again.
