US Competitive Advantage Through Lax Climate Protection Standards Not to Be Tolerated

The G7 summit in Taormina has shown just how much Donald Trump's presidency has changed international cooperation. Under President Trump, the US might withdraw from the Paris climate agreement. Furthermore, the final communiqué of the G7 included an unusually watered-down free trade statement as a result of the US administration's reluctance to sign off a stronger pledge. The USA bemoaned “unfair trading practices” as well as the fact that international trade does not always benefit all parties involved.

Professor Friedrich Heinemann, head of the ZEW Research Department “Corporate Taxation and Public Finance” at the Mannheim Centre for European Economic Research (ZEW), comments: “The final communiqué of the Taormina summit contains both good and bad news. The good news is that the US is apparently willing to continue to comply with World Trade Organization (WTO) regulations. This reduces the risk of escalating trade wars. The bad news is that the US is obviously following a free rider strategy with regard to its climate and refugee policy. If the largest economy in the world does not play its part in the provision of global public goods, this could derail international cooperation as a whole.

Industrialised nations should therefore react to this new domestic-oriented policy of the US government with a double strategy. On the one hand, industrialised nations should continue to join efforts in order to tackle climate change and the refugee crisis, whether with or without the United States, and endure the lean period under Trump's administration. On the other hand, government leaders around the world should send out strong signals that they will not tolerate competitive advantages achieved by United States through lax climate protection standards. The US President himself has repeatedly complained about the unfair practices of his trading partners. He should therefore be able to understand if other countries start to draw boundaries and adopt measures that, for instance, exclude the US from further liberalisation processes for the time being. The EU should, for example, only resume TTIP negotiations once the United States fully commits to the Paris agreement.”

For further information please contact:

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail heinemann@zew.de