Insights

Trump May Also Use Climate Change as a Trade Weapon

ㅣTaehan Kim, COO of KoSIFㅣ

There is a Korean saying: “It does not matter how you get there, as long as you reach Seoul.” It means that the method matters less than achieving the objective.

On January 20, Donald Trump was officially inaugurated as the 47th President of the United States. The era of an even stronger “America First” policy—one in which any means may be justified as long as the United States benefits—has returned.

     Protectionism Was Once the Democrats’ Domain

Perhaps because the first Trump administration left such a strong impression, many people tend to believe that the US Democratic Party is more supportive of free trade and more opposed to protectionism than the Republican Party under Trump. Historically, however, the opposite has often been true

Neoliberalism and free trade, which flourished under President Ronald Reagan, remained central pillars of Republican policy until the rise of Donald Trump. By contrast, the Democratic Party was generally more active in adopting policies designed to protect domestic industries and workers from free trade.

It was the Clinton administration, for example, that revived and used retaliatory trade measures such as Section 301. Following the 2008 global financial crisis, the Obama administration also included “Buy American” provisions in its economic stimulus package, requiring or favoring the use of US-made products.

It is now largely meaningless, however, to distinguish which political party in the United States is more committed to free trade. Both parties are competing over who can pursue the stronger protectionist agenda.

The Biden administration did not reverse the trade restrictions on China introduced during Trump’s first term. Instead, it strengthened them. Vice President Kamala Harris, who competed against Trump for the presidency, also made stronger protectionism a major campaign pledge.

     The Foreign Pollution Fee Act vs. the Clean Competition Act

As is widely known, President Trump is deeply skeptical of climate science. He has described global warming as a hoax created by China and pledged to withdraw the United States from the Paris Agreement once again.

But what would Trump do if a climate-related policy helped restore US competitiveness?

This is not about the Biden administration’s approach of securing a competitive advantage in future climate technologies through policies such as the Inflation Reduction Act. The question is whether Trump would use climate change as a trade policy tool if doing so could immediately protect US industries.

The Foreign Pollution Fee Act, or FPFA, provides a useful test case.

Several carbon border tax bills have been introduced in the US Congress. The leading Democratic proposal is the Clean Competition Act, while the Foreign Pollution Fee Act was introduced by Republican lawmakers.

The two bills are similar in that both would impose tariffs on imported goods whose greenhouse gas emissions are higher than those of comparable US products. In this respect, they share the same broad approach as the European Union’s Carbon Border Adjustment Mechanism.

The most significant difference between the Foreign Pollution Fee Act and the other proposals, however, is whether domestic products are also subject to a carbon cost.

The European Union already imposes carbon costs on domestic companies through the EU Emissions Trading System.

The Democratic-sponsored Clean Competition Act would establish carbon-intensity performance benchmarks for US industries and impose fees on producers whose products exceed those benchmarks. It therefore includes a form of domestic carbon pricing. The benchmarks would become progressively stricter, and the revenue collected would be reinvested in climate policies.

The Foreign Pollution Fee Act, by contrast, would impose no additional carbon regulations or obligations on US companies.

It would charge fees only on imports with higher carbon intensity than comparable US products, without requiring domestic companies to provide additional reporting or bear any corresponding carbon cost.

The Democratic Clean Competition Act effectively says, “We will make additional efforts, and you should do the same.” The Republican Foreign Pollution Fee Act says, “We have already done enough; only you need to act.”

Unsurprisingly, the products covered by the bill are concentrated in sectors where US goods already have relatively lower emissions intensity. The bill would also allow tariff exemptions for countries with free trade agreements or partnerships with the United States, creating an additional avenue for its use as a diplomatic tool.

     Will Trump Really Use Climate Change as a Trade Weapon?

The proposed legislation is highly likely to conflict with World Trade Organization rules.

The WTO prohibits discrimination among exporting countries under Article I of the General Agreement on Tariffs and Trade, known as the most-favored-nation principle. It also prohibits discriminatory treatment between imported and domestic products under Article III, known as the national treatment principle.

The EU designed its Carbon Border Adjustment Mechanism so that the maximum charge imposed on an imported product reflects the difference between the carbon cost paid by EU producers and the carbon cost already paid by the imported product in its country of origin. This was intended to avoid violating the WTO’s national treatment principle.

The Foreign Pollution Fee Act, however, would impose fees on imported products that are not imposed on domestic companies. It would therefore appear to violate the national treatment principle.

Because the legislation would also allow selected countries to be exempted at the government’s discretion, it may also conflict with the most-favored-nation principle.

Trump and the Republican Party, however, have repeatedly expressed a willingness to weaken or disregard the WTO. It is therefore unlikely that concerns over WTO compliance would significantly constrain them.

The Foreign Pollution Fee Act is almost perfectly aligned with Trump-style protectionism: using whatever means are available to restore US prosperity.

From Trump’s perspective, the only potentially uncomfortable feature may be that the policy is justified in the name of climate change.

It remains to be seen whether he will use even an issue he has repeatedly rejected in order to “Make America Great Again.”

The Korean government’s recently announced economic policy direction for 2025 also included monitoring developments related to the Foreign Pollution Fee Act.

Like China, Korea has relatively high carbon intensity across several major industries. If the Trump administration begins using climate change as an instrument of economic nationalism, the Korean economy could face significant consequences.

To strengthen the long-term competitiveness of Korean industries, Korea must pursue consistent and increasingly ambitious climate policies. At the same time, it urgently needs to restore its diplomatic capacity to manage short-term trade shocks.

The political crisis surrounding the presidential impeachment must be resolved quickly so that the government can return to fulfilling its proper role.

<Comparison of the Foreign Pollution Fee Act, the Clean Competition Act, and the EU Carbon Border Adjustment Mechanism>

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