Dec. 11 – The recent U.S. bill on carbon emissions is likely to result in higher tariffs and cut Chinese exports to the United States by 20 percent, a new World Bank report stated.

As part of a greenhouse gas emission surcharge being considered in Washington, the U.S. government may grant free emission allowances to energy and trade-intensive industries in the United States and require importers to purchase emissions allowances. China is currently the largest importer of goods into the U.S. and under such proposals would face average tariffs of more than 20 percent under the scheme. This estimate is based on Washington’s target of cutting emissions 17 percent by 2020 from 2005 levels.

Predictably, the scenario has met with dismay in certain quarters, not least the Chinese, who regard it as a form of protectionism. American consumer groups also feel such moves would curtail cheap goods and effectively demolish the stocks of stores such as Wal-Mart. U.S. senators have countered that America should not lose jobs to competitors with lower environmental standards.

Nobel Prize winning economist Paul Krugman has also weighed into the debate saying that the proposed law “was a matter of leveling the playing field, not protectionism.” Should the bill become law, it may well trigger a trade war, with Chinese manufacturers and American consumers both badly hit. Under the bill, tariffs would rise as follows under each specific category:

• All manufacturing and energy intensive manufacturing: 17 percent
• Tariffs on all merchandise imports based on carbon content in imports: From 26.1 per cent to 42.7 percent
• Tariffs on all merchandise imports based on carbon content in domestic production: From 3.1 percent to 6.2 percent
• Tariffs on all merchandise imports and rebates on all merchandise exports based on carbon content in domestic production: From 3.3 percent to 6.5 percent
• Tariffs on energy-intensive merchandise imports based on carbon content in imports: From 0.5 percent to 44.6 percent
• Tariffs on energy-intensive merchandise imports based on carbon content in domestic production: From 0.6 percent to 6.3 percent.

Please contact Hank Bourg, head of the North America Desk of Dezan Shira & Associates in Shanghai for advice and assistance on China-U.S. import-export tariffs and related tax and trade advisory matters at shanghai@dezshira.com.