Joost Pauwelyn agrees with Drezner, Dingel, and Trachtman that countervailing duties aren’t appropriate for tackling climate change, but he does advocate a carbon levy on imports:

In terms of WTO law, it would be extremely difficult, for example, to qualify a country’s failure to adopt climate legislation as a “subsidy” or environmental “dumping”. If China does not impose climate legislation in the first place, it is hard to speak of either a subsidy or dumping.

Better options would be to justify a carbon levy on imports as “border tax adjustment” or, better still, to excuse it directly under the environmental exception in GATT Article XX(g).

It’s far from easy, but Pauwelyn thinks that “a carbon levy on imports, when designed carefully, can survive WTO scrutiny.”

UPDATE: Bhagwati and Mavroidis have an article on this topic in the latest issue of World Trade Review. They reach similar conclusions on the legality of various instruments, but argue against imposing such a carbon levy. Thank you to Stephanie Switzer in the comments for the pointer.

Dani Rodrik says Jagdish Bhagwati, once dubbed “the slickest pen in the West” by a Financial Times book review, occasionally makes him cringe:

It’s as if he has an evil twin that sometimes takes control of his writing hand. Recent example in point: his op-ed in the FT where he takes Alan Blinder to task for what Bhagwati claims is Blinder’s about-face on trade. “We free traders,” Bhagwati writes, “have no problem with him as he backs into our corner.”

“We” free traders? “Our” corner? If you wanted evidence that orthodox trade economists form an exclusive club and speak in a single voice, could you get any better than this?

Context matters. Bhagwati’s FT column argues that “free trade is alive and well among economists.” He attacks suggestions of a crisis of faith amongst free traders by saying that “we free traders” constitute the vast majority of economists and describing past episodes when “false notes of alarm were sounded over free trade.”

Bhagwati defends liberal trade policies by noting that the celebrated ‘dissenters’ he describes (Krugman’s new trade theory, Samuelson’s 2004 JEP article, Blinder’s Foreign Affairs piece) never advocated protectionist measures. He objects to those who use their work as arguments for less liberal policies. This view is shared by Greg Mankiw:

After the Blinder-Bhagwati debate last week, there was a dinner at the Harvard Faculty Club at which Ben Friedman asked Alan a good question: Now that Alan has had this epiphany about offshoring, does he favor economic policies any different than he favored a decade ago? Alan thought about the question for a moment and then said no. I found that answer reassuring. My fear is that many politicians reading Alan’s work on offshore outsourcing will not come to the same conclusion.

So when Bhagwati welcomes Blinder back to “our corner,” he portrays him as a lonely exception, thus painting a picture of consensus (a word Bhagwati uses three times), not a club. I would expect Rodrik to object to that much more.

[For a longer version of Bhagwati’s article, see his lecture at the WTO on Monday.]

Peter Schott tackles fears of China:

The widening price gap between Chinese and OECD varieties in some industries is consistent with quality upgrading: in reacting to China, firms in developed economies try to specialise in ever-more sophisticated versions of products to protect their sales. As a result, they drop their lowest price goods, raising their average price. Recent analyses of US manufacturing firms provide further evidence consistent with such a response. One study, for example, shows that even though US manufacturing firms are more likely to contract or fail as their industry’s exposure to imports from low-wage countries increases, this outcome is mitigated by the sophistication of the goods they produce within their industry.2 Firms that appear to be producing more sophisticated goods within industries have better outcomes. This study also suggests that firms move up as well as out in response to trade liberalisation by switching into industries that are more in line with US comparative advantage and that are therefore less exposed to low-wage country exports.

These behaviours provide intuition for why trade with developing countries will not lead to the elimination of manufacturing in the developed world, as some of the most extreme critics of globalisation contend. Even though increased trade with China may cause developed countries to abandon the production of their less-sophisticated goods, production of more-sophisticated goods, or the research and design services associated with them, is always waiting to take its place. Indeed, as is often pointed out, the creative destruction associated with these reallocations should be encouraged: allowing countries to produce according to their comparative advantage enhances the efficiency of production and encourages the availability of a wider variety of products at lower prices to consumers in all countries, thereby raising standards of living.

The problem, of course, is that all workers do not benefit equally from the adjustments associated with trade liberalisation. In developed countries, low-skill workers are disproportionately likely to be dislocated from their jobs as firms move up the quality ladder, and they may also have the hardest time finding matches with new employers. But it is precisely such losses to workers, and not a concern with jobs, that should be the focus of trade policy. Temporarily shielding certain jobs from import competition merely postpones an inevitable adjustment that only becomes more painful the longer it is delayed. Instead, trade policy, like Denmark’s flexicurity program, should facilitate the ability of workers to find new employment when existing occupations disappear.

In many ways, speculation about China today mirrors the uncertainty created by Japan’s ascendance in the 1980s. Back then, it was the Japanese who were poised to take over the world’s manufacturing, and it was the Yen rather than the Yuan that was under-valued. Responding to that competition was also painful for US and European firms, but we have to remember that firms don’t stand still. Some fail, others adapt, and the best of them not only survive, but thrive.

Dani Rodrik’s comments on Costa Rica’s referendum on CAFTA drive Brad DeLong to sound like Bryan Caplan:

Referendums have advantages as symbolic actions raising the issue decided to a higher place as far as the consent of the governed is concerned. But for making good decisions? Very doubtful.

I am also puzzled by Dani Rodrik’s lack of a view. If an economics professor specializing in global development and political economy doesn’t have an informed view, who does?

The voters backed CAFTA. See DeLong’s full post to understand my post’s title.

The folks at Thomson Scientific think a Grossman-Helpman Nobel prize is likely. Of course, their non-trade guesses (Tirole for IO, Wilson-Milgrom for auctions) are equally worthy candidates.

[HT: Mankiw, who has his own guesses.]

Emmanuel says Naomi Klein’s new book is pretty bad:

I would not hesitate to give any paper based on the idea that the Argentinian invasion of the Falklands was done in order to spur neoliberal reforms in Britain or one that suggested Tiananmen spurred China’s turn to the market a failing mark. That such faulty logic could be extended to 500+ pages beggars belief. It’s not ideological bias on my part. This is one of the very few blogs covering economics topics that has Marxist sources among its links. Nor would it be fair for me as an IPE instructor to deliberately give lower marks to papers that adopted a Marxist-leaning perspective. (Actually, it’s often easier for students to write a good essay with such a perspective, but that’s another story.) Rather, the faults with Klein’s work are not ideological but logical.