Globalization and the Environment
Concerns about human impacts on the environment are growing in much of the world. In
turn, these concerns are playing a growing role in domestic politics. For example, in
November 2007, the government of Australian Prime Minister John Howard was voted out
of office; most political analysts believed that the ruling party’s decisive defeat had a lot to
do with public perceptions that Australia’s Liberal Party (which is actually conservative—
Labor is on the left) was unwilling to act against environmental threats.
Inevitably, then, environmental issues are playing a growing role in disputes about
international trade as well. Some anti-globalization activists claim that growing international
trade automatically harms the environment; some also claim that international trade
agreements—and the role of the World Trade Organization in particular—have the effect of
blocking environmental action. Most international economists view the first claim as simplistic
and disagree with the second. That is, they deny that there is a simple relationship
between globalization and environmental damage, and do not believe that trade agreements
prevent countries from having enlightened environmental policies. Nonetheless, the intersection
of trade and the environment does raise a number of important issues.
Globalization, Growth, and Pollution
Both production and consumption often lead, as a byproduct, to environmental damage.
Factories emit pollution into the air and sometimes dump effluent into rivers; farmers use
fertilizer and pesticides that end up in water; consumers drive pollution-emitting cars. As a
result—other things equal—economic growth, which increases both production and consumption,
leads to greater environmental damage.
However, other things are not equal. For one thing, countries change the mix of their
production and consumption as they grow richer, to some extent in ways that tend to
reduce the environmental impact. For example, as the U.S. economy becomes increasingly
devoted to the production of services rather than goods, it tends to use less energy and raw
material per dollar of GDP.
Also, growing wealth tends to lead to growing political demands for environmental
quality. As a result, rich countries generally impose stricter regulations to ensure clean air
and water than poorer countries—a difference that is apparent to anyone who has gone
back and forth between a major city in the United States or Europe and one in a developing
country, and taken a deep breath in both places.
In the early 1990s, Princeton economists Gene Grossman and Alan Krueger, studying
the relationship between national income levels and pollutants such as sulfur dioxide,
found that these offsetting effects of economic growth lead to a distinctive “inverted U”
relationship between per-capita income and environmental damage known as the
environmental Kuznets curve.1 This concept, whose relevance has been confirmed by a
great deal of further research, is illustrated schematically in Figure 12-3.
The idea is that as a country’s income per capita rises due to economic growth, the initial
effect is growing damage to the environment. Thus, China, whose economy has
surged in recent decades, is in effect moving from point A to point B: As the country
burns more coal in its power plants and produces more goods in its factories, it emits
more sulfur dioxide into the air and dumps more effluent into its rivers.
But when a country gets sufficiently rich, it can afford to take action to protect the environment.
As the United States has grown richer in recent decades, it has also moved to
1 Gene Grossman and Alan Krueger, “Environmental Effects of a North American Free Trade Agreement,” in
Peter Garber, ed., The U.S. Mexico Free Trade Agreement. MIT Press, 1994.
CHAPTER 12 Controversies in Trade Policy 287
limit pollution. For example, cars are required to have catalytic converters that reduce
smog, and a government-licensing scheme limits emissions of sulfur dioxide from power
plants. In terms of Figure 12-3, the United States has on some fronts, such as local air pollution,
moved from C to D: growing richer and doing less damage to the environment.
What does this have to do with international trade? Trade liberalization is often advocated
on the grounds that it will promote economic growth. To the extent that it succeeds in
accomplishing this end, it will raise per-capita income. Will this improve or worsen environmental
quality? It depends which side of the environmental Kuznets curve an economy
is on. In their original paper, which was in part a response to critics of the North American
Free Trade Agreement who argued that the agreement would be environmentally harmful,
Grossman and Krueger suggested that Mexico might be on the right side of the curve—that
is, to the extent that NAFTA raises Mexican income, it might actually lead to a reduction in
environmental damage.
However, the environmental Kuznets curve does not, by any means, necessarily imply
that globalization is good for the environment. In fact, it’s fairly easy to make the argument
that at a world level, globalization has indeed harmed the environment—at least so far.
This argument would run as follows: The biggest single beneficiary of globalization
has arguably been China, whose export-led economy has experienced incredible growth
since 1980. Meanwhile, the single biggest environmental issue is surely climate change:
There is broad scientific consensus that emissions of carbon dioxide and other greenhouse
gases are leading to a rise in the Earth’s average temperature.
China’s boom has been associated with a huge increase in its emissions of carbon dioxide.
Figure 12-4 shows carbon dioxide emissions of the United States, Europe, and China from
1980 to 2008. In 1980 China was a minor factor in global warming; by 2008 it was, by a substantial
margin, the world’s leading emitter of greenhouse gases.
It’s important to realize, though, that the problem here isn’t globalization per se—it’s
China’s economic success, which has to some extent come as a result of globalization.
And despite environmental concerns, it’s difficult to argue that China’s growth, which has
raised hundreds of millions of people out of dire poverty, is a bad thing.
The Problem of “Pollution Havens”
When ships get too old to continue operating, they are disassembled to recover their
scrap metal and other materials. One way to look at “shipbreaking” is that it is a form of
Environmental damage
Income per Capita
A
B
C
D
Figure 12-3
The Environmental Kuznets Curve
Empirical evidence suggests that as
economies grow, they initially
do increasing environmental
damage—but they become more
environmentally friendly once they
become sufficiently rich. China,
where the environment is deteriorating
as the economy expands, is
in effect moving from A to B. Richer
countries may be moving from C to
D, using some of their growth to
improve the environment.
288 PART TWO International Trade Policy
recycling: Instead of leaving a ship to rust, a shipbreaking firm extracts and reuses its
components. Ultimately, this salvaging means that less iron ore needs to be mined, less
oil extracted, and so on. One might expect shipbreaking to be good for the environment.
The task itself, however, can be environmentally hazardous: Everything from the residual
oil in a ship’s tanks to the plastic in its chairs and interior fittings, if not handled carefully,
can be toxic to the local environment.
As a result, shipbreaking in advanced countries is subject to close environmental regulation.
When a ship is taken apart in Baltimore or Rotterdam, great care is taken to avoid
environmental harm.
But these days, shipbreaking rarely takes place in advanced countries. Instead, it’s
done in places like the Indian shipbreaking center of Alang, where ships are run aground
on a beach and then are dismantled by men with blowtorches, who leave a lot of pollution
in their wake.
In effect, Alang has become a pollution haven: Thanks to international trade, an economic
activity that is subject to strong environmental controls in some countries can take
place in other countries with less strict regulation.
Carbon dioxide emissions
(million metric tons)
China
United States
Europe
0
1000
2000
3000
4000
5000
6000
7000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 12-4
Carbon Dioxide Emissions
The rapid economic growth of China has turned it from a minor factor in climate change to the world’s
largest emitter of carbon dioxide.
Source: Energy Information Agency.
CHAPTER 12 Controversies in Trade Policy 289
Some activist groups are very concerned about the problem of pollution havens.
Indeed, the environmental group Greenpeace made a cause celebre out of Alang, demanding
that higher environmental standards be imposed.
There are really two questions about pollution havens. The first is whether they are
really an important factor. The second is whether they deserve to be a subject of international
negotiation.
On the first question, most empirical research suggests that the pollution haven effect
on international trade is relatively small. That is, there is not much evidence that “dirty”
industries move to countries with lax environmental regulation.2 Even in the case of the
shipbreaking industry, India’s low wages seem to have been more of a lure than its loose
environmental restrictions.
Second, do nations have a legitimate interest in each other’s environmental policies?
That turns out to depend on the nature of the environmental problem.
Pollution is the classic example of a negative externality—a cost that individuals impose
on others but don’t pay for. That’s why pollution is a valid reason for government intervention.
However, different forms of pollution have very different geographical reach—and
only those that extend across national boundaries obviously justify international concern.
Thus, to the extent that Indian shipbreaking pollutes the local environment at Alang, this is
a problem for India; it’s less clear that it is a problem for other countries. Similarly, air pollution
in Mexico City is a problem for Mexico; it’s not clear why it’s a valid U.S. interest. On
the other hand, emissions of carbon dioxide affect the future climate for all countries: They’re
an international externality and deserve to be the subject of international negotiation.
At this point it’s hard to come up with major examples of industries in which the pollution
haven phenomenon, to the extent that it occurs, leads to international negative externalities.
That situation may change dramatically, however, if some but not all major economies adopt
strong policies to limit climate change.
The Carbon Tariff Dispute
In 2009 the U.S. House of Representatives passed a bill that would have created a capand-
trade system for greenhouse gases—that is, a system under which a limited number
of emissions licenses are issued and firms are required to buy enough licenses to cover
their actual emissions, in effect putting a price on carbon dioxide and other gases. The
Senate failed to pass any comparable bill, so climate-change legislation is on hold for the
time being. Nonetheless, there was a key trade provision in the House bill that may represent
the shape of things to come: It imposed carbon tariffs on imports from countries that
fail to enact similar policies.
What was that about? One question that has been raised about climate-change legislation
is whether it can be effective if only some countries take action. The United States accounts
for only part of the world’s emission of greenhouse gases—in fact, as we saw in Figure 12-4,
it’s not even the largest emitter. So a unilateral reduction in emissions by the United States
would have only a limited effect on global emissions, and hence on future climate change.
Furthermore, policies that put a high price on carbon might make the pollution haven effect
much larger than it has been so far, leading to “carbon leakage” as emissions-intensive
industries relocate to countries without strong climate-change policies.
The obvious answer to these concerns is to make the initiative global, to have all
major economies adopt similar policies. But there’s no guarantee that such an agreement
would be forthcoming, especially when some countries like China feel that they
2 See, for example, Josh Ederington, Arik Levinson, and Jenny Minier, “Trade Liberalization and Pollution
Havens,” Working Paper 10585, National Bureau of Economic Research, June 2004.
290 PART TWO International Trade Policy
deserve the right to have laxer environmental policies than rich countries that have
already achieved a high standard of living.
So what’s the answer? The idea behind carbon tariffs is to charge importers of goods from
countries without climate-change policies an amount proportional to the carbon dioxide emitted
in the production of those goods. The charge per ton of emissions would be equal to the
price of carbon dioxide emission licenses in the domestic market. This would give overseas
producers an incentive to limit their carbon emissions and would remove the incentive to shift
production to countries with lax regulation. In addition, it would, possibly, give countries
with lax regulations an incentive to adopt climate-change policies of their own.
Critics of carbon tariffs argue that they would be protectionist, and also violate international
trade rules, which prohibit discrimination between domestic and foreign products.
Supporters argue that they would simply place producers of imported goods and domestic
producers on a level playing field when selling to domestic consumers, with both required to
pay for their greenhouse gas emissions. And because carbon tariffs create a level playing field,
they argue, such tariffs—carefully applied—should also be legal under existing trade rules.
At this point the issue of carbon tariffs is hypothetical, since no major economy has yet
placed a significant price on greenhouse gas emissions. Correspondingly, the WTO hasn’t
issued any rulings on the legality of such tariffs, and probably won’t until or unless a real
case emerges. But if climate-change legislation makes a comeback—and it is a good bet
that it will sooner or later—it will clearly lead to some major new issues in trade policy.
SUMMARY
1. Some new arguments for government intervention in trade have emerged over the past
quarter-century: The theory of strategic trade policy offered reasons why countries
might gain from promoting particular industries. In the 1990s a new critique of globalization
emerged that focused on the effects of globalization on workers in developing
countries. And possible action on climate change has raised some major trade issues,
including that of the desirability and legality of carbon tariffs.
2. Activist trade policy arguments rest on two ideas. One is the argument that governments
should promote industries that yield technological externalities. The other, which represents
a greater departure from standard market failure arguments, is the Brander-Spencer
analysis, which suggests that strategic intervention can enable nations to capture excess
returns. These arguments are theoretically persuasive; however, many economists worry
that they are too subtle and require too much information to be useful in practice.
3. With the rise of manufactured exports from developing countries, a new movement
opposed to globalization has emerged. The central concern of this movement is with the
low wages paid to export workers, although there are other themes as well. The response
of most economists is that developing-country workers may earn low wages by Western
standards, but that trade allows them to earn more than they otherwise would.
4. An examination of cases suggests how difficult the discussion of globalization really
is, especially when one tries to view it as a moral issue; it is all too easy for people to
do harm when they are trying to do good. The causes most favored by activists, such as
labor standards, are feared by developing countries, which believe the standards they
will be used as protectionist devices.
5. To the extent that globalization promotes economic growth, it has ambiguous effects
on the environment. The environmental Kuznets curve says that economic growth initially
tends to increase environmental damage as a country grows richer but that
beyond a certain point, growth is actually good for the environment. Unfortunately,
some of the world’s fastest-growing economies are still relatively poor and on the
“wrong” side of the curve.
CHAPTER 12 Controversies in Trade Policy 291
6. There is growing concern that globalization may allow highly polluting industries to
move to pollution havens, where regulation is looser. There is little evidence that this
is a major factor in actual location decisions, at least so far. But that may change if
serious climate-change policies are implemented; in that case, there is a strong case for
carbon tariffs, but also strong criticism of the concept.
Concerns about human impacts on the environment are growing in much of the world. In
turn, these concerns are playing a growing role in domestic politics. For example, in
November 2007, the government of Australian Prime Minister John Howard was voted out
of office; most political analysts believed that the ruling party’s decisive defeat had a lot to
do with public perceptions that Australia’s Liberal Party (which is actually conservative—
Labor is on the left) was unwilling to act against environmental threats.
Inevitably, then, environmental issues are playing a growing role in disputes about
international trade as well. Some anti-globalization activists claim that growing international
trade automatically harms the environment; some also claim that international trade
agreements—and the role of the World Trade Organization in particular—have the effect of
blocking environmental action. Most international economists view the first claim as simplistic
and disagree with the second. That is, they deny that there is a simple relationship
between globalization and environmental damage, and do not believe that trade agreements
prevent countries from having enlightened environmental policies. Nonetheless, the intersection
of trade and the environment does raise a number of important issues.
Globalization, Growth, and Pollution
Both production and consumption often lead, as a byproduct, to environmental damage.
Factories emit pollution into the air and sometimes dump effluent into rivers; farmers use
fertilizer and pesticides that end up in water; consumers drive pollution-emitting cars. As a
result—other things equal—economic growth, which increases both production and consumption,
leads to greater environmental damage.
However, other things are not equal. For one thing, countries change the mix of their
production and consumption as they grow richer, to some extent in ways that tend to
reduce the environmental impact. For example, as the U.S. economy becomes increasingly
devoted to the production of services rather than goods, it tends to use less energy and raw
material per dollar of GDP.
Also, growing wealth tends to lead to growing political demands for environmental
quality. As a result, rich countries generally impose stricter regulations to ensure clean air
and water than poorer countries—a difference that is apparent to anyone who has gone
back and forth between a major city in the United States or Europe and one in a developing
country, and taken a deep breath in both places.
In the early 1990s, Princeton economists Gene Grossman and Alan Krueger, studying
the relationship between national income levels and pollutants such as sulfur dioxide,
found that these offsetting effects of economic growth lead to a distinctive “inverted U”
relationship between per-capita income and environmental damage known as the
environmental Kuznets curve.1 This concept, whose relevance has been confirmed by a
great deal of further research, is illustrated schematically in Figure 12-3.
The idea is that as a country’s income per capita rises due to economic growth, the initial
effect is growing damage to the environment. Thus, China, whose economy has
surged in recent decades, is in effect moving from point A to point B: As the country
burns more coal in its power plants and produces more goods in its factories, it emits
more sulfur dioxide into the air and dumps more effluent into its rivers.
But when a country gets sufficiently rich, it can afford to take action to protect the environment.
As the United States has grown richer in recent decades, it has also moved to
1 Gene Grossman and Alan Krueger, “Environmental Effects of a North American Free Trade Agreement,” in
Peter Garber, ed., The U.S. Mexico Free Trade Agreement. MIT Press, 1994.
CHAPTER 12 Controversies in Trade Policy 287
limit pollution. For example, cars are required to have catalytic converters that reduce
smog, and a government-licensing scheme limits emissions of sulfur dioxide from power
plants. In terms of Figure 12-3, the United States has on some fronts, such as local air pollution,
moved from C to D: growing richer and doing less damage to the environment.
What does this have to do with international trade? Trade liberalization is often advocated
on the grounds that it will promote economic growth. To the extent that it succeeds in
accomplishing this end, it will raise per-capita income. Will this improve or worsen environmental
quality? It depends which side of the environmental Kuznets curve an economy
is on. In their original paper, which was in part a response to critics of the North American
Free Trade Agreement who argued that the agreement would be environmentally harmful,
Grossman and Krueger suggested that Mexico might be on the right side of the curve—that
is, to the extent that NAFTA raises Mexican income, it might actually lead to a reduction in
environmental damage.
However, the environmental Kuznets curve does not, by any means, necessarily imply
that globalization is good for the environment. In fact, it’s fairly easy to make the argument
that at a world level, globalization has indeed harmed the environment—at least so far.
This argument would run as follows: The biggest single beneficiary of globalization
has arguably been China, whose export-led economy has experienced incredible growth
since 1980. Meanwhile, the single biggest environmental issue is surely climate change:
There is broad scientific consensus that emissions of carbon dioxide and other greenhouse
gases are leading to a rise in the Earth’s average temperature.
China’s boom has been associated with a huge increase in its emissions of carbon dioxide.
Figure 12-4 shows carbon dioxide emissions of the United States, Europe, and China from
1980 to 2008. In 1980 China was a minor factor in global warming; by 2008 it was, by a substantial
margin, the world’s leading emitter of greenhouse gases.
It’s important to realize, though, that the problem here isn’t globalization per se—it’s
China’s economic success, which has to some extent come as a result of globalization.
And despite environmental concerns, it’s difficult to argue that China’s growth, which has
raised hundreds of millions of people out of dire poverty, is a bad thing.
The Problem of “Pollution Havens”
When ships get too old to continue operating, they are disassembled to recover their
scrap metal and other materials. One way to look at “shipbreaking” is that it is a form of
Environmental damage
Income per Capita
A
B
C
D
Figure 12-3
The Environmental Kuznets Curve
Empirical evidence suggests that as
economies grow, they initially
do increasing environmental
damage—but they become more
environmentally friendly once they
become sufficiently rich. China,
where the environment is deteriorating
as the economy expands, is
in effect moving from A to B. Richer
countries may be moving from C to
D, using some of their growth to
improve the environment.
288 PART TWO International Trade Policy
recycling: Instead of leaving a ship to rust, a shipbreaking firm extracts and reuses its
components. Ultimately, this salvaging means that less iron ore needs to be mined, less
oil extracted, and so on. One might expect shipbreaking to be good for the environment.
The task itself, however, can be environmentally hazardous: Everything from the residual
oil in a ship’s tanks to the plastic in its chairs and interior fittings, if not handled carefully,
can be toxic to the local environment.
As a result, shipbreaking in advanced countries is subject to close environmental regulation.
When a ship is taken apart in Baltimore or Rotterdam, great care is taken to avoid
environmental harm.
But these days, shipbreaking rarely takes place in advanced countries. Instead, it’s
done in places like the Indian shipbreaking center of Alang, where ships are run aground
on a beach and then are dismantled by men with blowtorches, who leave a lot of pollution
in their wake.
In effect, Alang has become a pollution haven: Thanks to international trade, an economic
activity that is subject to strong environmental controls in some countries can take
place in other countries with less strict regulation.
Carbon dioxide emissions
(million metric tons)
China
United States
Europe
0
1000
2000
3000
4000
5000
6000
7000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Figure 12-4
Carbon Dioxide Emissions
The rapid economic growth of China has turned it from a minor factor in climate change to the world’s
largest emitter of carbon dioxide.
Source: Energy Information Agency.
CHAPTER 12 Controversies in Trade Policy 289
Some activist groups are very concerned about the problem of pollution havens.
Indeed, the environmental group Greenpeace made a cause celebre out of Alang, demanding
that higher environmental standards be imposed.
There are really two questions about pollution havens. The first is whether they are
really an important factor. The second is whether they deserve to be a subject of international
negotiation.
On the first question, most empirical research suggests that the pollution haven effect
on international trade is relatively small. That is, there is not much evidence that “dirty”
industries move to countries with lax environmental regulation.2 Even in the case of the
shipbreaking industry, India’s low wages seem to have been more of a lure than its loose
environmental restrictions.
Second, do nations have a legitimate interest in each other’s environmental policies?
That turns out to depend on the nature of the environmental problem.
Pollution is the classic example of a negative externality—a cost that individuals impose
on others but don’t pay for. That’s why pollution is a valid reason for government intervention.
However, different forms of pollution have very different geographical reach—and
only those that extend across national boundaries obviously justify international concern.
Thus, to the extent that Indian shipbreaking pollutes the local environment at Alang, this is
a problem for India; it’s less clear that it is a problem for other countries. Similarly, air pollution
in Mexico City is a problem for Mexico; it’s not clear why it’s a valid U.S. interest. On
the other hand, emissions of carbon dioxide affect the future climate for all countries: They’re
an international externality and deserve to be the subject of international negotiation.
At this point it’s hard to come up with major examples of industries in which the pollution
haven phenomenon, to the extent that it occurs, leads to international negative externalities.
That situation may change dramatically, however, if some but not all major economies adopt
strong policies to limit climate change.
The Carbon Tariff Dispute
In 2009 the U.S. House of Representatives passed a bill that would have created a capand-
trade system for greenhouse gases—that is, a system under which a limited number
of emissions licenses are issued and firms are required to buy enough licenses to cover
their actual emissions, in effect putting a price on carbon dioxide and other gases. The
Senate failed to pass any comparable bill, so climate-change legislation is on hold for the
time being. Nonetheless, there was a key trade provision in the House bill that may represent
the shape of things to come: It imposed carbon tariffs on imports from countries that
fail to enact similar policies.
What was that about? One question that has been raised about climate-change legislation
is whether it can be effective if only some countries take action. The United States accounts
for only part of the world’s emission of greenhouse gases—in fact, as we saw in Figure 12-4,
it’s not even the largest emitter. So a unilateral reduction in emissions by the United States
would have only a limited effect on global emissions, and hence on future climate change.
Furthermore, policies that put a high price on carbon might make the pollution haven effect
much larger than it has been so far, leading to “carbon leakage” as emissions-intensive
industries relocate to countries without strong climate-change policies.
The obvious answer to these concerns is to make the initiative global, to have all
major economies adopt similar policies. But there’s no guarantee that such an agreement
would be forthcoming, especially when some countries like China feel that they
2 See, for example, Josh Ederington, Arik Levinson, and Jenny Minier, “Trade Liberalization and Pollution
Havens,” Working Paper 10585, National Bureau of Economic Research, June 2004.
290 PART TWO International Trade Policy
deserve the right to have laxer environmental policies than rich countries that have
already achieved a high standard of living.
So what’s the answer? The idea behind carbon tariffs is to charge importers of goods from
countries without climate-change policies an amount proportional to the carbon dioxide emitted
in the production of those goods. The charge per ton of emissions would be equal to the
price of carbon dioxide emission licenses in the domestic market. This would give overseas
producers an incentive to limit their carbon emissions and would remove the incentive to shift
production to countries with lax regulation. In addition, it would, possibly, give countries
with lax regulations an incentive to adopt climate-change policies of their own.
Critics of carbon tariffs argue that they would be protectionist, and also violate international
trade rules, which prohibit discrimination between domestic and foreign products.
Supporters argue that they would simply place producers of imported goods and domestic
producers on a level playing field when selling to domestic consumers, with both required to
pay for their greenhouse gas emissions. And because carbon tariffs create a level playing field,
they argue, such tariffs—carefully applied—should also be legal under existing trade rules.
At this point the issue of carbon tariffs is hypothetical, since no major economy has yet
placed a significant price on greenhouse gas emissions. Correspondingly, the WTO hasn’t
issued any rulings on the legality of such tariffs, and probably won’t until or unless a real
case emerges. But if climate-change legislation makes a comeback—and it is a good bet
that it will sooner or later—it will clearly lead to some major new issues in trade policy.
SUMMARY
1. Some new arguments for government intervention in trade have emerged over the past
quarter-century: The theory of strategic trade policy offered reasons why countries
might gain from promoting particular industries. In the 1990s a new critique of globalization
emerged that focused on the effects of globalization on workers in developing
countries. And possible action on climate change has raised some major trade issues,
including that of the desirability and legality of carbon tariffs.
2. Activist trade policy arguments rest on two ideas. One is the argument that governments
should promote industries that yield technological externalities. The other, which represents
a greater departure from standard market failure arguments, is the Brander-Spencer
analysis, which suggests that strategic intervention can enable nations to capture excess
returns. These arguments are theoretically persuasive; however, many economists worry
that they are too subtle and require too much information to be useful in practice.
3. With the rise of manufactured exports from developing countries, a new movement
opposed to globalization has emerged. The central concern of this movement is with the
low wages paid to export workers, although there are other themes as well. The response
of most economists is that developing-country workers may earn low wages by Western
standards, but that trade allows them to earn more than they otherwise would.
4. An examination of cases suggests how difficult the discussion of globalization really
is, especially when one tries to view it as a moral issue; it is all too easy for people to
do harm when they are trying to do good. The causes most favored by activists, such as
labor standards, are feared by developing countries, which believe the standards they
will be used as protectionist devices.
5. To the extent that globalization promotes economic growth, it has ambiguous effects
on the environment. The environmental Kuznets curve says that economic growth initially
tends to increase environmental damage as a country grows richer but that
beyond a certain point, growth is actually good for the environment. Unfortunately,
some of the world’s fastest-growing economies are still relatively poor and on the
“wrong” side of the curve.
CHAPTER 12 Controversies in Trade Policy 291
6. There is growing concern that globalization may allow highly polluting industries to
move to pollution havens, where regulation is looser. There is little evidence that this
is a major factor in actual location decisions, at least so far. But that may change if
serious climate-change policies are implemented; in that case, there is a strong case for
carbon tariffs, but also strong criticism of the concept.
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