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Industry in dramatic red sunset light. Chimneys and cooling tower of a coal fired power station.
The European Union has just approved the world’s first carbon tax on imports.
The stated goal is to force countries that export carbon-intensive goods to the EU to reduce their domestic greenhouse gas emissions. On the surface, the EU is advancing a policy of shared responsibility for global environmental protection. But only on the surface. The true intent of this “carbon border adjustment mechanism” is straightforward trade protectionism.
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Because of its inane greenhouse gas policies, the EU is now a high-cost producer of many carbon-intensive products, including iron, steel, fertilizer, hydrogen, cement, aluminum, and electricity. Put simply, the EU is trying to insulate its carbon-heavy industries from the stupidity of its internal climate change policies.
But when the Biden administration wakes from its slumber on the EU’s new CBAM tax, it will realize that another shot has been fired in the global trade war. A war that the administration sparked with its “Buy America” provisions in the Inflation Reduction Act. The United States and the EU are revisiting the disastrous economic consequences of the Smoot-Hawley Tariff Act of 1930. With that tariff act, the U.S. attempted to protect its domestic industries from international competition. The U.S. failed miserably. Other nations responded in kind and enacted their own protectionist measures against the import of U.S. goods. Global trade volumes collapsed. The Smoot-Hawley legislation deepened the Great Depression.
In contrast to the EU, as a low-cost producer of carbon-based energy, U.S. manufacturers of carbon-intensive goods could enjoy a manufacturing renaissance. Except that, now, U.S. exports to the EU of carbon-intensive goods, especially hydrogen, will bear the burden of the CBAM tax. American producers will lobby against the EU protectionist measures. Congress will respond. Tit-for-tat protectionism will follow. Unnecessary costs will be imposed on the global supply chain of carbon-intensive goods.
Most egregiously, while the EU plays the role of the good cop in the effort to police greenhouse gas emissions, the EU will continue to rely on one of the dirtiest carbon-based fuels, brown or lignite coal. In 2022, about 30% of Germany’s power was fueled by coal, particularly lignite coal. Germany shutters its 100% green nuclear power plants, yet it continues to burn dirty brown coal. Germany practices climate change hypocrisy.
That said, the duplicitous nature of EU policy is not confined to trade policy that harms the U.S. The EU CBAM tax will also harm emerging market economies that are under extreme financial distress caused by the global increase in interest rates. China will be hard hit by the CBAM tax, which begs a question.
Namely, will the EU have the courage to stand up to China on climate change? Or will it just focus its ire and enforcement on U.S. firms?
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.
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Tags: Opinion, Beltway Confidential, Blog Contributors, European Union, Free Trade, Carbon Tax, Economy, Opinion
Original Author: James Rogan
Original Location: The EU’s new carbon emissions excuse for trade protectionism