Carbon Intensive US Factories Will Not Move Overseas If Cap & Trade Legislation Passes


Blind-Man's Bluff. Image credit: WIkipedia, Paul Jarrard & Sons, circa 1830.

It's an empty but seemingly effective threat for opposing politicians and Think Tanks to claim that Cap & Trade legislation, if enacted, would force US-based companies to move operations offshore. There's no money for tearing down and rebuilding elsewhere. Thoughtful people realize that. Plus, no one knows when or where markets might return first. How much of Chrysler's supply chain will be European in the short term but North American in the long term? Who wants to plan a move on that guess?European-owned companies are in the same boat. If a European company closes a US operation it will be for other reasons...like lowered sales.

Only Chinese firms operating in the US, and facing added costs from US Cap & Trade regulations, would see a potential benefit to pulling back to the homeland of coal and pollution. How many Chinese-owned manufacturing operations exist in the US? Darn few. It's a non-issue.

Environmental Leader covered a recently published economic impact study by Pew Research, which looked at this question, and also at the potential for Cap & Trade caused "leakage" of US manufacturing sales to overseas-suppliers.

The EL article, called Heavy Industries Not Likely to Bolt Over Cap and Trade, states:-

The (Pew) study finds the prospect of less than 1 percent in market share loss.

However, the companies may be harmed if consumers switch to lower-emission products, notes the report, "The Competitiveness Impacts of Climate Change Mitigation Policies." The report bases its projections on an econometric analysis of the historical relationship between fluctuations in energy prices and shipments, trade, and employment within more than 400 energy-intensive manufacturing industries

The problem with a quantitative study like this is that conservative Think Tanks are lining up to refute its conclusions and will charge that political bias has tainted the modeling assumptions. The voting public has little interest in such a debate.

Blind-Man's Bluff
For supporters of Cap & Trade, it will be much easier and effective to explain the threat of job loss as a weak bluff. People get that the money is not there to move operations overseas now.

The strategy of Cap & Trade opponents is the economist's equivalent of the childhood game, Blind Man's Bluff (as pictured above), a game to keep Congressional leadership wandering in different directions.

Take off the blindfolds, will ya?

Update: The American people know full well that industrial supply chains are already stretched around the globe as far as economics and logistical requirements allow, and that very few durable goods sold in the USA have components mainly "Made In USA". Case Knives, Martin Guitars, maybe; but what else?

And all of this supply chain stretching happened with no Cap & Trade! How much farther supply chains can be stretched is anybody's guess. Mine, based on pure intuition, but consistent with the Pew Study which claims an added '1% leak rate' is 'not much more.'

Again, the point is that average people get it. It is only Congress that is easily blindfolded by these arguments.

Tags: Alternative Energy