NCPA - National Center for Policy Analysis


July 11, 2005

Many environmentalists object to free trade, because they believe that rich nations outsource their polluting industries to poor nations. The National Bureau of Economic Research (NBER) finds this is not the case.

The NBER points out that American manufacturing became much cleaner during the liberalization of free trade. However, if trade liberalization were simply allowing dirty industries to relocate offshore, then the proportion of U.S. imports produced by pollution-intensive industries would rise as tariffs fell. In fact, the opposite occurred:

  • Imports overall grew by 318 percent between 1978 and 1994.
  • However, according to the World Bank, imports of goods manufactured in highly polluting processes grew at a much slower rate.
  • Similarly, imports from developing countries -- the countries with the weakest environmental protections -- grew by 344 percent, but imports of pollution-intensive goods from developing countries grew much more slowly.
  • Even when the NBER considered a hypothetical zero tariff rate on all manufactured goods, it still found no evidence that the change would spark a disproportionate shift in polluting industries from the United States to the developing world.

The NBER believes that lower tariffs might actually be slowing the U.S. shift to cleaner industries, because imports of goods made from pollution-intensive processes have not kept pace with the overall rise in imports. Thus, surprisingly, one potential environmental consequence of tariff reductions, says NBER, is that U.S. industries are dirtier than they otherwise would be.

Source: Matthew Davis, "Does the U.S. Outsource Polluting Industries?" NBER Digest, February 2005; based upon: Josh Ederington, Arik Levinson, and Jenny Minier, "Trade Liberalization and Pollution Havens," National Bureau of Economic Research, Working Paper No. 10585, June 2004.

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