http://krugman.blogs.nytimes.com/2009/09/11/fetishizing-free-trade/
Paul Krugman - New York Times Blog
September 11, 2009, 4:32 am
Fetishizing free trade
Free trade is supposed to be about a principle: nondiscrimination
between domestic and foreign goods. Sometimes following that principle
requires taxes and subsidies at the border! Thus, "border adjustments"
on VATs -- taxes on imports, rebates on exports -- are what's needed so
that the VAT is an overall tax on consumption, regardless of where the
goods are produced.
So it's disheartening to see that people keep getting it wrong when it
comes to climate-change policies. The economics say that we should make
consumers pay a price for any carbon emitted in producing the goods
they consume, wherever produced -- which implies a carbon tariff if the
goods are produced in a country without its own carbon-emissions
regime. Even the WTO agrees.
Yet when France's Sarkozy says something entirely reasonable on the
subject -- and something that may well be an essential part of the
politics of climate change policy -- the usual suspects pop up
declaring that it's evil protectionism.
Again, it's the economic principle that should matter -- that and, um,
saving the planet, which is is any case more important than the trading
system.