Trade Wars vs. Planetary Peace: Can International Trade Support Environmental Harmony?

In this blog to mark the International Day of Biodiversity, Kim-Tung Dao explores the interplay between international trade and environmental sustainability, which has become increasingly consequential in an era marked by escalating climate crises and geopolitical tensions. The resurgence of protectionist trade policies under President Donald Trump’s second term has intensified global economic disruptions, and trade cannot by itself ensure an equitable green transition in many contexts, but it can be a powerful driver.

The Environmental Footprint of Global Commerce

International trade has historically contributed to environmental degradation in multiple ways: maritime shipping alone accounts for approximately 3% of global CO₂ emissions, with this figure projected to rise significantly without robust regulatory intervention. The carbon footprint of transportation represents only one dimension of trade’s environmental impact, though.

Additionally, it is common to outsource manufacturing to regions with lenient environmental regulations. This effectively exports emissions alongside production, undermining domestic climate policies through what economists term “carbon leakage”. This process not only shifts the geographic distribution of emissions but often increases their total volume as production moves to less efficient facilities.

Perhaps most concerning is trade’s role in exploiting the natural world. Trade-driven demand for commodities like palm oil, soy, and beef has accelerated deforestation in critical ecosystems such as the Amazon rainforest and Southeast Asian forests, exacerbating biodiversity loss and climate change the conversion of these carbon-rich landscapes (through widescale deforestation) for agricultural production represents a doubly negative climate impact: releasing stored carbon while reducing future sequestration capacity.

Trade Wars: Disruption with Environmental Consequences

The ongoing retaliatory ‘trade war’ led by the US government has introduced significant environmental implications beyond pure economic considerations. The imposition of steep tariffs, some reaching as high as 145% on Chinese goods, has disrupted global supply chains in the clean energy sector, increasing costs for renewable technologies and potentially slowing the transition to a low-carbon economy. These price increases affect everything from solar panels to electric vehicle components, creating artificial barriers to clean technology adoption.

The first Trump administration’s withdrawal from the Paris Agreement via Executive Order 14162 signals a retreat from international climate commitments, potentially encouraging other nations to deprioritize environmental considerations in trade negotiations with the new Trump administration. This regulatory retreat threatens to undermine decades of progress in integrating sustainability principles into international commerce frameworks.

Further complicating matters, tariffs on electronics components, including lithium batteries and LED lights, have sparked concern among industry stakeholders, with the Consumer Technology Association warning of potential harm to clean energy innovation. These sectoral disruptions illustrate how trade policies ostensibly designed for economic protection can have far-reaching environmental consequences.

Trade as a Tool for Environmental Governance and Protection

Despite these challenges, trade agreements can serve as powerful instruments for environmental governance when properly structured. Modern trade deals increasingly incorporate environmental clauses aimed at promoting sustainable development. The United States–Mexico–Canada Agreement (USMCA), for instance, includes commitments to enforce environmental laws and combat illegal wildlife trade, representing an evolution in how environmental concerns are integrated into commercial frameworks.

Trade can accelerate the diffusion of clean technologies and sustainable practices across borders, creating economies of scale that drive down costs for environmental solutions. When markets for green technologies expand through trade, innovation accelerates and prices decline, making sustainability more economically viable globally. This positive feedback loop demonstrates trade’s potential as a catalyst for environmental progress. In addition, similar outcomes can also be achieved through state-led interventions: recent policy shifts, such as those documented by the International Energy Agency, show that governments are actively deploying clean energy policies and industrial strategies to foster innovation, reduce costs, and shape the emerging low-carbon economy.

Through regulatory cooperation mechanisms, trade agreements can promote the alignment of environmental standards, preventing a ‘race to the bottom’ in environmental protection. Harmonization of product standards, chemical regulations, and energy efficiency requirements can elevate environmental performance across entire industries and supply chains.

However, the effectiveness of such provisions depends on robust enforcement mechanisms and genuine political will, both of which may be compromised under trade policies that prioritize economic nationalism over environmental objectives. Environmental chapters in trade agreements often lack the same enforcement mechanisms as commercial provisions, leaving them vulnerable to neglect.

Green Trade: Case Studies and Promising Developments

The global market for environmental goods and services represents a significant growth sector within international trade. According to the OECD, exports of green goods have nearly doubled over the past decade, reflecting growing demand for sustainable solutions across markets. This expansion demonstrates that environmental protection and economic opportunity need not be mutually exclusive.

The European Union’s Carbon Border Adjustment Mechanism (CBAM) aims to align trade practices with climate goals by imposing carbon tariffs on imports based on their ‘embedded emissions’: a potential model for integrating climate considerations into trade policy. This innovative approach addresses competitive concerns while creating incentives for trading partners to strengthen their own climate policies.

Circular economy initiatives supported through trade policies can reduce resource extraction and waste, fostering more sustainable consumption patterns globally. Trade frameworks that facilitate the movement of recycled materials, remanufactured goods, and repair services help extend product lifecycles and reduce environmental footprints across value chains.

Towards an EcoConscious Trade Regime: A Path Forward

Reconciling trade with environmental sustainability requires fundamental changes to global economic architecture. Environmental objectives must be embedded more directly within trade institutions and agreements, with mechanisms to resolve conflicts between trade and environmental rules. This institutional reform would elevate environmental considerations from peripheral concerns to central organizing principles.

Trade policies should explicitly support the United Nations Sustainable Development  Goals and Paris Agreement commitments through incentive structures and compliance mechanisms. Creating positive linkages between trade benefits and environmental performance can harness economic motivation to drive sustainability improvements.

Innovative models like “doughnut economics,” as proposed by Kate Raworth, propose reorienting economic activity within ecological boundaries while meeting social needs, an approach that could inform more sustainable trade policies. This framework recognizes planetary limits as non-negotiable constraints within which economic prosperity must be pursued.

Trade agreements should incorporate support for workers and communities affected by the shift to more sustainable production methods, ensuring that environmental progress doesn’t exacerbate economic inequality. These just transition provisions acknowledge that sustainability transformations create both winners and losers, requiring active management of social impacts.

Trade is only one driver of green transitions

The current trajectory of international trade, characterized by rising protectionism and environmental deregulation, poses significant challenges to global sustainability efforts. However, trade also holds tremendous potential to drive environmental innovation and cooperation. Realizing this potential requires a deliberate and coordinated approach to integrating environmental objectives into trade policy, ensuring that economic growth supports rather than undermines planetary health.

As nations navigate complex trade relationships in an era of climate urgency, the choices made today will significantly shape both economic systems and environmental outcomes for generations to come. The imperative is clear: we must design trade policies that recognize ecological boundaries as fundamental constraints within which prosperity must be pursued.

References

Cristea, M., Hummels, D., Puzzello, L., & Avetisyan, H. (2013). Trade and the Greenhouse Gas Emissions from International Freight Transport. Journal of Environmental Economics and Management, 65(1), 153–173.

Curtis, P. G., Slay, C. M., Harris, N. L., Tyukavina, A., & Hansen, M. C. (2018). Classifying drivers of global forest loss. Science, 361(6407), 1108–1111.

Raworth, K. (2017). Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist.

Chelsea Green Publishing.

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About the author

Kim Tung Dao is a recent PhD graduate of the International Institute of Social Studies, Erasmus University Rotterdam. Her research interests include globalization, international trade, sustainable development, and the history of economic thought.

 

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