Trump’s Paris Agreement Exit Could Incite Trade War—What it Might Mean for Sourcing

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President Trump seems to be losing friends and winning enemies in the last week, and talk is beginning to come to a boil over his actions amounting to a recipe for a trade war.

At the G7 Summit on Friday and Saturday, Trump may have agreed to a pledge that promises to fight trade protectionism, but by Tuesday the president was publicly shaming—and lightly threatening—Germany for its trade deficit and unfair practices. That led German chancellor Angela Merkel to say the EU will have to deal with its future on its own. And Germany’s ambassador to the U.S. Peter Wittig has since alluded to a trade war if Trump should continue on his path of protectionism.

On Thursday, Trump said he will pull the U.S. out of the Paris climate accord aimed at curbing global warming, which technically had little to do with trade but a lot to do with relations.

Now, more talk of a trade war is on the table.

Some trade experts are saying countries may respond to Trump’s climate deal dismissal by putting tariffs on American products.

“It’s not a pretty picture by any means,” Dirk Forrister, head of the International Emissions Trading Association, told CNN Money. “This isn’t something that businesses typically like.”

Levi’s is one business that doesn’t like it at all. The company’s president and CEO Chip Bergh said in a post on its Unzipped blog Thursday that “…nearly 200 countries signed an historic agreement to address climate change. Now the United States is backing out of that agreement. At Levi Strauss & Co., we think that’s a big mistake. Leaving the Paris Accord puts us—and our U.S. peers—at a huge disadvantage.”

Trump said the Paris deal would have cost the U.S. economy nearly $3 trillion over the next few decades and more than 3 million manufacturing jobs, and that it would have undermined the country’s competitiveness. He was, however, willing to negotiate “an entirely new agreement with more favorable terms for the United States,” according to the White House blog. The EU, though, has since shut that option down, saying there’s nothing to renegotiate and that it would bypass Washington and go straight to states to address climate change.

U.S. businesses appear to feel otherwise about what the Paris deal would have done for companies—like create jobs, generate economic growth, expand markets for eco-friendly technologies—and many have agreed that the world’s retaliation will come in the form of tariffs. And U.S. firms are already up in arms over the issue.

In an open letter to the U.S. president ahead of his announcement to withdraw from the Paris agreement, 25 major companies including Levi’s, Gap and VF Corporation wrote: “By expanding markets for innovative clean technologies, the agreement generates jobs and economic growth. U.S. companies are well positioned to lead in these markets. Withdrawing from the agreement will limit our access to them and could expose us to retaliatory measures.”

One such measure that could come into play is what’s called a carbon tariff, which countries could slap on American goods crossing their borders, meaning the more carbon a company uses to make its product, the higher the tax they’d face.

“It’s basically throwing a fairness issue back in the face of the Trump administration,” Jeff Schott, trade expert and senior fellow at the Peterson Institute for International Economics told CNN Money. “This is something that is a potential threat against U.S. firms.”

Naturally, if countries institute a carbon tax on U.S. goods, it’s unlikely that an America First president wouldn’t have a reaction—and that reaction could lead to considerable trade conflict.

“If any country introduces a carbon tariff, there’s a risk other countries could impose restrictions of their own,” Gregor Irwin, chief economist at Global Counsel, told CNN Money. “You just risk getting embroiled in a good old-fashioned trade war.”


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