International carbon tariffs disproportionally affects US domestic industries by decreasing US price competitiveness

The price competitiveness of a country or industry depends not only on its own price changes, but also on the prices of related countries and industries in the global market. Therefore, we further analyze the impact of carbon tariffs on the price competitiveness of countries and industries by calculating the multilateral relative price changes through the real effective exchange rate.

As we can see from the figure below, after the imposition of carbon tariffs, the relative prices of the US and Russia increase and their price competitiveness decreases because the prices of their products increase more than those of other countries in the international market. Although the prices of other countries are affected by the carbon tariff, the prices of their products are relatively lower compared with those of the US and Russia, and therefore their price competitiveness is improved. The real effective exchange rate of countries with close trade ties with the US, such as Mexico and Canada, decreases particularly significantly because these countries give a greater weight to the US in calculating the real effective exchange rate. Since the US and the EU impose a larger carbon tariff rate and cover a wider range of industries in Scenario 2, the real effective exchange rate of each country changes more than that in Scenario 1, but the direction of change remains the same.

Analyzing the price competitiveness of China under the carbon tariffs from the industry perspective, we can see that the price competitiveness of each industry increases in Scenario 1, except for S11. Chemical and chemical products, S13. Rubber and plastics products. S22. Other manufacturing has the highest increase in competitiveness, because S22 industry is not among the target industries of the carbon tariffs imposed by the US and the EU, and the output price is not affected by the direct carbon tariffs, and China's product prices in S22 industry are least affected by the cumulative upstream carbon tariffs, which is only 0.02 %. The price competitiveness of S5. Mining support service activities and S28.Water transport also shifts from upward to downward when the US begins to impose carbon tariffs on imports from all industries in Scenario 2. The competitiveness of S5. Mining support service activities declined by 1.54 %, more than any other industry in China, due to the fact that when the US imposed carbon tariffs on S5 industry globally, the direct carbon tariffs imposed on China's S5 industry jumped to 4.64 %, significantly higher than other countries. The industry with the largest increase in competitiveness becomes S26. Wholesale and retail trade, suggesting that the different scenarios affect not only the magnitude of price competitiveness changes in each industry, but also the direction (see Fig. 5, Fig. 6).

Since the US implemented the Clean Competition Act not only imposes carbon tariffs on products exported to the US but also imposes a corresponding tax on the portion of products in domestic industries that exceed the average carbon content. Therefore, consistent with the country-level results, the real effective rate of exchange change is greater than zero for all US industries, which means price competitiveness declines. In Scenario 1, many industries are not included, but since national value chains have a more significant impact on the cumulative carbon tax than global value chains for the US, these industries are more affected by the cumulative carbon tax from domestic upstream industries than other countries, which ultimately leads to a greater price increase in the US industries and a decrease in price competitiveness.