Talking carbon: implications of US-China trade
China’s trade, US trade and US-China trade
At the end of September 2007, China - the country with the largest foreign exchange reserve in the world - hit a fresh record with a US$1.43 trillion reserve. The reserve was 45 percent higher than it was in the previous year, and 52 percent higher than that of the second runner up, Japan. A senior economist at the State Information Center of China said “The increasing trade surplus has been the main driver of the reserve expansion.” (China Daily 2007)
Thanks to its ceaselessly growing economy and successful transformation into a major merchandise supplier serving consumers worldwide, China ranked third in global trade terms (the sum of the absolute values of export and import) in 2005-2006 and is expected to be number two in 2007 (WTO 2006). China also has the largest trade surplus globally. During the first nine months of 2007, China’s trade surplus soared to US$185.7 billion, which already was higher than its total 2006 surplus that amounted to US$177.5 billion.
As the largest merchandise importer, the US has been a solid first at the opposite end, registering its largest trade deficit for decades. In 2006, the US trade deficit escalated to US$817 billion, of which as much as 28 percent related to its trade with China (see Figure1).
Although China’s currency has appreciated since last year (registering a 7.4 percent increase between 2006 and September 2007), the US-China trade deficit seems still to be growing. For example, the US monthly trade deficits with China during January and September of this year were between three and 34 percent higher than they were for the same months the year before.
CO2 emissions from China and the US
Although the US and China are at the opposite ends of the spectrum with respect to trade balance, the countries converge as the top two emitters of CO2 globally. In 2005, the US emitted 5,957 million metric tons of CO2 (MtCO2) followed by China’s 5,323 MtCO2. Together, their emissions make up 40 percent of the global total (see Figure 2). As the world’s largest fossil fuel producer and consumer, as well as the largest CO2 emitter, the US has been in the spotlight as the clear frontrunner. Since 2002, China’s annual growth of carbon emissions has taken off sharply, with growth rates ranging from 11 percent to 19 percent between 2002 and 2005. In June 2007, the Netherlands Environmental Assessment Agency (MNP) announced that “according to preliminary estimates for 2006, China topped the list of CO2 emitting countries, surpassing the USA by an estimated 8 percent.” (MNP 2007). The 2007 edition of the International Energy Agency (IEA)’s Global Energy Outlook, released in November, confirmed that China will overtake the US as the world’s biggest emitter of CO2 before 2010. (IEA 2007).
The CO2 emissions associated with US-China trade
In the age of globalisation, are there linkages between trade and CO2 emissions? The answer is yes. Trade can include the transportation of more than one thinks: goods, services, capital, and also CO2 emissions.
According to the existing CO2 accounting framework, CO2 emissions resulting from the manufacture of a product are accounted for by the manufacturer/producer (in the country of origin) – not by the consumer (in the destination country). Therefore, when a country imports a product, it also “outsources” the related CO2 to the exporting country. In the case of the trade between the US and China, one can ask the following questions:
1) How much of China’s carbon is emitted to meet final consumer demand in the US?
2) What quantity of CO2 emissions has the US avoided emitting by trading with China?
3) What are the impacts of US-China trade on global CO2 emissions?
Shui and Harriss have tried to answer these questions. Their research is based on US-China trade data1 from 1997 to 2003 and an input-output approach2, and has produced some interesting preliminary results (Shui and Harriss, 2006). The following sections give an overview, and raises questions for the future.
CO2 embodied in exports/imports
During 1997 to 2003, the top ten Chinese products exported to the US mainly comprised computers and their peripheral equipment, electronics, toys and clothing. The top ten US exports to China were more diverse, ranging from soybean, aircraft, semiconductors and computer peripheral equipment to fertilizers, as presented in Table 1. The US trade deficit with China during the study period rose from US$49.7 billion to US$124.0 billion, with an annual growth rate of 16.5 percent. Mainly due to their large monetary value, the top five Chinese and US export products with the largest CO2 embodiment pretty much fall into the same categories as when ranked by their trade value. For example, audio and video equipment (27.4 MtCO2) and toys (25.7 MtCO2) were the two Chinese exports with the largest CO2 embodiment, and soybean (1.7 MtCO2) and plastics materials (1.1 MtCO2) were the US exports with largest associated CO2 embodiment. Table 2 illustrates the top five Chinese and American exports with the highest associated CO2 embodiment in 2003.
Shui and Harriss’s study also revealed that the CO2 embodiment of Chinese exports to the US has climbed from 213 MtCO2 in 1997 to 497 MtCO2 in 2003. This indicates that 6.8 percent and 13.3 percent of China’s CO2 in 1997 and 2003 were emitted to meet final demand in the US. The CO2 embodiment of US exports to China was insignificant, 10 MtCO2 in 1997 and 18 MtCO2 in 2003, accounting for 0.2 percent of the US’ annual CO2 emissions during the same period.
“Avoided” CO2 emissions in the US
It is well known that the US has suffered a vast trade deficit with China. The untold part of this story is that the US has avoided emitting a large amount of CO2 within its shores because of its trade with other countries, including China. Had the US manufactured the same quantity of products domestically, its reported CO2 emissions would be significantly higher than they are today.
The avoided CO2 emissions due to the US-China trade (compared to US production of the same quantity of goods domestically) are significant and growing, in line with growing US imports from China. The avoided CO2 emissions have risen from 150 MtCO2 in 1997 to 358 MtCO2 in 2003. The total avoided amount was 1,711 MtCO2 during this period, about six percent higher than the emissions of the world’s third largest CO2 emitter, Russia, in 2003.
The top three Chinese exports which brought about the largest avoided CO2 emissions for the US included audio and video equipment (21.2 MtCO2), games and toys (19.8 MtCO2), and computer peripheral equipment (15.0 MtCO2).
The impact of US-China trade on global CO2 emissions
The previous two sections have looked at the impacts of US-China trade on national emissions.
What is the impact of US-China trade at the global scale?
The CO2 embodiment in audio and video equipment, the largest Chinese export to the US in 2003, is 27.4 MtCO2. However, the CO2 embodiment in the same quantity of audio and video equipment produced in the US would be 21,2 MtCO2 – that is, 6.2 MtCO2lower. These figures suggest that CO2 emissions from the manufacturing of a product in China are higher than the CO2 emissions from producing the same product in the US, which is largely due to the relatively high use of coal and less efficient manufacturing technologies in the industrial sector in China.
Therefore, the “additional” global CO2 emissions resulting from US-China trade during 1997-2003 would be 720 MtCO2 in total, about 17 percent higher than Canada’s total CO2 emissions in 2003 (See Figure 3).
Concluding observations
Trade is a complicated and multifaceted issue. The economic, financial, political and social impacts of trade have been discussed at great length. Embodied carbon in trade is less well studied, and has remained rather “invisible” in current discussions of the linkages between trade and climate change. In the case of the two global top traders – the US and China – the monetary imbalance has fueled political and economic arguments. The embodied carbon of their trade flows has not quite established itself as a talking point for these top two carbon emitters. The huge US trade deficit does help it reduce its domestic CO2 emissions. For China, its rocketing trade surplus includes the cost of rising domestic and global carbon emissions.
There are now an increasing number of studies on carbon embodiment in trade. All indicate the significant role trade plays in national, regional and global CO2 emissions (Antweiler, 1996; Wyckoff and Roop, 1994; Muradian et al., 2002; Peters and Hertwich, 2006; Weber and Matthews, 2007). Quantifying carbon and other pollutants associated with international trade will shed light on opportunities and priorities for implementing emissions mitigation programmes such as the successors to the Kyoto Protocol.
Deepening globalisation has ensured a need to address the significance of the carbon dimension of trade if we are really serious about finding a way to confront climate change. Shui Bin is a researcher at the Joint Global Change Research Institute, USA, and Robert C. Harriss is president of the Houston Advanced Research Center,USA
Acknowledgement
The authors are grateful for the helpful reviews and comments received from Dr. Ronald D. Sands and Mr. Page G. Kyle at the Joint Global Change Research Institute.
References
1. Antweiler, W. (1996). “The pollution terms of trade.” Econ. Syst. Res. 8(4): pp 361-365.
2. China Daily (2007). “Foreign exchange reserves swell to US$1.43 trillion.” http://www.chinadaily.com.cn/bizchina/2007-10/13/ content_6171927.htm
3. IEA (2007). “The World Energy Outlook 2006 Maps Out a Cleaner, Cleverer and More Competitive Energy Future.” http://www.iea. org/textbase/press/pressdetail.asp?PRESS_REL_ID=187
4. MNP (2007). “Chinese CO2 emissions in perspective.” Retrieved August 16, 2007, from http://www.mnp.nl/en/service/ pressreleases/2007/20070622ChineseCO2emissionsinperspective. html.
5. Muradian, R., M. O’Connor, et al. (2002). “Embodied pollution in trade: estimating the ‘environmental load displacement’ of industrialised countries.” Ecological Economics 41(1): 51-67
6. Peters, G. P. and E. G. Hertwich (2006). “Pollution embodied in trade: The Norwegian case.” Global Environmental Change 16(4): 379-387.
7. Shui, B. and R. C. Harriss (2006). “The Role of CO2 Embodiment in US-China Trade.” Energy Policy 34(18): 4063-4068.
8. US Census Bureau (2007). “Foreign Trade Statistics.” http://www. census.gov/foreign-trade/www/
9. US Energy Information Administration (2007). “Total emissions from the consumption of energy.” http://www.eia.doe.gov/ emeu/international/carbondioxide.html
10. Weber, C. L. and H. S. Matthews (2007). “Embodied Environmental Emissions in U.S. International Trade, 1997-2004.” Environ. Sci. Technol. 41(14): 4875-4881.
11. WTO (2006). International Trade Statistics 2006.
12. Wyckoff, A. W. and J. M. Roop (1994). “The embodiment of carbon in imports of manufactured products: Implications for international agreements on greenhouse gas emissions.” Energy Policy 22(3): 187-194.
Endnotes
1 The data was provided by the US Department of Commerce.
2 One of main models used is called the Economic Input-Output Lifecycle Assessment (http://www.eiolca.net/about.html).