Firms found to be improving their own environmental performance by moving more-polluting activities overseas, where regulations are more lax
On April 22, as protesters swelled Earth Day rallies in US cities and around the world, president Donald Trump tweeted that he was “committed to keeping our air and water clean but always remember that economic growth enhances environmental protection. Jobs matter!”
His message was eerily similar to assertions by governments in developing countries that environmental standards are less important than attracting jobs.
Indeed, over the last few decades many developing countries have adopted loose environmental standards to lure foreign firms to move production there. However, an emerging body of research shows that policies like this also bring heavy pollution to the host countries.
In a recent study, my co-author Xiaoyang Li and I found that a significant number of US firms reduce their pollution at home by offshoring production to poor and less regulated countries. The greening of US manufacturing over the past several decades may be partially caused by a growing flow of “brown” imports from poor countries.
A “jobs-first” policy can add to serious environmental challenges in the host country. For example, one recent study calculates that 17-36% of four major air pollutants emitted in China come from production for export. Among these export-related emissions, about 21% come from the production of goods for the United States.
Studies like this suggest that trade can potentially redistribute environmental footprints. This can happen via two pathways. One is for “dirty” firms in rich countries to stay out of the entire value chain that contains the polluting activities. In this case, some rich country customers will stop consuming the “dirty” products, which is good for the global environment. Others will keep consuming “dirty” products imported from poor and less regulated countries.
Another way is for firms in rich countries to keep selling the “dirty” products but redesign their production networks. They will offshore production (and jobs) in the “dirty” segment of the value chain to poor countries. They will then import the “dirty” unfinished products from poor countries for further domestic processing in the clean segment of the value chain.
Unfortunately, existing studies have not been able to tease apart these two pathways. To find out if…