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Why a Tariff War May Not Decrease Global CO2 Emissions

Author

Listed:
  • Johansson, Eleanor

    (The Swedish University of Agricultural Sciences)

  • Norbäck, Pehr-Johan

    (Research Institute of Industrial Economics (IFN))

  • Persson, Lars

    (Research Institute of Industrial Economics (IFN))

Abstract

It has been suggested that an intensified trade war between China and the US could reduce CO2 emissions associated with exports. We develop an export-greenfield-endogenous merger model, showing that significantly increased tariffs can enable domestic firms to undertake entry-deterring acquisitions. This forces foreign firms to remain exporters, which, in turn, leads to higher emissions. Strong competition policies and support for green technologies can help address this issue, resulting in lower emissions. Furthermore, we show that implementing an emissions trading system combined with a carbon border adjustment mechanism has effects comparable to those of increased tariffs.

Suggested Citation

  • Johansson, Eleanor & Norbäck, Pehr-Johan & Persson, Lars, 2025. "Why a Tariff War May Not Decrease Global CO2 Emissions," Working Paper Series 1526, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:1526
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    More about this item

    Keywords

    Tariff war; CO2 emissions; M&A; Endogenous mergers emission trading system; Carbon Border Adjustments; Competition policy;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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