Why do so many people rail against the trade barriers erected by Donald Trump and yet have so little to say about similar barriers erected by the EU? Where is the liberal outrage against the EU’s carbon border adjustment mechanism (CBAM) which from next January will add tariffs to imports of ferrous metals, aluminium, cement and fertiliser, and which in future is intended to be expanded to other goods with significant carbon footprints? While remainer opinion has condemned Keir Starmer and his government for ‘appeasing’ Trump by considering lowering the Digital Services Tax and easing online safety laws in order to please US tech giants, there is a remarkable lack of objection to Keir Starmer’s proposal to bend to the EU by aligning Britain with the CBAM.
The UK is being forced to choose between greater alignment with the EU and the US
The CBAM is a mechanism which is supposed to deal with the perverse incentive to offshore Europe’s carbon emissions created by net zero targets. Carbon levies are imposed on carbon-intensive industries at home, but at present they do not affect imported goods. Hence, industry has a perverse incentive to offshore its emissions by transferring production outside Europe. The CBAM would attempt to put this right by imposing extra levies on imported goods, calculated on the basis of the carbon emissions created in their manufacture.
Logically, it makes some kind of sense. Yet it is, all the same, an extra tariff – and one which involves an extra layer of bureaucratic burden. It creates friction in trade which did not exist before. It is not officially a tariff, but in practice it is very much a trade barrier – albeit a more subtle one than Trump’s quite brazen tariffs.
The other difference is that while Trump’s tariffs appear to have been imposed with the purpose that they can be negotiated downwards, there is no such intention with the CBAM. On the contrary, we are warned that next year’s introduction is just the beginning. It will become a permanent part of the EU’s protectionism infrastructure, requiring importers to leap through hoops in order to comply.
The UK is proposing to levy its own version of the CBAM from 1 January 2027. Nevertheless, the government has decided to align itself with the EU’s CBAM in order to reduce the regulatory burden on UK exporters. One of the big problems for the government is that the CBAM includes the trade in electricity via subsea cables connecting Britain with neighbouring countries.
Britain is becoming increasingly reliant on electricity imports due to the growing role of intermittent wind and solar in our electricity mix. The government also has designs on becoming a major electricity exporter, selling surplus electricity when it is sunny and windy in Britain but less so in neighbouring Europe. This is not going well – last year 13 per cent of our electricity was imported. The CBAM, however, threatens to undermine the UK’s power exports further because, in its typically weaselly fashion, the EU proposes to work on the assumption that UK electricity is much more carbon intensive than it actually is. This would make our electricity exports liable to higher tariffs than should really be the case.
Aligning with the EU on the CBAM might help to alleviate that problem, but it is unlikely to impress the Trump administration. The American President has imposed a lower tariff rate on Britain than on the EU on the basis that Britain’s trade policy is better aligned with the US. Moreover, J.D. Vance claimed on Tuesday that Donald Trump is willing to speed through a trade deal with the UK. But if Britain is going to allow itself to be sucked back into the regulatory orbit of the EU that may well change.
Like it or not, the UK government is being forced to choose between greater alignment with the EU and the US – and at present, in spite of Starmer’s reconciliatory language towards Trump, the EU seems to be winning the battle for Britain’s affections. Those who remember Starmer as an ardent remainer, who sought to re-run the Brexit referendum, may not be surprised.
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