7 February 2019

Why free trade is vital to dealing with climate change


The climate change debate, like so many others, often seems to be polarised around two extremes. It’s either an extinction event – certainly the view of most of the scientific community – or some kind of elaborate, possibly Chinese-fuelled, hoax.

Given the distinct possibility that temperatures will rise, it makes sense for policymakers, businesses and the rest of us to think what that future world might look like and try to plan for it, rather than simply bemoaning our generation’s profligacy or hoping for the best.

It’s refreshing, then, to see an academic study that attempts to model what might actually happen if temperatures rise, beyond simply proclaiming disaster.

Economists Christophe Gouel and David Laborde have looked at where different crops are produced and tried to work out how output and flows of goods might change if global temperatures do rise in the way most climate scientists predict.

As the pair observe, adapting the way food is grown and exported ought to be largely the domain of private companies, meaning it ought to be easier to implement than the various international accords on reducing emissions.

They write: “Market-mediated adaptation will come from the fact that landowners will change their land allocation not only because of the new potential yield but also because of changed prices under the new climate, which account themselves for all the adaptation in demand, supply, and trade.“

With that in mind, the pair argue that it is absolutely crucial that trade flows are kept as free as possible in the future.

Even so, the picture is very different depending on where you live. Higher temperatures means crops become unsustainable in some areas, but also growable in others – so India, Vietnam and Thailand may grow less rice in the future, but we can expect China, Korea and Japan to produce more.

For net food exporters, a potential reduction in the overall global food supply means higher prices for their goods. Conversely, people in Asia, Europe, the Middle East and North Africa all stand to pay more for their food.

That sounds pretty calamitous, but let us keep in mind that in decades to come technology will undoubtedly have changed, and the cost of other day-to-day items may well be much lower – so a hike in food prices may not be quite as disastrous as we might fear.

Gouel and Laborde’s model suggests that the key to adaptation will be growing different crops and, more importantly, allowing the international trade system to adjust to new patterns of buying and selling.

As the authors warn: “Large terms-of-trade effects as predicted by our results may prompt uncooperative trade policies from policymakers to counteract these reallocations. If policies prevent trade adjustments as an avenue for adaptation, welfare losses would likely be worse in the long run.”

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John Ashmore is Deputy Editor of CapX.