How U.S. Firms Offshore Production, Then Pollution
Yue Maggie Zhou
On April 22, as protesters swelled Earth Day rallies in U.S. cities and around the world, President 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.
Heavy gray smog blankets northeastern China, including Beijing and Tianjin, on Dec. 18, 2016 during a five-day air pollution ‘red alert.’ Photo credit: NASA Earth Observatory
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 U.S. firms reduce their pollution at home by offshoring production to poor and less regulated countries. The greening of U.S. manufacturing over the past several decades may be partially caused by a growing flow of “brown” imports from poor countries.
Cleaner at home, dirty abroad
A “jobs-first” policy can add to serious environmental challenges in the host country. For example, one recent study calculates that 17 to 36 percent of four major air pollutants emitted in China come from production for export. Among these export-related emissions, about 21 percent 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 some U.S. companies were taking the second route, we obtained data from the U.S. Census Bureau and the Environmental Protection Agency about trade, production and pollution for more than 8,000 U.S. firms with 18,000 U.S. plants.
On Earth Day, Trump tweeted that "Economic growth enhances environmental protection. Jobs matter!” His message was eerily similar to assertions in developing countries that environmental standards are less important than attracting jobs.