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on Mining |
| By: | Hyun Seok Kim (Korea Institute for Industrial Economics and Trade); Jooyoung Yang (Korea Institute for Industrial Economics and Trade) |
| Abstract: | The United States is pursuing the Agreement on Trade in Critical Minerals (ATCM) with five principal objectives: diversifying critical minerals supply chains, reducing dependence on China, building a preferential trading bloc among allies, establishing a price stabilization mechanism, and setting rules for investment and trade. Washington has designed the agreement as a legally binding plurilateral framework for industrial policy cooperation, intended to sustain and expand the critical minerals production capacity and industrial base of partner countries.<p> The instruments under consideration include a price floor, a common external tariff, minimum import prices, and reference pricing powered by artificial intelligence (AI). Each is meant to counter low-price offensives and overcapacity in specific countries while preserving investment incentives and production capacity among allies. Taken together, they amount to an attempt to build a new allied critical minerals market for critical minerals. Many other countries also see China’s domination of critical minerals supply chains as a major risk, distorting prices and creating major dependency risks, and that diversification is necessary. But not all are on board with Washington’s interventionist instruments: the price floor, the common external tariff, and AI-based pricing are likely to become central points of contention in negotiations.<p> Korea faces a dual dependence: on China for processed critical minerals and on the United States and the European Union as export markets for derivative products. Should the ATCM build a “friendly” supply chain and establish a preferential trading system, Korea stands to diversify its sources of processed critical minerals and to secure steadier access to US and EU markets. But if major suppliers remain outside the agreement, any gains could be offset by new supply chain risks.<p> This study argues that Korea should weigh participation in ATCM as a question of industrial competitiveness and supply chain resilience rather than one of resource diplomacy alone. It recommends a principle of selective and conditional participation in the price floor and the AI-based reference pricing system, coupled with diversification of supply through platforms such as FORGE, expanded recycling and domestic production capacity, and complementary domestic measures covering statistics, monitoring, and strategic stockpiling.<p> This paper was translated from the original Korean using the Claude Opus 5 large language model (LLM). It was professionally edited and reviewed by the author prior to publication. |
| Keywords: | critical minerals; Agreement on Trade in Critical Mineras; ATCM; supply chains; rare earth elements; REEs; lithium; nickel; cobalt; global trade; global value chains; trade policy; trade competition |
| JEL: | F13 Q37 L52 F51 |
| Date: | 2026–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:ris:kietia:023242 |
| By: | Yiwen Chen (Shandong Agricultural University, Taiwan); Jianxin Guo (Academy of Mathematics and Systems Science, Chinese Academy of Sciences); Benteng Zou (DEM, Université du Luxembourg) |
| Abstract: | "The clean-energy transition relies on critical minerals whose extraction generates substantial local environmental damages, while their use enables global decarbonization. We develop a dynamic two-region model linking extraction-related pollution in exporting countries to global CO2 accumulation valued by importing countries. We analyze three regimes: the exporter’s first-best, importer leadership, and importer leadership with partial responsibility for local damages. When exporters internalize only local externalities, extraction is conservative and may leave resources in situ, with pollution following a hump-shaped path and eventually dissipating. By contrast, importer leadership without responsibility induces accelerated extraction, finite-time depletion, and sharply higher cumulative local damages, reflecting the overriding effect of demand-side commitments. Introducing partial importer responsibility moderates extraction and reduces local pollution, but delays mineral availability and increases global CO2, revealing a fundamental local–global trade-off. We derive the social planner’s solution and show that optimal extraction follows a cumulative threshold rule balancing local environmental damages against the global cost of delayed decarbonization. Relative to this benchmark, exporter-led equilibria under-extract, while importer-led regimes generate over-extraction. Bilateral Pigouvian transfers, compensating exporters for local damages and accounting for global climate benefits, decentralize the planner’s allocation. The analysis provides a tractable framework for evaluating emerging policy instruments in critical mineral supply chains, including sustainability, linked procurement, environmental provisions in trade agreements, and cross-border compensation mechanisms." |
| Keywords: | Clean Energy Boom, Mining of Critical Minerals, Local vs Global Costs. |
| JEL: | Q34 C61 D4 L72 L12 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:26-09 |
| By: | Berman, Gabriella; Echavarria, Elizabeth; Spiller, Beia (Resources for the Future) |
| Abstract: | This paper evaluates deep-sea mining (DSM) from a policy perspective in light of rising critical mineral demand. It assesses the economic, environmental, social, and governance trade-offs between DSM and terrestrial mining, highlighting unresolved questions about ecological harm, commercial viability, benefit sharing, and the long-term substitution of land-based supply. Because DSM is likely to augment rather than displace terrestrial mining, particularly in the short term, it could have important distributional consequences for mining-dependent communities and producer countries. We also examine the unsettled international governance landscape, including ongoing negotiations at the International Seabed Authority (ISA) and growing unilateral national initiatives. We argue that, given the many uncertainties, policymakers should proceed with caution when setting regulatory frameworks for and making decisions about DSM. Furthermore, prioritizing robust environmental standards, equitable distributional rules, and broader mineral strategies centered on demand reduction, recycling, and reform of terrestrial mining governance is key to ensuring a sustainable transition as DSM rules develop. |
| Date: | 2026–07–29 |
| URL: | https://d.repec.org/n?u=RePEc:rff:dpaper:dp-26-12 |
| By: | Mr. William Oman; Etienne Espagne; Jean-Baptiste Fressoz |
| Abstract: | Global energy and materials are essential to the functioning of the economy and have significant implications for macroeconomics and the environment. At the same time, the world is not on track to meet Paris Agreement goals. This paper documents two stylized facts that connect these observations. First, the world economy is characterized by large embedded emissions and materials: different energies and materials are deeply entwined and interdependent. This has historically led to additive – rather than substitution – dynamics in energy and materials on a global scale. Second, historically there has been a strong positive correlation between efficiency in resource use and total resource use at a global scale. We synthesize these observations by introducing the Generalized Jevons Paradox (GJP). We argue that the GJP reflects the direct and indirect energy/material demand effects of long-term energy and material interdependencies, themselves shaped by market and geoeconomic power, trade arrangements, and financial factors. While future scenarios may diverge from historical data, including because of different population and growth trends, the GJP calls for caution in projecting energy and material flows within the energy transition framework, as it suggests that a declining share of fossil fuels in primary energy consumption can coexist with rising total fossil consumption, and thus rising global emissions – as observed since 2012. The GJP highlights the importance of policies to better allocate energy and material flows across sectors and countries and reduce supply chain vulnerabilities, but raises difficult distributional and political economy questions. Based on the GJP, the paper identifies three areas for research: the detailed analysis of the role of materials in supply chain vulnerabilities; the political economy of material flows; and multidimensional welfare analysis in decarbonization scenarios. |
| Keywords: | energy; materials; economic growth; climate change |
| Date: | 2026–07–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/157 |
| By: | Andrea Bastianin; Luca Rossini; Marco Zoso |
| Abstract: | We use web search data to construct monthly indexes of derived demand for cobalt, copper, and nickel, which are key inputs in technologies driving the energy and digital transitions. We incorporate these indexes into Structural Vector Autoregressive (SVAR) models of global metal markets and identify structural shocks using zero, sign, and magnitude restrictions. This approach disentangles supply shocks from several demand-side drivers of metal prices and isolates a transition demand (TD) shock linked to the diffusion of metal-intensive technologies. We find that TD shocks generate persistent price effects, especially for copper and nickel, whereas supply and metal-specific demand shocks are more immediate and less persistent. |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2606.27842 |
| By: | Robert T. Nachtrieb; Steven J. Smith |
| Abstract: | AstroForge seeks to mine platinum group metals (PGM) from asteroids. Asteroid reserves appear to be unlimited, and at current market price the gross margin of asteroid mining would be very high. It is natural to ask: when AstroForge successfully demonstrates economic space mining of PGM, will they cause the PGM market to collapse? We answer the question with a non-steady system dynamics model of the PGM market. We find that the market price for PGM will eventually drop towards the much lower cost of asteroid mining, but only after the entire supply has shifted off-world. In the meanwhile, huge fortunes will be made. And everybody on Earth will benefit from new applications of lower-price PGM. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.06806 |
| By: | Alfaro, Laura; Fadinger, Harald; Schymik, Jan; Virananda, Gede |
| Abstract: | Trade and industrial policies restricting critical inputs can inadvertently promote foreign downstream industries via a directed technological response. We provide evidence for this mechanism by examining rare earth elements (REEs) – critical manufacturing inputs with highly concentrated production and low substitutability. We show that China’s REE export restrictions in 2010 induced a surge in global innovation increasing REE input-efficiency and exports in REE-intensive industries. A quantitative trade model with Heckscher-Ohlin-based comparative advantage, directed technological change and input-output linkages rationalizes how input-supply restrictions induce REE-enhancing innovation and expand REE-intensive industries abroad. This directed technological response substantially mitigates foreign welfare losses. |
| Keywords: | Trade policy; Input-output linkages; Global value chains; Industrial policy; Innovation; Directed technological change |
| JEL: | F13 F14 F42 O33 O47 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20315 |
| By: | Shiro ARMSTRONG; Shujiro URATA |
| Abstract: | This paper examines the revival of industrial policy in Japan and its transformation under the pressures of economic security. It argues that the current shift in Japan’s policy draws on elements of its postwar developmental state experience, including state coordination, sectoral targeting and public support for strategic industries, but operates in a fundamentally different economic and geopolitical environment. Whereas earlier industrial policies were aimed at catch-up growth and export competitiveness, today’s agenda is shaped by supply chain vulnerability, US–China strategic rivalry, technological competition, energy insecurity and the weakening of multilateral trade disciplines. The paper traces the shift through Japan’s historical industrial policy experience, the reshaping of economic security as a policy rationale, and the introduction of contemporary policy instruments such as the Economic Security Promotion Act (2022), semiconductor subsidies, critical minerals policy and green transformation initiatives. It argues that Japan’s new industrial policy seeks both strategic autonomy and strategic indispensability, but also creates trade-offs between resilience, efficiency, fiscal sustainability and openness. The paper concludes that Japan offers both a model and a cautionary case: its policies demonstrate how advanced economies are adapting to global disorder, while highlighting the need for stronger international subsidy disciplines to manage cross-border spillovers and fiscal risks, which would be aided by a renewed commitment to the rules-based multilateral trading system. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:eti:dpaper:26054 |
| By: | Spiros Bougheas; Bernard Hoekman; Douglas R. Nelson |
| Abstract: | We develop an integrated framework to characterize multi-objective policymaking and apply it to the case of critical materials. The model considers that national policy decisions will be influenced by domestic agencies with different priorities and goals and be informed by actions taken by other countries pertaining to critical materials. This creates a potential basis for a group of countries to form a critical materials club to reduce the probability of supply shocks and/or their consequences. We show that in an environment with multiple policy-active governments, criticality assessments embedded in a multi-objective government with domain-specific bureaucracies and multiple instruments can rationalize divergent policy choices under similar risk environments, provide conditions under which international coordination is more or less likely and apply the model to consider the design and political economy of plurilateral arrangements for critical materials. |
| Keywords: | critical materials, multi-objective policymaking, plurilateral agreements, clubs |
| JEL: | E61 D71 F15 F68 L52 Q38 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12818 |
| By: | Bown, Chad |
| Abstract: | The fear that a foreign government will impose an export restriction that imperils another country’s economic and national security has driven part of the recent turn to industrial policy and the increased use of tariffs. Countries now worry about disruption not only to their access to energy but also to critical minerals, semiconductors, medical supplies, and other essential goods. Modern use of industrial and trade policy is thus often an attempt to move supply chains in the short term and to sustain them in those new places over the long term, in order to reduce national vulnerability to disruptions caused by export restrictions. However, achieving even modest forms of international cooperation on trade and industrial policy between countries seeking to improve their collective economic security will also require that these same countries take on new commitments to discipline their own use of export restrictions toward each other. |
| Keywords: | International agreements; Export restrictions; Industrial policy; Tariffs; National security |
| JEL: | F13 L52 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20303 |
| By: | Harstad, Bård; Holtsmark, Katinka |
| Abstract: | We analyze a fundamental dilemma and time-inconsistency problem facing a climate coalition producing natural gas. In the short term, it is tempting to export more to outcompete coal. When this policy is anticipated, however, investments in renewables fall and emissions ultimately increase. When the coalition cannot pre-commit, its policies will be counterproductive. We discuss the robustness of this result and possible solutions. If the coalition can invest directly in renewables, for instance, the incentive to maintain a high price on exports can mitigate the temptation to reduce the price to outcompete coal. Under certain conditions, the commitment outcome can be implemented. |
| Keywords: | Climate change; Carbon leakage; Green transition; Supply-side environmental policy; Renewable energy; Time inconsistency |
| JEL: | F18 Q55 H23 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20036 |
| By: | Daniele Valenti (Department of Management, Economics and Industrial Engineering-DIG, Politecnico di Milano and Fondazione Eni Enrico Mattei); Chiara Casoli (InsIDE Lab, Department of Economics-DiECO, University of Insubria and Fondazione Eni Enrico Mattei); Matteo Manera (Department of Economics, Management and Statistics-DEMS, University of Milan-Bicocca and Fondazione Eni Enrico Mattei); Luca Pedini (Department of Economics and Social Sciences-DiSES, Marche Polytechnic University and Fondazione Eni Enrico Mattei) |
| Abstract: | This paper develops a daily Bayesian structural VAR model of the global crude oil market that decomposes the real price of oil into three fundamental drivers: shocks to global real economic activity, shocks to oil price expectations and shocks to physical oil supply. We combine a daily sign-restriction identification strategy with a posterior filtering step based on monthly physical oil market data, which sharpens the economic interpretation of the estimated daily shocks. We apply the model to provide a real-time interpretation of the main drivers behind the 2026 Strait of Hormuz crisis, one of the largest and most abrupt oil price shocks of recent years. Our results show that oil supply shocks account for the bulk of the initial price surge following the closure of the Strait, aggregate demand shocks become increasingly important in sustaining elevated prices over the following weeks and expectational shocks act in the direction of mitigating the oil price surge. We further validate the model against four major historical episodes – the 2003-08 oil price boom, the Global Financial Crisis, the 2014-15 oil price collapse, and the COVID-19 pandemic – showing that the daily decomposition is consistent with the prevailing narrative of these events. The framework offers policymakers a timely tool for monitoring the structural sources of oil price fluctuations as they unfold. |
| Keywords: | Oil price shocks, Structural VAR, Daily data, Bayesian identification, Strait of Hormuz, Real-time monitoring |
| JEL: | C11 C32 Q41 Q43 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:fem:femwpa:2026.21 |
| By: | Gilberto Libânio (Cedeplar/UFMG); Diana Chaib (Cedeplar/UFMG); Eric Serbinenko (Cedeplar/UFMG); Monique Botelho (UFMG) |
| Abstract: | This article examines China’s green transition from a political economy perspective, emphasizing the interaction between the developmental state, Five-Year Plans, and multilevel governance arrangements. It argues that China’s capacity to advance decarbonization and productive restructuring is rooted in the combination of long-term strategic planning, decentralized implementation, and policy instruments such as green finance, carbon markets, and pilot zones. By integrating top-down coordination with bottom-up experimentation, this framework has supported the expansion of renewable energy, technological upgrading, and improvements in green complexity indicators. At the same time, the persistence of high emission levels and carbon-intensive sectors highlights the non-linear and contradictory nature of the transition process. The Chinese experience thus provides relevant, albeit not directly replicable, insights for the design of sustainable development strategies in Global South economies. |
| Keywords: | Green transition; China; Developmental state; Environmental policy. |
| JEL: | O44 Q58 P21 O53 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cdp:texdis:td698 |
| By: | Kirui, Oliver K.; Fasoranti, Adetunji; Bamiwuye, Temilolu; Balana, Bedru; Glauber, Joseph W.; Hebebrand, Charlotte; Omamo, Steven Were |
| Abstract: | Nigeria faces a new wave of economic pressure from the ongoing Iran conflict, with disruptions around the Strait of Hormuz causing sharp increases in global oil and fertilizer prices and threatening to reverse the recent decline in Nigeria’s food inflation. Although Nigeria could benefit from higher oil and fertilizer export revenues due to its expanding domestic refining and urea production capacity, the country remains heavily dependent on imported refined fuel, potash, phosphate, and other fertilizer inputs. Rising transport, logistics, and production costs are already increasing pressure on farmers, food systems, and household welfare. At the same time, however, the crisis presents a strategic opportunity for Nigeria to strengthen domestic refining, expand fertilizer production, deepen regional trade, and reposition itself as a major supplier of fuel and fertilizer across Africa. |
| Keywords: | conflicts; impact; fuels; fertilizers; food prices; inflation; value chains; Nigeria; Africa; Sub-Saharan Africa; Western Africa |
| Date: | 2026–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:nssppn:183398 |
| By: | Lorenzo Rotunno; Michele Ruta; Priyam Verma |
| Abstract: | This paper examines the global trade and welfare effects of industrial subsidies, employing a multi-country, multi-sector general equilibrium trade model with economies of scale. We first estimate the magnitude of industrial subsidies across countries relying on a novel approach that exploits information on subsidy counts during the period 2015-23. We then quantify the impact of the implied subsidy rates on trade flows and find that subsidies boost net exports in strategic sectors especially for China, while causing export declines in competing economies. Subsidies by the EU and the US produce qualitatively similar but smaller effects, as these economies target relatively more non-strategic sectors. A decomposition of the trade effects highlights the role of economies of scale and productivity changes in explaining sectoral specialization in response to subsidies. Tariff actions in 2018-19 and since 2025 partly offset these trade patterns. While targeting strategic sectors, recent subsidies and import tariffs lower global welfare by creating distortions and negative cross-border externalities. |
| Keywords: | Industrial Policy; Trade Spillovers; sectoral imbalances; Geoeconomics |
| Date: | 2026–07–24 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/155 |
| By: | Godehardt, Nadine; Zhang, Xin |
| Abstract: | The Chinese leadership has implemented various official directives, plans, and policies that are, step-by-step, coalescing into a comprehensive architecture of volumetric statecraft. Volumetric power integrates spaces such as the atmosphere, the deep sea, the polar regions, the (geological) subsoil, or outer space into political governance. Volumetric states develop special economic and techn(olog)ical capacities to gain control of, and even govern, these spaces. Volumetric statecraft implies the Chinese state's willingness and capacity to integrate various policy dimensions into a set of comprehensive ecosystems. China's 15th Five-Year Plan specifically manifests the volumetric dimension in Chinese governance. This directly impacts the type of challenge that China will pose to the European Union (EU) in the coming years, and it will force the EU to adapt a volumetric strategy of its own towards China. |
| Keywords: | 15th Five-Year Plan, volumetric statecraft, volumetric turn, volumetric power, New Frontiers, New Strategic Splaces, Emerging domains, New Territories, AI Plus, AI+, strategic emerging industries, new qualitiy productive forces, Global Governance Initiative, GGI, Zheng Shanjie |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:swpcom:341971 |
| By: | Pablo Filippi; Ryan Kim; Ms. Nan Li; María Jesús Pérez; Younghun Shim |
| Abstract: | We study how commodity booms affect productivity using administrative microdata from Chile combining firm exports by product and destination, employer-employee records, and firm-to-firm production networks. Exploiting differential Chinese demand across Chilean commodity products, we measure firms’ exposure to the boom and trace its effects on productivity and resource allocation. We find three mechanisms. First, more exposed firms experience larger revenue increases but no differential productivity gains, channeling revenues into wages and materials. Second, among exposed firms, low-productivity firms expand employment while high-productivity firms do not, hiring workers from more productive employers. Third, domestic suppliers with greater indirect exposure show larger sales and productivity gains. We develop a model with heterogeneous export wedges and labor market frictions in which commodity booms can reduce sectoral productivity by exacerbating input misallocation, consistent with firm-level and aggregate evidence. Calibrated to Chile, this mechanism explains half of the mining TFP decline from 2005 to 2013. |
| Keywords: | Commodity booms; Misallocation; Productivity; Micro-level Data; Labor reallocation. |
| Date: | 2026–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/163 |
| By: | Joshua Aizenman; Jamel Saadaoui; Gazi Salah Uddin; Naoki Yago |
| Abstract: | This paper studies whether countries with larger foreign exchange and gold reserve buffers exhibit smaller exchange-rate responses to US monetary policy surprises. We test a central-bank reserve balance-sheet channel in which large reserve stocks can deter speculative pressure by signaling credible dollar-liquidity capacity, collateral value, and future intervention capacity, even without contemporaneous reserve sales. For identification, we use high-frequency FOMC monetary surprises, minute-level exchange rates, and predetermined reserve holdings for 18 countries. Countries with larger dollar reserves exhibit smaller exchange-rate depreciations after US monetary tightening, while non-dollar reserves do not display the same pattern. Gold reserves are also associated with smaller depreciations. These buffer effects are concentrated in countries without swap and repo lines and are strongest where dollar exposure, especially external dollar liabilities, is larger. The results show that reserve composition and access to dollar liquidity facilities, not only aggregate reserve size, are empirically relevant for exchange-rate resilience. |
| Keywords: | monetary policy spillovers, exchange rates, foreign exchange reserves, gold reserves, dollar liquidity |
| JEL: | E52 E58 F31 F32 F41 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-61 |
| By: | International Monetary Fund |
| Abstract: | The war in the Middle East poses the most immediate risk to Namibia's economy, with higher fuel prices and weaker global demand as the main transmission channels. While Namibia has been relatively resilient to global trade tensions, they have further compounded the existing slump in diamond prices driven by lab-grown competition. Namibia has, however, benefited from higher prices for its two other key commodity exports, gold and uranium, which are likely to remain elevated amid global uncertainties. International oil companies continue to explore oil and gas investment opportunities, bringing in significant foreign direct investment (FDI). The administration, which took office in March 2025, is prioritizing job creation in the face of persistent high unemployment. A sharp decline in Southern African Customs Union (SACU) transfers has contributed to a weaker fiscal balance in FY25/26 and elevated public debt. Improving government expenditure efficiency and reducing the wage bill is essential to ease the debt-service burden and place public debt on a downward path. Meanwhile, the Bank of Namibia has brought its policy rate close to that of the South African Reserve Bank, with the rate currently 25 basis points below. |
| Date: | 2026–06–11 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfscr:2026/135 |
| By: | Bergin, Paul; Corsetti, Giancarlo |
| Abstract: | Central banks around the world have grappled with the question of how to respond to the mix of inflationary and output implications of a trade war. Recent tariff changes have impacted a wider cross-section of goods than was true in the previous tariff round, targeting final consumption goods in addition to materials such as aluminum and steel. This paper studies the optimal monetary stabilization of tariffs using a New Keynesian model enriched with comparative advantage between multiple traded sectors that differ in terms of tariff exposure as well as market structure and price rigidity. We find that, in the aggregate, the optimal monetary response is expansionary, supporting activity and producer prices at the cost of tolerating short-run headline inflation — both in response to tariffs aimed at differentiated consumption goods and to tariffs on non-differentiated goods. The output and export dynamics arising from tariffs on each sector differ sharply, as do the motivations for an expansionary monetary response. Sectoral reallocation is an order of magnitude larger than predicted by standard macro models featuring one tradable and one nontradable sector. |
| Keywords: | Tariff shock; Tariff war; Optimal monetary policy; Comparative advantage; Sectoral re-allocation |
| JEL: | F4 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20257 |
| By: | Clausing, Kimberly; Colmer, Jonathan; Hsiao, Allan; Wolfram, Catherine |
| Abstract: | Climate change poses a collective action problem: individual countries bear the costs of carbon regulation, while the benefits are shared globally. Carbon border adjustment mechanisms (CBAMs), which are currently being implemented by the EU and UK, aim to realign incentives by improving domestic competitiveness, reducing emissions leakage, and encouraging other countries to tax carbon. However, policy discussions also note that CBAMs could unfairly disadvantage lower-income trading partners. We evaluate these issues with a quantitative trade model and plant-level data for two key industries – steel and aluminum – which are the focus of early CBAM implementation. Together, they account for 14% of global emissions. We show that CBAMs can facilitate collective climate action, while largely avoiding disproportion- ate burdens on lower-income countries. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:20277 |