Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1526: Why a Tariff War May Not Decrease Global CO2 Emissions

Eleanor Johansson (), Pehr-Johan Norbäck () and Lars Persson ()
Additional contact information
Eleanor Johansson: The Swedish University of Agricultural Sciences, Postal: and Research Institute of Industrial Economics,, Stockholm, Sweden
Pehr-Johan Norbäck: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden

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.

Keywords: Tariff war; CO2 emissions; M&A; Endogenous mergers emission trading system; Carbon Border Adjustments; Competition policy

JEL-codes: F23; L40; Q56; Q58

Language: English

24 pages, May 7, 2025

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